Canadian hedge fund managers will soon face new requirements when registering with provincial securities commissions, according to the Canadian Securities Commission, who has spent two years reviewing the current hedge fund regulations.
Currently, only individuals who manage specific investment portfolios are required to be registered, but new regulation rules will force executives of fund management companies to also meet standards of competence, integrity, financial backing and the ability to manage conflicts of interest.
“Regulators in Canada recognize the increased popularity of hedge funds among retail investors,” says Jean St-Gelais, chair of the CSA and president & CEO of the Autorit des Marchs Financiers, the Qubec regulator. “While we feel the necessary regulatory framework is in place, it is important to continually examine the framework against new products in our evolving markets.” Assets under management in Canadian hedge funds have grown rapidly to C$30 billion, and are expected to grow further.
Canadian regulators identified the areas that need improvement as: principal protected notes, referral arrangements, distribution, disclosure and registration of fund managers. The research also cited problems with the way performance returns are presented, and stated there is a lack of clarity about how much investors are paying in fees when buying hedge fund products.