Evolving Asset Management Regulation Report 2024

The wealth and asset management industry has been experiencing a notably high rate of regulatory change over the past few years. Asset management executives must stay abreast of both local and global regulatory changes, as they are likely to impact not just investment strategies, but all aspects of the business, and may also have implications on business conducted in other jurisdictions.

KPMG’s annual Evolving Asset Management Regulation report pinpoints several initiatives that Canadian regulatory agencies have brought into effect this year or are continuing to explore for the asset management sector. The following are some highlights from the Canadian arena.

Updates to ESG disclosures

Anti-greenwashing policies have been implemented in recent years in many countries and are now entering the assessment and supervision stage. The objective now is to ensure that sustainability-related investment product labeling doesn’t mislead investors, regulators or the broader public.

In Canada, the Canadian Securities Administrators (CSA) recently made updates to guidance for investment funds on ESG disclosures. This is in line with the provisions of Bill C-59, which emphasizes the importance of transparency in sustainability-related investments. Organizations must ensure that their disclosures and sales documents accurately reflect ESG-related investment objectives, strategies, and risks.

The Ontario Securities Commission (OSC) has revised its Staff Notice for Funds, which now includes more detailed requirements for ESG disclosures. This is aimed at providing investors with more comprehensive information about the sustainability-related aspects of their investments. At the same time, there is some concern that the guidance is overly complex and could lead to the green-bleaching of sustainability commitments and funding to avoid regulatory scrutiny.

If the name of your fund includes ESG or factors ESG into your investment process, you are likely required to address the CSA's Staff Notice on ESG disclosures.

Peter L. Hayes

Partner, Audit, National Director, Alternative Investments Practice

KPMG in Canada

Fund disclosures modernization

One way asset and wealth managers help protect their retail investors is by providing transparent and balanced information. To help investors understand products more easily and make comparisons between them, regulators are keen to simplify disclosures and modernize their delivery.

In Canada, the CSA is adopting an “Access Model” that allows issuers to provide public electronic access to prospectuses and other designated documents to satisfy disclosure requirements. The Access Model helps reduce the administrative burden on wealth managers and reduce related operating costs while modernizing the flow / availability of prospectuses. Another change that Canadian regulators are working on aims to reduce the frequency of prospectus renewals from the current annual requirement to once every two years. Additionally, other proposed changes to continuous disclosure documents, including fund financial statements and the management report of fund performance, are expected soon.

Digitizing the disclosure process is complex, but presents an opportunity to add value through new efficiencies. To make the best use of advanced technologies, make sure you align to best practices from the start.

David Bardsley

Partner, National Service Line Leader, Customer and Operations

KPMG in Canada

New capital gains rules

New capital gains regulations should be a priority for asset and wealth managers. A legislative proposal intends to increase the tax inclusion rate on capital gains realized on or after June 25, 2024 from one-half to two-thirds. This change will apply to all capital gains realized by corporations and trusts, but will only apply to individuals for the portion of capital gains realized in the year that exceeds $250,000.

While trusts, mutual fund corporations, partnerships, and stock options holders may be affected by the increase, there has been some movement on the proposals since they were first announced. Now’s the time to discuss the situation with advisors. Their positions might be strengthened by certain transitional rules that may affect the capital dividend account (CDA) and hybrid surplus.

Kia Pourghasemi

Partner, National Leader - Asset Management Tax

KPMG in Canada

In addition to the capital gains changes, the Canadian Entrepreneurs’ Incentive will allow individuals to apply a reduced 33% inclusion rate on certain capital gains, beginning in 2025.

Navigating New EIFEL and AMT Regulations

The recent updates to the Excessive Interest and Financing Expense Limitation (EIFEL) rules and the Alternative Minimum Tax (AMT) are significant for asset managers. The EIFEL rules, effective from October 1, 2023, can limit net interest and financing expense deductions to 40% of adjusted taxable income, reducing to 30% in subsequent years. Concurrently, the AMT has been revised, increasing the AMT tax base and raising the AMT rate to 20.5%. However, some trusts will now be exempt from AMT, under new exceptions. These changes necessitate strategic planning to navigate the evolving tax landscape effectively.

It’s time to proactively adapt to the recent updates in the EIFEL rules and AMT. Asset managers should start reassessing fund structures to ensure compliance with the new tax landscape to optimize returns and minimize tax liabilities.

Jeffrey Love

KPMG in Canada

Retail funds investing in cryptoassets

The Canadian Securities Administrators have consulted on new requirements for public investment funds investing in cryptoassets, aiming to facilitate the development of new products while also better protecting investors. The new rules would provide more clarity on the types of cryptoassets that public funds are permitted to purchase, set restrictions on investing in certain cryptoassets, and introduce requirements regarding the custody of cryptoassets.

Canada has been at the forefront of cryptoasset investment funds providing a safe way for retail investors to get exposure to this emerging asset class. These proposed changes aim to enhance investor protection by clarifying permissible cryptoasset investments for public funds, custody requirements, and changes to key definitions, providing more regulatory clarity to asset managers and fostering innovation in a rapidly evolving market.

Kareem Sadek

Partner, Advisory, Emerging Tech Risk Leader and Cryptoassets & Blockchain Co-leader

KPMG in Canada

To learn more about how regulatory changes in Canada and around the world are impacting the wealth and asset management landscape, read the full global report.

Evolving Asset Management Regulation Report 2024

Read the full global report

How KPMG can help

KPMG in Canada’s professional consultants have extensive, first-hand experience assisting wealth and asset managers develop compliance plans that observe regulation and build trust among investors and shareholders. For assistance navigating current and future changes to the wealth management space, browse our service offerings or connect with us.