The Financial Services Regulatory Authority of Ontario (FSRA) has sent final regulations prohibiting deferred sales charges (DSC) on new individual segregated fund arrangements to the Ontario Finance Minister for approval.
If the rule is approved, new sales of seg funds, which charge customers fees for early access to their investments, will be prohibited as of June 1, the FSRA news release said.
The new rule will also prevent life insurers from amending existing segregated funds contracts to add DSCs or make DSCs less favorable to customers.
In some cases, insurers will be able to replace existing contracts covering DSC with very similar contracts (for example, replacing an RRSP with an RRIF), but only if they do not renew the period during which they can charge early withdrawal fees.
The proposed changes, which amend the Unfair or Deceptive Acts or Practices (UDAP) rule, will take effect 15 days after receiving approval from Finance Minister Peter Bethlenfalvy. FSRA published the proposals last fall, and the comment period closed on February 23. The regulator said the amendments made to the original proposal were immaterial.
The rule change would align seg fund rules with mutual funds once securities regulators’ ban on DSCs comes into force in June 2022. The Canadian Council of Insurance Regulators and the Canadian Insurance Regulatory Organizations are calling for the creation of a pan-Canadian SEG Ban DSC fund this year.
Quebec’s Autorité des marchés financiers published a draft ban on listing DSCs in seg funds in December for public consultation, with comments by a January publication deadline. 31.
The FSRA said it plans to launch a consultation in the spring on another amendment to the UDAP rule to address concerns about DSC in existing contracts.
