Emerge IRC Under OSC Prosecution: What Does It Mean?

Following the collapse of the Emerge Canada Inc. (Emerge) ETF business, the Ontario Securities Commission (OSC) has started enforcement proceedings against its manager, two of its officers, and the three members of its independent review committee (IRC). This is the first instance of regulatory action against an IRC and, undoubtedly, it will reset expectations and procedures for all IRCs in Canada.

Recap

What Transpired?

According to the OSC's application commencing the enforcement proceedings, these are the key facts:

• Emerge launched its ETF family using the well-established model that the manager would bear most of the funds' operating expenses in order to keep the management expense ratios (MERs) of the ETFs to a minimum. The success of this model depended on the ETFs generating sufficient management fees for the manager to pay those operating expenses. This did not happen. Instead, management fees were insufficient and, when available, were largely