The Ontario Securities Commission’s Investor Advisory Panel (IAP) is calling on the Canadian Securities Administrators (CSA) to prevent possible investor abuse by making their proposed bans on deferred sales charge (DSC) mutual funds and the payment of trailer fees to discount brokers retroactive to the launch of a consultation slated for September.
In a letter to the CSA, the IAP says that it’s concerned about the possible risk to investors while the consultation plays out.
“In proposing the elimination of DSCs and the discontinuance of trailing commission payments to discount brokers, the CSA has noted that these fee practices are problematic, inappropriate and harmful. We are very concerned that during the consultation period Canadian investors will remain exposed to these practices and will continue to suffer harm as a result,” the IAP states in the letter. “Also, the anticipated elimination of DSC options may promote the unintended consequence of DSC-laden products being sold more aggressively in advance of the prohibition being fully implemented.”
To address this risk, the IAP recommends that the rules introducing the proposed prohibitions “have retroactive effect to the date that the consultation is published.”
“This type of approach is often used by governments in connection with tax changes that may take a number of months to legislate, but nevertheless become effective on the date of announcement. By incorporating this retroactive trigger, which would itself be subject to comment during the comment period, issuers and dealers would be on notice going forward to maintain good records of all such payments they make, in order to be able to fully reimburse those payments in the event that the rules come into effect as proposed,” the IAP states.
“This approach should not be onerous, and it might help best practices emerge and coalesce around the CSA’s proposals,” IAP concludes.
Recently, the Investment Industry Regulatory Organization of Canada announced that it was withdrawing its guidance around the payment of trailers to discount brokers while the CSA consultation on these proposed changes plays out. That step prompted criticism from the investor advocacy group, the Canadian Foundation for Advancement of Investor Rights.