Toronto — Canadian mutual funds would be allowed to own more than 10 per cent of a publicly traded company's stock under radical proposed reforms to the industry that would also put the onus on investors to ask for disclosure documents.

The British Columbia Securities Commission yesterday released a paper outlining proposals to replace detailed rules governing the mutual fund industry, including the 10-per-cent ownership cap, with general principles and guidance.

The BCSC proposals also include a "delivery-on-request" system, which would require companies to deliver documents describing all significant information about a mutual fund only to those investors who ask for them.

"We're trying to devise a system of regulation that's more effective and does a better job of investor protection, and at the same time is more efficient for industry to comply with," Brent Aitken, BCSC vice-chairman, said in an interview yesterday.

The BCSC plans to present the proposals to the provincial government by the end of 2003. The intent is to adopt the rules across Canada for the industry, which manages $382-billion in assets.

Surveys done by the commission show that most investors don't read prospectuses and other documents, Mr. Aitken said. But for the do-it-yourselfers who do read these documents, all they have to do is make the request once and they'll continue receiving them, he said.

"It's really trying to rejig the system so disclosure is more effective and more tailored to what the investor wants."

Glorianne Stromberg, an investor advocate and former commissioner at the Ontario Securities Commission, said she is disturbed that the regulator would make such "retrograde" proposals.

Replacing rules governing such things as conflicts of interest and sales practices with principles would leave investors at the mercy of industry players, some of whom will do a better job than others of devising codes of conduct, she said in an interview.

"I'm not sure I'd want to be a mutual fund investor if those rules were gone. I think they're really making it a free-for-all and I think the investor is going to come out of it the worse for the effort."

Ms. Stromberg also said she is opposed to the proposal to not send documents to investors unless they ask for them. "I don't see what good disclosure is if it's hidden in regulatory files."

The BCSC concedes in its paper that some industry observers are skeptical of an approach that calls for reducing the regulatory burden and avoiding rules in the wake of a string of U.S. corporate scandals that have shaken investor confidence. But BCSC officials argue that imposing more rules is not the answer.

Doing away with the rule that restricts mutual funds from owning no more than 10 per cent of a public company's stock and to holding no more than 10 per cent of the fund's assets in one holding would be the most significant change, Mr. Aitken said.

"We want [fund managers] to think about constructing a portfolio in such a way that they will be able to meet redemptions on demand and have appropriate risk management procedures in place," he said.

The commission argues that its proposals would make regulation more effective through improved disclosure in many areas, a greater focus by industry on what is right for their clients and more accountability for all market participants.

Under the proposals, the prospectus would be replaced by a continuous disclosure regime that would require mutual funds to file an annual information form (AIF) and keep all significant information up to date.

The AIF would describe the business, operations and affairs of a fund and be available on-line through the OSC's electronic disclosure system known as SEDAR.

Mutual fund sellers would have to provide investors with information "necessary" to make an informed investment decision, the paper says. This "might" include advising them the fund's continuous disclosure record contains more information about the fund.

Under existing rules, a simplified prospectus must be delivered to investors within two days of their purchase of fund units.