Segregated fund sales under deferred sales charge (DSC) structures would be banned by mid-2023 under proposals from the Financial Services Regulatory Authority of Ontario (FSRA).
The regulator has proposed amendments to its rules that would ban new DSC seg fund sales as of June 1, 2023. The proposed changes would also introduce additional disclosure requirements for existing DSC sales to enhance consumer protection.
FSRA said the proposals, which are out for comment until Feb. 23, 2023, would bring the regulation of seg funds in line with mutual funds. Securities regulators’ ban on DSCs took effect in June.
“Insurers and agents in Ontario need to treat customers fairly and provide them with product options that suit their needs,” said Huston Loke, executive vice-president, market conduct at FSRA, in a statement.
“These charges raise serious consumer protection concerns for customers who may need to access their own investments. FSRA is moving to stop sales of new individual segregated fund contracts that include DSCs and to ensure fairness for customers who remain in existing contracts,” he added.
Back in February, the insurance sector’s regulatory umbrella groups — the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) — signalled their intention to ban DSCs for seg funds by June 2023, citing the “high risk of poor consumer outcomes” with these structures.
Earlier this month, the CCIR and CISRO also completed a separate consultation on upfront compensation models involving commission structures other than DSCs, such as advisor chargeback structures, as part of their efforts to enhance consumer protection in the insurance sector.