With Ontario out, what’s next for CSA’s proposals?

By Katie Keir | September 14, 2018 | Last updated on December 6, 2023
3 min read
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The Ontario government surprised the investment industry on Thursday when it came out against CSA’s proposed amendments to mutual fund sales practices, which would ban deferred sales charges (DSC) and limit the use of trailing commissions.

The new Progressive Conservative government’s move comes after six years of consultation on embedded fees for mutual funds. In a statement, Finance Minister Vic Fedeli said the CSA’s proposals would “discontinue a payment option for purchasing mutual funds that has enabled Ontario families and investors to save towards retirement and other financial goals.”

Rebecca Cowdery, a partner at BLG who formerly worked at the OSC, called the move “unprecedented” after two consultation papers and all the time and effort the industry has put in. “I’m not saying it was good or bad,” she said.

Neil Gross, chair of OSC’s Investor Advisory Panel, said it’s doubtful the CSA will proceed without Ontario’s support.

“That’s quite unfortunate, and we’ll see if the Ontario minister puts forward an alternative,” he said.

Such a process would take time, however, and “Ontario residents and ordinary people across the country will pay a heavy price” in the meantime, he said.

“DSC is not inherently evil and [the charges] have uses, but they’re open to abuse,” he said, including “conflicts of interest and inappropriate recommendations.”

Gross also said Ontario’s move could give the impression that “the rules of the investment game may change with every different government.” This could make investors “skittish” and make it harder to raise capital, he said.

“That’s why it’s important for the government to exercise its power through appointing commissioners and to then let those commissioners develop a policy.”

Cowdery said it’s unclear what will happen with the proposals.

“It’s way too early to say but, at this stage, people could assume that it will go through the regular process and they should make comments if they have them,” she said, adding that she plans to comment on the proposals eventually.

The other provinces could proceed without Ontario’s participation, “but of course Ontario is a very important player,” she said.

Fideli’s office declined to comment further on the proposals.

In an emailed statement to Advisor.ca, the Ontario Securities Commission said the minister’s support “is critically important to the OSC, and we are respectful of our government’s authority to decide whether any rules published for comment ultimately come into effect.”

Read: CSA releases DSC ban, trailing commissions proposals

Read: Is regulatory uncertainty the new norm for Ontario?

Several industry groups support the government’s position.

Advocis said in a release that the decision “stands up for the consumer’s right to choice when it comes to financial advice.” The association also cited studies from between 2011 and 2016 that found “restricting access to professional financial advice would make it harder for the public to save, invest and achieve their financial goals.”

IFIC also supported the decision. “The DSC is a good payment option for some investors who would not otherwise have access to financial advice,” the organization said in a statement. “We think the CSA concerns can be addressed by strict firm guidelines around the sale of funds with a DSC, and by continued compliance and enforcement.”

Meanwhile, several industry participants tweeted their disappointment with the government’s position.

(More tweets below.)

Gross is hoping the government’s position on DSC doesn’t apply to other initiatives, such as the formation of the Financial Services Regulatory Authority.

“FSRA is in the process of taking form: staff are being hired; there’s a board; rules and regulations are being drafted,” he said. Even though no framework has been developed, he said, “the need for regulation of financial planners is quite evident and there seemed to be widespread agreement on that.”

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Katie Keir

Katie is special projects editor for Advisor.ca and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at katie@newcom.ca.