Les restrictions proposées par la CVMO limiteront l’usage des frais d’acquisition reportés, mais la CVMO refuse l’interdiction proposée par les autres territoires canadiens.
Une traduction de ce billet sera disponible prochainement.
Proposed OSC restrictions would limit the use of deferred sales charges, but fall short of a ban as proposed by other Canadian jurisdictions
- Restrictions on the use of deferred sales charges for mutual funds would apply in certain situations intended to protect investors
- The proposed restrictions would come into effect after a two-year transition period
The Ontario Securities Commission (OSC) recently published a proposed rule that would introduce limits to the use of the deferred sale charges option (DSC option) in the context of mutual fund sales. According to the OSC, proposed OSC Rule 81-502 Restrictions on the Use of the Deferred Sales Charge Option for Mutual Funds (OSC Rule 81-502) is ultimately intended to “mitigate negative investor outcomes”.
The OSC proposal follows steps taken by the Canadian Securities Administrators (CSA) towards banning the DSC option in its entirety. Specifically, the CSA published proposed amendments to mutual fund rules in September 2018 that would prohibit the DSC option, as well as ban trailing commission payments by fund organizations to dealers that do not make a suitability determination, such as order-execution-only (OEO) dealers. While the OSC was initially part of the CSA process, Ontario’s Minister of Finance issued a statement in September 2018 stating that the Ontario Government would not consent to a proposal to ban the DSC option entirely.
While the CSA continued to move forward with their initiative to implement a ban, the OSC stated that it would only consider restrictions on the use of the DSC option. The OSC intended, however, to participate in the CSA initiative to ban on OEO trailer fees.
The OSC Proposed Rule
While the proposed OSC Rule 81-502 falls short of a complete ban as sought by the remaining jurisdictions of the CSA, the OSC’s proposal would restrict the use of the DSC option in a number of ways, including by:
- limiting the maximum term of DSC redemption fee schedules to three years;
- requiring that mutual funds to which the DSC option applies be in a separate series or class of securities of the mutual fund;
- permitting clients to redeem 10% of their investments annually without redemption fees. The 10% redemption allowance would be cumulative;
- prohibiting the DSC option in respect of clients aged 60 years of age or over at the time of distribution;
- prohibiting the DSC option where the balance of the client’s account immediately after the distribution would be over $50,000;
- prohibiting the DSC option where the client borrowed money to purchase the mutual funds; and
- prohibiting redemption fees in certain cases of financial hardship, including the involuntary loss of full-time employment and in cases of critical illness.
In order to provide registrants with enough time to adjust to the proposed restrictions, the OSC is proposing that OSC Rule 81-502 take effect on June 1, 2022. The date is intended to correspond with the DSC option ban being proposed by the other CSA jurisdictions.
The OSC is accepting comments on proposed OSC Rule 81-502 until May 21, 2020.
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