Ontario rejoins the CSA to ban mutual fund deferred sales charges effective June 1, 2022

The Ontario Securities Commission (OSC) announced this month that it will be joining all the other members of the Canadian Securities Administrators (CSA) to prohibit, effective June 1, 2022, the payment of upfront sales commissions by publicly offered mutual fund organizations to dealers (collectively, the DSC option).

Under a DSC option, investors do not pay an initial sales charge when they purchase fund securities and instead pay a redemption fee to the fund manager if the securities are sold before a predetermined period has elapsed from the date of purchase. The longer an investor holds the securities, the lower the DSC. At the time of purchase, the fund manager pays the dealer an upfront commission. The use of the DSC option by investment fund managers had attracted criticism over the years as introducing liquidity impediments, particularly when investment funds were sold to investors with time horizons that were less than the amount of time it would take for the redemption fee schedule to expire.

All members of the CSA, including the OSC, had announced in September 2018 their intention to adopt the DSC option ban. The Government of Ontario subsequently expressed its disapproval of those CSA proposals at the time, so the OSC announced in 2019 that it would not ban the DSC option in Ontario and would instead consider pursuing an Ontario-only approach on DSC that would have restricted the use of DSC in Ontario, but would not have banned it. The OSC launched a public consultation process on this Ontario-only proposal early last year.

The OSC stated that it decided on its final policy direction because the use of DSC is declining and because stakeholders raised concerns over a fragmented two-tiered approach on DSC.

Our previous blog detailing the CSA’s DSC ban and its operational implications is available HERE.

We invite you to contact a member of our Securities Regulation and Investment Products Group should you have any questions regarding how these initiatives may affect your business.

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