Following on the heels of work done by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) which identified conflicts of interest related to chargebacks in the sale and service of segregated fund contracts and individual variable insurance contracts, the Canadian Securities Administrators (CSA) has opened their own consultation to review the concerns in the context of mutual fund sales, as well.
“The CSA is undertaking this review due to concerns about potential conflicts of interest associated with this practice,” they state in an announcement about the consultation period. “The review will include a survey of securities registrants on their use of chargebacks. It will also involve the Canadian Investment Regulatory Organization (CIRO, formerly the New Self-Regulatory Organization of Canada) staff participation.”
Chargebacks occur when investors redeem their securities before a fixed deferred sales charge (DSC) period has elapsed and the representative selling the product is required to pay back all or part of their commissions.
In Ontario, meanwhile, in a separate consultation, the Financial Services Regulatory Authority of Ontario (FSRA) is also taking steps to gather public input – this time to review an amendment to the Unfair or Deceptive Acts or Practices (UDAP) rule which, if approved, will simplify the information a company must provide to consumers if they switch consumers from a DSC contract into a new sales charge option, provided the new option is better than the DSC product in every way. Consultation on that proposed amendment is open now and closes June 30, 2023.