The Canadian Securities Administrators (CSA) has published proposed amendments to prohibit the use of chargebacks when distributing securities of investment funds that are reporting issuers, citing an inherent and significant conflict of interest for dealing representatives paid upfront commissions. Chargebacks arise when a client redeems before a dealer-set schedule and the dealing representative must repay all or part of the upfront commission, fee, sales charge or other compensation. The proposed rule change to National Instrument 31-103 would bar registrants from requiring, or causing an affiliate to require, such reimbursement in connection with client redemptions. The CSA notes the issue is similar in investor-protection terms to the now-banned deferred sales charge, and estimates current usage is limited, with one mutual fund dealer identified as using the model and possible use by some scholarship plan dealers. Comments are due by September 24, 2025, including on whether the ban should also cover non-reporting issuer funds or other securities. The CSA proposes the amendments would come into force six months after final publication, and notes the Canadian Investment Regulatory Organization may make conforming housekeeping changes to align its rules.
Canadian Securities Administrators 2025-06-26
Canadian Securities Administrators consults on banning chargebacks in the distribution of investment fund securities
The Canadian Securities Administrators (CSA) proposed amendments to National Instrument 31-103 to prohibit chargebacks in distributing securities of investment funds that are reporting issuers, addressing conflicts of interest for dealing representatives paid upfront commissions. The CSA notes limited current usage, with one mutual fund dealer identified as using the model. The amendments are expected to come into force six months after final publication, with potential conforming changes by the Canadian Investment Regulatory Organization.