The Ontario Securities Commission (OSC) has published for comment Proposed Ontario Securities Rule 81-502, Restrictions on the use of the Deferred Sales Charge Option for Mutual Funds (The Proposed Rule) restricting the use of deferred sales charges (the DSC Option) on mutual funds, for a comment period ending May 1, 2020.
The Proposed Rule is intended to address negative investor outcomes by limiting the circumstances in which mutual funds with the DSC Option can be sold and by giving clients greater flexibility to redeem these investments without penalties. The rule would prohibit the sale of mutual funds with the DSC option to clients who are aged 60 and over, or who have an investment time horizon that is shorter than the DSC schedule. The rule would also prohibit
sales to clients who intend to use borrowed money to finance their purchase and would impose a $50,000 threshold for maximum account. The new rule would also shorten the maximum term of the DSC schedule to three years.
The OSC expects the rule to become effective June 1, 2022. This date is in line with the member jurisdictions of the Canadian Securities Administrators (CSA) except Ontario, which recently adopted Multilateral CSA Notice of Amendments to National Instrument 81-105 Mutual Fund Sales Practices, Changes to Companion Policy 81-105CP to National Instrument 81-105 Mutual Fund Sales Practices and Changes to Companion Policy 81-101CP to National Instrument 81-101 Mutual Fund Prospectus Disclosure relating to Prohibition of Deferred Sales Charges for Investment Funds (together, the Amendments), banning the DSC Option.
Proposed Ontario Securities Rule 81-502, Restrictions on the use of the Deferred Sales Charge Option for Mutual Funds is available for download from the website of the Ontario Securities Commission.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
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