IRC Meetings and Operational Issues

One member of an IRC must be appointed as “Chair” of the IRC. The Chair is responsible for “managing the mandate, and responsibilities and functions” of the IRC.

The Chair of the IRC should lead IRC meetings, foster communication among IRC members, and ensure that the IRC carries out its responsibilities in a timely and effective manner. The guidance notes also indicate that the CSA expect the IRC Chair to be the primary person to interact with the manager on issues relating to the fund and anticipate that the Chair will have “regular communication” with the manager in order to keep up to date on the affairs of the investment fund between meetings.

In order to maintain its independence, the IRC can choose to deliberate on matters in the absence of any representative of the manager or any entity related to the manager.  However, an IRC may receive written and/or oral submissions from the manager and an IRC must hold at least one meeting annually at which the manager, any representative of the manager or any entity related to the manager, are not in attendance.

In addition, the IRC may discuss or hold meetings with other persons who can help the members understand matters that are beyond their specific expertise or can explain industry practices or trends.

The IRC must make decisions on any conflict of interest matter referred to it, or any other matter that securities legislation requires the IRC to review, by way of the agreement of a majority of the members of the IRC (NB: Not a majority of those present and voting at a meeting, as is usual with a board of directors). So, for example, if the IRC has 3 members, a decision requires at least 2 members approval and if the IRC has 4 or 5 members, a decision requires at least 3 members approval).  If the IRC only has 2 members, any decision on such matters must be unanimous. If the IRC only has one member, that member may not make such a decision, and can only act to appoint additional members.

Matters Requiring the IRC’s Approval

On those conflict of interest matters where the IRC must approve the manager’s proposed action, the IRC must not approve the action unless it has determined, after reasonable enquiry, that the action:

1. Is proposed by the manager free of any influence by any entity related to the manager and without taking into account any consideration relevant to an entity related to the manager;
2. Represents the business judgment of the manager uninfluenced by considerations other than the best interests of the investment fund;
3. Is in compliance with the manager’s written policies and procedures relating to the action; and
4. Achieves a fair and reasonable result for the investment fund.

Clearly, the IRC should seek a written report or certification from the manager on each of these points before proceeding to a decision.

Matters Requiring a Recommendation from the IRC

In respect of other conflict of interest matters referred to it, after reviewing the manager’s proposed action, the IRC must provide a recommendation to the manager as to whether, in the opinion of the IRC, the proposed action achieves a fair and reasonable result for the investment fund.  The guidance notes indicate that the recommendation must state whether or not the IRC views the proposed action as achieving a fair and reasonable result for the investment fund (i.e., either a positive or a negative recommendation must be given).

Please note that the manager’s proposed action may not be the only way of dealing with the conflict – so long as it achieves a fair and reasonable result for the fund.

Standing Instructions

The Instrument allows an IRC to give a fund manager a “standing instruction” that permits the manager to act in a pre-agreed way in a conflict of interest matter, on such terms and conditions as the IRC requires.

In the Instrument, “standing instruction” means a written approval or recommendation from the IRC that permits the manager to proceed with a proposed action on an ongoing basis, without having to refer the conflict of interest matter or its proposed action to the IRC, provided that the manager complies with the terms of the standing instruction.

A standing instruction is particularly useful for managers in respect of time sensitive matters, such as inter-fund trading and the sale or purchase of securities of related issuers, where it may not be practicable to keep referring the proposed action to the IRC for review.

A standing instruction must be re-considered in detail every year as part of the IRC’s regular annual assessment and, as part of the assessment process, the manager must inform the IRC, in writing, of each occasion that it has dealt with a conflict of interest matter in accordance with the standing instruction. The IRC must then re-evaluate the adequacy and effectiveness of the standing instruction, review the manager’s policies and procedures in respect of such matters and then reaffirm or amend the standing instruction.

A manager may continue to rely on a standing instruction until such time as the IRC notifies the manager that the standing instruction has been amended or is no longer in effect.
Sub-Committees

An IRC which has more than three members has the authority to delegate any of its functions to a subcommittee of at least three members of the IRC, except the power to remove a member of the committee.

Where an IRC does delegate some functions to a subcommittee, the written charter of the IRC should include a defined mandate and reporting requirements for such subcommittees. The subcommittee must report on its activities to the IRC, and the IRC must review and assess the adequacy and effectiveness of the subcommittee, at least annually.

The CSA state that they do not consider delegation by the IRC of a function to a subcommittee will absolve the IRC from its ultimate responsibility for the function.

IRC Record Keeping

Under the Instrument, an IRC must keep records in accordance with existing best practices for independent review committees, including maintaining a record of:

1. Its written charter;
2. Minutes of its meetings (minutes should be prepared and retained in respect of any material discussions the IRC has at meetings with the manager or internally on matters subject to its review);
3. Any materials and written reports provided to it;
4. Its own materials and written reports; and
5. Its own decisions and recommendations.

The manager must also maintain a record of any activity that is subject to the review of the IRC, including keeping minutes of any material discussions it has at meetings with the IRC or internally on matters subject to the review of the IRC.

The guidance notes indicate that the IRC should also keep records with regard to any actions it takes in respect of a matter referred to it and, in particular, its actions in respect of any transaction which would otherwise have been prohibited or restricted by securities legislation (e.g. inter-fund trading, transactions in securities of related issuers, and purchases of securities underwritten by related underwriters), for which the manager has sought the approval of the IRC.

Subject to these minimum requirements, the IRC may conduct its proceedings as it sees fit.

In Ontario, the IRC is expressly designated as a market participant under the Securities Act. This is to ensure that the books, records and documents required to be kept by the IRC may be requested by the Ontario Securities Commission under Part VII of the Securities Act. The IRC members must therefore ensure that proper books and records are maintained by the IRC at all times. The CSA indicate that the IRC and the manager may share record keeping and maintain joint records of IRC and manager meetings.

Independent Review Inc. will handle all the operations of the IRC, including scheduling and holding meetings (as and when required), preparing minutes and reports, arranging the attendance of outside experts (where appropriate), and the selection and appointment of new or additional members of the committee.

Independent Review Inc.’s independent secretariat service ensures that the IRC’s records are maintained in accordance with the requirements of the Instrument and the best practices in the industry. In addition, IRI puts the IRC’s records online, in a secure “IRCExtranet”, so that they are available to the IRC members and the manager at all times.

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