CSA's Review Of Chargebacks Soon To Take Off

The use of chargebacks in the mutual fund industry is the latest practice to draw the focus of Canadian regulators who have been set on addressing conflict of interest concerns in the Canadian investment industry. On June 1, the Canadian Securities Administrators (CSA) announced that, in conjunction with the Canadian Investment Regulatory Organization (CIRO), it would be undertaking a review of the use of chargebacks in the mutual fund industry.

Chargebacks are a form of compensation structure whereby a dealing representative is paid upfront commissions and/or fees when their client purchases securities. If the client decides to redeem their securities before a fixed schedule expires, the dealing representative is required to pay back all or part of the upfront commission/fee they received. Similar to a deferred sale charge (DSC) structure which was banned in the securities space as of June 1, 2022 (and in the segregated fund space as of June 1, 2023), the