CSA expect to propose mutual fund risk classification rules this year

January 30, 2015

The Canadian Securities Administrators yesterday released a status report on their proposed mutual fund risk classification methodology for use in Fund Facts.

As we discussed in a previous post, the CSA proposed a risk classification methodology for the use in Fund Facts documents in December 2013. The proposal, intended to address concerns regarding the lack of standardization in risk disclosure, would classify mutual funds based on the degree to which returns varied over time from the average return.

Ultimately, the CSA received 56 comment letters in response to its proposed methodology, from which a number of general themes were identified, including that: (i) standard deviation be used as the indicator of risk; (ii) standard deviation be calculated using a mutual fund's monthly total returns; and (iii) the risk scale not be expanded from five bands to six.

In light of the feedback received, the CSA expect to publish proposed rule amendments later this year. Whether material changes are made to the original proposals in light of comments, however, remains to be seen. 

For more information, see CSA Staff Notice 81-325.

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