In September 2018, we reported that the Canadian Securities Administrators (CSA) wanted to prohibit certain embedded commissions currently allowed under National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105). At the same time, the Ontario Government announced that it disagreed with the potential elimination of the deferred sales charge (DSC) option for mutual fund purchases, whereby some investment fund managers (IFMs) pay dealers an upfront commission for selling mutual funds under a prospectus.
On December 19, the CSA released Staff Notice 81-332 Next Steps on Proposals to Prohibit Certain Investment Fund Embedded Commissions (NI 81-332). It indicates that all of the securities regulators except the Ontario Securities Commission (OSC) (Participating Jurisdictions) plan to publish final amendments in early 2020 to ban the DSC option (DSC Ban). To phase in the DSC Ban, the Participating Jurisdictions expect that:
- There will be a transition period of at least two years;
- On the effective date of the DSC Ban, Participating Jurisdictions will not permit new sales using the DSC option in the Participating Jurisdictions; and
- DSC redemption schedules for sales made prior to the DSC Ban will be allowed to run their course.
In addition, all CSA members (including the OSC) intend to adopt final amendments later in 2020 to ban payments of trailing commissions to dealers who do not make a suitability determination.