The role of the IRC

Under NI 81-107, the role of the IRC is to provide impartial judgement and make recommendations to the fund manager of the mutual fund about any matter referred to it by the manager where the manager's interests conflict with the best interests of the mutual fund. In respect of such matters, the IRC is required to recommend what action the fund manager should take to achieve a fair and reasonable result for the fund.

The Instrument sets out a broad, open ended test for when a fund manager must refer a matter to the IRC. As a general principle, the Instrument states that if a reasonable person would question whether a fund manager has a conflict of interest in a matter related to its management of a mutual fund, the manager must refer the matter to the fund's IRC for its recommendation before taking any action in such matter.

The proposed new rules state that the IRC must, within six months of its formation, adopt a written charter that sets out its mandate and responsibilities. Under the Instrument, the sole mandate and responsibilities of an IRC are as follows:

1. consider and provide impartial judgement on any matter referred to it by the investment manager and recommend to the manager what action the manager should take to achieve a fair and reasonable result for the mutual fund; and
2. review any proposed changes to the mutual fund or the agreement under which the investment manager is appointed as the investment manger of the mutual fund; and
3. review any material related party transactions involving the mutual fund; and
4. review and comment on the investment manager's policies on conflict of interest;
5. review any compliance reports prepared by the investment manager from time to time detailing how the investment manager dealt with conflict situations;
6. act in the best interests of the mutual fund; and
7. oversee the development and updating of its written charter.

It is very important to note that the fund manager and the IRC may mutually agree that the IRC should have a broader mandate. For example, the IRC may be tasked with monitoring the administration and management of the mutual fund or giving general advice to the manager.

Independent Review Inc. offers several types of IRC, from a standard version that is designed to meet the minimum requirements of the Instrument right through to a committee that provides a full corporate governance audit. Independent Review Inc. has a standard written charter for each type of committee.

Where a particular client needs a customised charter, Independent Review Inc. can constitute a separate IRC with different rules and a customised mandate.