The Canadian Securities Administrators (CSA) are publishing a series of proposed amendments and changes to the principal distributor model in the distribution of mutual funds (the Proposed Amendments and Proposed Changes) for a 90-day comment period ending February 27, 2025.
Collectively, the Proposed Amendments are to:
- National Instrument 31-103 Registration Requirements, Exemptions and Ongoing
Registrant Obligations (NI 31-103);
- National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101);
- National Instrument 81-102 Investment Funds (NI 81-102); and,
- National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105).
Collectively the Proposed Changes are to:
- Companion Policy 31-103 Registration Requirements, Exemptions and Ongoing
Registrant Obligations (31-103CP);
- Companion Policy 81-102 Investment Funds (81-102CP); and,
- Companion Policy 81-105 Mutual Fund Sales Practices (81-105CP).
The Proposed Amendments and Proposed Changes address the principal distributor model for mutual funds, clarifying that a principal distributor may only act for mutual funds in the same mutual fund family. The Proposed Amendments and Proposed Changes require disclosure of principal distributor arrangements and compensation and ensure that the DSC option (Deferred Sales Charge Option) where the investor did not pay an initial sales charge for purchased fund securities but paid a redemption fee to the manager, is not available to investors purchasing mutual fund securities distributed by principal distributors.
The CSA is also consulting on:
- whether there are circumstances in which a principal distributor should be allowed to have multiple relationships; and,
- how dealers are using chargebacks when distributing mutual funds. The regulator believes using chargebacks represents a significant conflict of interest.
The Proposed Amendments and Proposed Changes are available for download from the websites of the securities regulators of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, and Nova Scotia, Newfoundland and Labrador, Yukon and the Northwest Territories.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
