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Sep 17, 2020
Toronto –The Canadian Securities Administrators (CSA) today adopted final rules that implement a trailing commission ban (OEO trailer ban) to prohibit the payment of trailing commissions by fund organizations to dealers who do not make a suitability determination, such as order-execution-only (OEO) dealers.
The OEO trailer ban takes effect on June 1, 2022, the same time as rules adopted by all provinces and territories except Ontario that implement a ban on deferred sales charges (DSC) on mutual funds. The effective date takes into account the need for dealer firms and representatives to transition their systems and processes to comply with these new rules, reassess their internal compensation arrangements and implement new fee charging systems. Additionally, the effective date provides fund organizations with sufficient time to make available a no-trailing commission mutual fund series for OEO investors.
“These rules, together with enhanced conflict of interest obligations under the Client Focused Reforms, address investor protection concerns with clients buying investment fund products subject to trailing commissions where no suitability determination is made,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “Where possible, investment fund managers and OEO dealers are strongly encouraged to accelerate their transition away from mutual fund series with trailing commissions.”
The OEO trailer ban affects all funds that pay trailing commissions, including funds sold under the DSC option. The CSA expects fund organizations and dealers to comply with the new rules in a way that ensures the best outcome for investors, particularly those with DSC holdings. More specifically, the CSA expects fund organizations and dealers to take any necessary measures to ensure that investors with DSC holdings will not be required to pay redemption fees as a result of the OEO trailer ban, and to clearly communicate the measures they intend to adopt to investors.
Additionally, the CSA wishes to reiterate that the OEO trailer and DSC bans were motivated by important investor protection concerns and developed after extensive research, analysis, and consultations, which are summarized in the notice published today by the CSA.
The CSA, along with the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada (the SROs), remind registrants of their obligations to treat investors fairly and recommend suitable products, as many investors face shorter time horizons and heightened needs for liquidity due to continued economic uncertainty caused by the pandemic. CSA and SRO Staff will be highly attuned to inappropriate sales of DSC products ahead of the ban.
Final Amendments to National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105) and Related Consequential Amendments can be found on CSA members’ websites.
The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.
For investor inquiries, please refer to your respective securities regulator. You can contact them here.
For media inquiries, please refer to the list of provincial and territorial representatives below or contact us at email@example.com.
For more information:
Kristen Rose Ontario Securities Commission 416-593-2336 firstname.lastname@example.org
Sylvain Théberge Autorité des marchés financiers 514-940-2176
Brian Kladko British Columbia Securities Commission 604-899-6713 email@example.com
Marissa Sollows Financial and Consumer Services Commission, New Brunswick 506-643-7853
Renée Dyer Office of the Superintendent of Securities Newfoundland and Labrador 709-729-4909
Jeff Mason Nunavut Securities Office 867-975-6591
Hilary McMeekin Alberta Securities Commission 403-592-8186
Jason Booth The Manitoba Securities Commission 204-945-1660
Steven Dowling Government of Prince Edward Island Superintendent of Securities 902-368-4550
David Harrison Nova Scotia Securities Commission 902-424-8586
Rhonda Horte Office of the Yukon Superintendent of Securities 867-667-5466
Tom Hall Office of the Superintendent of Securities, Northwest Territories 867-767-9305