National Instrument 81-107 Independent Review Committee for Investment Funds
Part 1 Definitions and Application
Section 1.2 Definition of "conflict of interest matter"

conflict of interest matter

In this Instrument, “a conflict of interest matter” means

(a) a situation where a reasonable person would consider a manager, or an entity related to the manager, to have an interest that may conflict with the manager’s ability to act in good faith and in the best interests of the investment fund; or

(b) a conflict of interest or self-dealing provision listed in Appendix A that restricts or prohibits an investment fund, a manager or an entity related to the manager from proceeding with a proposed action.

Commentary

1. Section 5.1 of this Instrument requires that a manager refer all conflict of interest matters to the independent review committee (IRC).

2. The CSA do not consider the ‘reasonable person’ test described in paragraph (a) to capture inconsequential matters. It is expected that, among the factors the manager will look to for guidance to identify conflict of interest matters caught by this Instrument, will be industry best practices. The CSA expect, however, each manager to consider the nature of its investment fund operations when making its decisions about which conflict of interest matters it faces for the funds it manages.

3. The types of conflicts of interest faced by the portfolio manager or portfolio adviser (or sub-adviser) or any other entity related to the manager this Instrument captures relate to the decisions made on behalf of the investment fund that may affect or influence the manager’s ability to make decisions in good faith and in the best interests of the investment fund. This Instrument is not intended to capture the conflicts of interest at the service provider level generally. The CSA expect the manager to consider whether a particular portfolio manager or portfolio adviser or any other ‘entity related to the manager’ would have any conflicts of interest falling within the definition. For example, paragraph (a) might, depending on the circumstances, capture these conflicts of the portfolio manager or portfolio adviser: portfolio management processes for the investment fund, including allocation of investments among a family of investment funds; and trading practices for the investment fund, including negotiating soft dollar arrangements with dealers with whom the adviser places portfolio transactions for the investment fund.

4. The CSA contemplate that an ‘entity related to the manager’ will have its own policies and procedures to address any conflicts of interest in its operations. It is expected the manager will make reasonable inquiries of these policies and procedures. The conflicts of interest facing these entities, including any third party portfolio manager or portfolio adviser, may affect, or be perceived to affect, the manager’s ability to make decisions in the best interests of the investment fund. The manager is expected to refer such conflicts to the IRC under this Instrument.

5. For greater certainty, paragraph (b) requires that a ‘conflict of interest matter’ includes any course of action that the investment fund, the manager or an entity related to the manager would otherwise be restricted or prohibited from proceeding with because of a conflict of interest or self-dealing prohibition in securities legislation. These include the types of transactions described under subsection 5.2(1) of this Instrument.