On September 17, 2020 the Canadian Securities Administrators (CSA) published a notice (Notice) that the CSA are adopting amendments (Amendments) to National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105), changes to Companion Policy 81-105CP Mutual Fund Sales Practices (81-105CP) and related consequential amendments to National Instrument 41-101 General Prospectus Requirements (NI 41-101) and National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101). The Amendments
- prohibit the payment of trailing commissions by members of the organization of publicly-offered mutual funds (fund organizations) to participating dealers who were not required to make a suitability determination in connection with a client’s purchase and ongoing ownership of prospectus qualified mutual fund securities, and
- prohibit the solicitation or acceptance of trailing commissions by participating dealers from fund organizations, in connection with securities of the mutual fund held in an account of a client of the participating dealer if the participating dealer was not required to make a suitability determination in respect of the client in connection with those securities.
According to the Notice the Amendments will effectively prohibit the payment of mutual fund trailing commissions to dealers who are not subject to the obligation to make a suitability determination under section 13.3 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations or under the corresponding rules and policies of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).
Such dealers would include, among others, order-execution only dealers and dealers acting on behalf of a “permitted client” that has waived the suitability requirements.
The Amendments to NI 81- 101 and NI 41-101, which provide certain exemptions from the delivery requirements for fund facts documents and ETF facts documents, respectively, for all switches from a trailing commission paying series or class of a mutual fund to a no trailing commission series or class of the same mutual fund, are expected to come into force on December 31, 2020, and the Amendments to NI 81-105 are expected to come into force on June 1, 2022.
The Amendments are available here.
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.
