The Canadian Securities Administrators (CSA) are proposing a full ban on chargebacks in the sale of investment fund securities distributed under a prospectus.
On June 26, 2025, the CSA launched a 90-day consultation period on proposed amendments to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations. The consultation period ends on September 24, 2025.
If adopted, the proposed changes would put an end to chargeback practices, also referred to as retro-commissioning, still used by investment dealers in some cases. The intent of the CSA is to ban chargebacks in the distribution of investment fund securities, not solely mutual funds, to improve investor protection and maintain investor confidence in Canadian capital markets.
Conflict-of-interest concerns
In their consultation notice, the CSA pointed out that dealers or their representatives “sometimes” receive an upfront commission or payment when their client purchases securities. “Chargebacks occur when clients redeem their securities before a fixed schedule, and the dealing representative is required to pay back all or part of the upfront commission or payment,” they explain.
The proposed amendments prioritize investor protection and foster fairer compensation practices.
— Stan Magidson
The CSA expressed concern about the serious conflict of interest posed by chargebacks, “as they may incentivize advisors to prioritize their own financial interest over that of their clients.”
Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission (ASC), emphasized the rationale behind the proposal. “Prohibiting the use of chargebacks in the distribution of investment fund securities can further align investment advice with a client's best interest,” he said. “The proposed amendments prioritize investor protection and foster fairer compensation practices.”
Why are chargebacks still allowed?
Deferred sales charges (DSCs) were proscribed in mutual fund distribution as of June 1, 2022, but chargebacks were not prohibited by the DSC ban, a CSA spokesperson told Insurance Portal. “The ban targeted commissions paid in advance by the investment fund manager to the dealer. Internal compensation practices through which the firm compensates its representatives are not covered by the DSC ban,” she explained.
The spokesperson stressed that deferred sales charges and chargebacks are two different practices.
The DSC was a sales charge option where the investment fund manager paid the participating dealer an upfront commission, and a redemption by a client under a DSC would have triggered a payment by the client to the investment fund manager.
In contrast, chargebacks are an internal dealer compensation practice where the dealer firm pays the dealing representative an upfront commission, and a redemption by a client would trigger a payment of all or part of an upfront commission from the dealing representative to their dealer firm.
“However, in both scenarios, the interests of different parties, such as the interests of the client and those of a registrant, are inconsistent or divergent,” the CSA spokesperson noted. This concern is at the core of the CSA’s proposal to ban chargebacks, as the practice “poses an inherent significant conflict of interest which may incentivize advisors to prioritize their own financial interest over that of their clients,” says the CSA spokesperson.
ETFs included in the proposed ban
The proposed ban would apply to investment funds sold by investment dealers, including exchange-traded funds (ETFs).
The CSA spokesperson explains that chargebacks involve a compensation practice where a dealing representative is paid an upfront commission, fee, or compensation when a client purchases securities. “An example of such an upfront commission, fee, or compensation under the chargeback model would be the payment of advanced compensation by a broker to one of its dealing representatives when a client purchases investment fund securities that are a reporting issuer.”
She adds that in this case, the proposed chargebacks ban would mean that, in the event of a redemption request from the client, the broker could not require the dealing representatives to repay the advanced compensation received at the time of purchase. “Note that ETFs are investment funds that are reporting issuers. As such, the chargeback prohibition proposed by the CSA applies in connection with the distribution of these securities. Equities do not fall within the scope of the proposed prohibition,” points out the CSA spokesperson.
Life insurance advisors stand to gain
If the proposed changes to NI 31-103 are implemented, the life insurance industry would emerge as a winner. Segregated funds would remain the only type of investment fund where chargebacks are still permitted. This means life insurance advisors would continue to be eligible for upfront commissions paid by insurers on segregated fund sales.
The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) have allowed insurers to continue using chargeback structures, provided they implement strong oversight measures to detect and prevent conflicts of interest.
However, the use of deferred sales charges in segregated funds was banned on June 1, 2023, under a separate insurance regulatory framework.
