Mutual Fund Governance in Canada - Introduction

The governance of public mutual funds is now a hot topic around the world. A series of mutual fund scandals in the U.S. has heightened regulatory scrutiny of the fund sector in both the U.S and Canada. In the U.S., the SEC has recently mandated that the Chairman and at least 75% of the board of directors of all public mutual funds must be totally independent from the fund manager.

Here in Canada, the Canadian Securities Administrators have published for public comment a proposed new National Instrument 81-107 entitled "Independent Review Committee for Mutual Funds". The Instrument is expected to be republished in final form by June 2006 and brought into force later in 2006.

In fact, improving mutual fund governance has been a priority for the Canadian securities regulators for several years. The process began in the 1990s with a debate over the need for independent boards for mutual funds and increased regulatory standards for fund managers. National Instrument 81-107 represents the latest attempt to tailor the emerging international standards on mutual fund corporate governance to the specific structures of the Canadian public fund industry.

The proposed Instrument is designed to promote investor protection in mutual funds, by creating a mandatory mutual fund governance scheme for most public mutual funds, while still fostering market efficiency.