Some commission recoveries fall outside the ban, but regulators still expect firms to act
Canada's securities regulators finalized a ban on advisor chargebacks on October 8, 2026, with the rule set to kick in October 1, 2028.
A firm will no longer be able to make a representative pay back an upfront commission, fee, sales charge or other compensation when a client redeems securities of a publicly offered investment fund. The Canadian Securities Administrators (CSA) made the change by amending National Instrument 31-103, and some jurisdictions still need ministerial sign-off.
The pay setup regulators wanted gone
A chargeback works like this. A dealing representative is paid upfront when a client buys fund securities. If the client sells all or part of that holding before a set schedule runs out, usually set by the dealer firm, the representative must return some or all of the money.
The CSA's concern comes down to timing. A representative keeps the full commission only if the client stays invested past that period, and the regulator said the representative may try to talk the client out of redeeming. That pull grows as commissions get bigger and schedules get longer.
"By prohibiting chargebacks in the distribution of investment fund securities, we are removing a compensation structure that can create conflicts between an advisor's interests and those of their clients," said Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission.
Firms get two years to rework pay plans
The CSA proposed the ban on June 26, 2025, and received 22 comment letters, mostly supportive. Some industry voices said existing NI 31-103 and Canadian Investment Regulatory Organization (CIRO) rules already handle the conflict. Another noted that the Canadian Council of Insurance Regulators has proposed still allowing chargebacks on segregated fund sales under prescriptive guidance, and the CSA said it will keep exploring a harmonized approach over the longer term.
The draft gave firms six months. The final rule gives them 24, after commenters said pay models would need a rebuild. The CSA said it understands two scholarship plan dealers will need to rework their compensation and compliance systems and train representatives. Chargebacks have been part of pay in that sector for many years, in some cases more than a decade.
Older holdings get a pass, too, since redemptions of securities bought before October 1, 2028 are exempt. Chargebacks are not widely used today, the CSA said, but it wanted to act before they become entrenched. It noted that unlike the now-banned deferred sales charge, which investors paid, chargebacks are payments between registrants.
What the ban doesn't cover
If a client cancels a pre-authorized contribution plan or auto-switch early and the firm recovers part of the upfront commission, the ban does not apply because no redemption is involved. Even so, the CSA said the setup raises similar conflicts, almost always material in its experience, that firms may need to avoid if they cannot otherwise address them in the client's best interest.
Recoveries tied to transfers to another financial institution are also outside the ban, as long as no redemption triggers them. A redemption before a transfer would be covered. Extending the ban to non-reporting issuer funds or other securities is a separate longer-term project, the CSA said. CIRO, which helped develop the amendments, expects to update its rules to match. The full text of the CSA's final amendments prohibiting chargebacks is available at https://www.securities-administrators.ca/news/canadian-securities-regulators-publish-final-amendments-prohibiting-chargebacks-in-investment-fund-distribution/.
The CSA said registered firms will need to review their pay practices and compliance systems, update policies, procedures and controls, and train representatives. It weighed lighter options, such as guidance or limits on chargebacks, before choosing a ban. "In our view, allowing the use of Chargebacks to continue would not address the inherent conflict of interest arising from the use of Chargebacks," the CSA said.
