Final amendments to National Instrument 31-103 remove a pay structure the CSA calls a conflic
The Canadian Securities Administrators has published final amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations that prohibit chargebacks in the distribution of publicly offered investment fund securities.
The CSA, the council of the securities regulators of Canada’s provinces and territories, said the changes are intended to improve investor protection and help maintain investor confidence in Canada’s capital markets.
How chargebacks work
Dealers or dealing representatives, the CSA said, sometimes receive an upfront commission or payment when their client purchases securities.
A chargeback occurs when clients redeem those securities before a fixed schedule and the dealing representative is required to repay all or part of the upfront commission or payment.
The CSA said it is concerned that the use of chargebacks creates a significant conflict of interest, because they may incentivize advisors to prioritize their own financial interests over those of their clients.
“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, chair of the CSA and chair and chief executive officer of the Alberta Securities Commission, in its announcement of the prohibition.
“The changes will help protect investors by better aligning investment advice and foster fairer compensation practices.”
The British Columbia Securities Commission did not participate in the news release, the CSA said, because of publication restrictions related to the upcoming British Columbia provincial election.
