The Financial Services Regulatory Authority of Ontario (FSRA) has sent final rules to ban deferred sales charges (DSCs) on new individual segregated fund contracts to Ontario’s finance minister for approval.
If the rule is approved, new sales of seg funds that impose charges on customers for early access to their investments will be banned effective June 1, a FSRA release said.
The new rule will also stop life insurers from changing existing segregated fund contracts to add DSCs or make the DSC less favourable to customers.
In some cases, insurers will be permitted to replace existing contracts that involve DSCs with very similar contracts (for example, replacing an RRSP contract with a RRIF version), but only if they don’t restart the time period that allows them to charge for early withdrawal.
The proposed changes, which amend the Unfair or Deceptive Acts or Practices (UDAP) rule, would take effect 15 days after receiving Finance Minister Peter Bethlenfalvy’s approval. FSRA released the proposals last fall for a comment period that ended on Feb. 23. The regulator said amendments made to the original proposal are immaterial.
The rule change would bring the regulation of seg funds in line with mutual funds after securities regulators’ ban on DSCs took effect in June 2022. The Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organizations are pushing for a Canada-wide seg fund DSC ban this year.
Quebec’s Autorité des marchés financiers published its proposed ban on seg fund DSCs for public consultation in December with comments due Jan. 31.
FSRA said it plans to launch consultations this spring on another amendment to the UDAP Rule to address concerns about DSCs in contracts that already exist.