CSA

Vancouver – The securities regulatory authorities of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, Prince Edward Island, New Brunswick, Newfoundland and Labrador, Nunavut, Northwest Territories and Yukon (the Participating Jurisdictions, or we), after extensive research, analysis, and consultations with the investment industry and investor advocates, are today adopting rules that will lead to the end of deferred sales charges (DSC) on mutual funds.

The rules, which take effect on June 1, 2022 in all provinces and territories except Ontario, will prohibit fund organizations from paying upfront sales commissions to dealers. Those payments give dealers an incentive to sell mutual funds that impose redemption fees to investors if they sell their holdings before a certain period of time.

“This decision was motivated by important investor protection concerns,” said Louis Morisset, Chair of the CSA and President and CEO of the Autorité des marchés financiers. “Upfront sales commissions create conflicts of interest and impose liquidity constraints that harm investors. This compensation bias incentivizes dealers to recommend a product that may not be in the best interest of investors and has led to suboptimal investor outcomes.”

We considered alternatives to the DSC ban, including regulating sales through a series of restrictions, but concluded they only partially mitigated the investor harms we identified and none dealt with the conflicts of interest inherent in the DSC option, or the harmful lock-in feature imposed on investors. With ample evidence of investor harm, especially for the most financially vulnerable investors, and no evidence of any benefits, we see no reason to preserve the DSC option.

Many investment fund companies and dealers have already transitioned away from this problematic compensation model as it no longer meets investors' needs and reasonable expectations. Innovation has opened significant new avenues for serving smaller accounts at an affordable cost. Investors today have access to a wide variety of funds, including no-load mutual funds and exchange traded funds, regardless of account size.

Mindful of the impact of the ban on dealers who sell mutual funds with DSCs, the Participating Jurisdictions are providing a significant transition period of almost two and a half years to allow dealers to adjust their business models. During this transition period, dealers will be allowed to sell these mutual funds, and the redemption fee schedules on those holdings will be allowed to run their course.

Until the ban takes effect, the Participating Jurisdictions will grant relief to dealers, with respect to the DSC feature, from the enhanced conflicts of interest requirements that will take effect on December 31, 2020 following the adoption of the client focused reforms. During that time, dealers will still need to comply with conflicts of interest requirements that are currently in effect under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

As announced on December 19, 2019, the CSA plan to publish later in 2020 amendments to prohibit the payment of trailing commission payments by fund organizations to dealers who do not make a suitability determination, such as order-execution-only (OEO) dealers.

The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.

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For Investor inquiries, please refer to your respective securities regulator. You can contact them here This link will open in a new window.

For media inquiries, please refer to the list of provincial and territorial representatives below or contact us at media@acvm-csa.ca.

For more information:

CSA member name

Point of contact

Phone number

Autorité des marchés financiers

Sylvain Théberge

514-940-2176

Alberta Securities Commission

Hilary McMeekin

403-592-8186

British Columbia Securities Commission

Brian Kladko

604-899-6713

Financial and Consumer Affairs, Authority of Saskatchewan

Shannon McMillan

306-798-4160

Financial and Consumer Services Commission, New Brunswick

Sara Wilson

506-643-7045

Government of Prince Edward Island, Superintendent of Securities

Steve Dowling

902-368-4550

Manitoba Securities Commission

Jason (Jay) Booth

204-945-1660

Nova Scotia Securities Commission

David Harrison

902-424-8586

Nunavut Securities Office

Jeff Mason

867-975-6591

Office of the Superintendent of Securities, Newfoundland and Labrador

Renée Dyer

709-729-4909

Office of the Superintendent of Securities, Northwest Territories

Tom Hall

867-767-9305

Office of the Yukon, Superintendent of Securities

Rhonda Horte

867-667-5466

Ontario Securities Commission

Kristen Rose

416-593-2336