Multilateral CSA Notice of Amendments to National Instrument 81-105 Mutual Fund Sales Practices and Related Consequential Amendments relating to Prohibition of Deferred Sales Charges for Investment Funds
January 20, 2022 Introduction The Canadian Securities Administrators (CSA) except the Ontario Securities Commission (the Participating Jurisdictions or we), are adopting local amendments to:
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National Instrument 81-105 Mutual Fund Sales Practices, National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103),
and local changes to: • Companion Policy 81-105 Mutual Fund Sales Practices, • Companion Policy 81-101 Mutual Fund Prospectus Disclosure (81-101CP), and • Companion Policy 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (31-103CP)
(collectively, the Local Amendments and Changes). Background On February 20, 2020, the CSA, with the exception of Ontario, published Multilateral CSA Notice of Amendments to National Instrument 81-105 Mutual Fund Sales Practices, Changes to Companion Policy 81-105CP to National Instrument 81-105 Mutual Fund Sales Practices and Changes to Companion Policy 81-101CP to National Instrument 81-101 Mutual Fund Prospectus
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Disclosure relating to Prohibition of Deferred Sales Charges for Investment Funds 1 (the Multilateral CSA Notice). The amendments published in the Multilateral CSA Notice prohibit the payment by fund organizations of upfront sales commissions to dealers, which results in the discontinuation of all forms of the deferred sales charge option, including low-load options 2 (collectively, the DSC option) (the Multilateral DSC Ban). The Multilateral DSC Ban comes into force on June 1, 2022 (the Effective Date) in all CSA jurisdictions, except in Ontario.
On June 3, 2021, the Ontario Securities Commission published OSC Notice of Local Amendments to National Instrument 81-105 Mutual Fund Sales Practices, Local Changes to Companion Policy 81-105 Mutual Fund Sales Practices and Related Consequential Local Amendments and Changes 3 (the OSC Notice). The amendments published in the OSC Notice also prohibit the payment by fund organizations of upfront sales commissions to dealers, which results in the discontinuation of all forms of the DSC option, including low-load options (the OSC DSC Ban). The OSC DSC Ban comes into force on June 1, 2022, to coincide with the Effective Date of the Multilateral DSC Ban.
Local Amendments and Changes As the Multilateral DSC Ban did not include Ontario, the amendments published in the Multilateral CSA Notice included certain provisions relating to Ontario (the Ontario references) in NI 31-103 and 31-103CP. Further to amendments published in the OSC Notice, the Ontario References are no longer applicable.
Once the Multilateral DSC Ban and the OSC DSC Ban come into effect on the Effective Date, the provisions requiring disclosure of the DSC option in the simplified prospectus, the fund facts document and pre-trade disclosure will no longer be applicable as the DSC option will no longer be offered (the DSC references). The OSC Notice published related consequential local amendments and changes in Ontario to remove DSC References from NI 81-101, 81-101CP, NI 31-103 and 31-103CP as of the Effective Date.
The Participating Jurisdictions are adopting the Local Amendments and Changes to remove the Ontario references and the DSC references as shown in Annexes A to F of this notice as of the Effective Date:
1 https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/Policies/Policy8/81105-CSA-Notice-February-20-2020pdf. 2 Under the traditional deferred sales charge option, the investor does not pay an initial sales charge for fund securities purchased, but may have to pay a redemption fee to the investment fund manager (i.e. a deferred sales charge) if the securities are sold before a predetermined period of typically 5 to 7 years from the date of purchase. Redemption fees decline according to a redemption fee schedule that is based on the length of time the investor holds the securities. While the investor does not pay a sales charge to the dealer, the investment fund manager pays the dealer an upfront commission (typically equivalent to 5% of the purchase amount). The investment fund manager may finance the payment of the upfront commission and accordingly incur financing costs that are included in the ongoing management fees charged to the fund. The low-load purchase option is a type of deferred sales charge option but has a shorter redemption fee schedule (usually 2 to 4 years). The upfront commission paid by the investment fund manager and redemption fees paid by investors are correspondingly lower than the traditional deferred sales charge option. 3 https://www.osc.ca/sites/default/files/2021-06/ni_20210603_81-105_mutual-fund-sales-practices.pdf
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Annex A – Local Amendments to National Instrument 81-105 Mutual Fund Sales Practices
Annex B – Local Changes to Companion Policy 81-105 Mutual Fund Sales Practices Annex C – Local Amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure
Annex D – Local Changes to Companion Policy 81-101 Mutual Fund Prospectus Disclosure
Annex E – Local Amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations
Annex F – Companion Policy 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations
The Local Amendments and Changes are considered to be non-material changes. The Local Amendments and Changes in the annexes to this Notice differ from jurisdiction to jurisdiction because of differences in the process and timing involved in implementing the Multilateral DSC Ban. Notwithstanding this, and subject to ministerial approval where required, the end result will be that on June 1, 2022, the affected national instruments and companion policies will be harmonized with respect to the DSC ban across all CSA jurisdictions.
The text of rule and policy consolidations on the websites of CSA members will be updated, as necessary, to reflect these Local Amendments and Changes.
Questions Please refer your questions to any of the following:
Noreen Bent Chief, Corporate Finance Legal Services British Columbia Securities Commission Tel: 604-899-6741 nbent@bcsc.bc.ca
Melody Chen Senior Legal Counsel Legal Services, Corporate Finance British Columbia Securities Commission Tel: 604-899-6530 mchen@bcsc.bc.ca
Chad Conrad Senior Legal Counsel, Corporate Finance Alberta Securities Commission
Wayne Bridgeman Deputy Director, Corporate Finance The Manitoba Securities Commission Tel: 204-945-4905 wayne.bridgeman@gov.mb.ca
Gabriel Chénard Senior Policy Analyst, Direction de l’encadrement des intermédiaires Autorité des marchés financiers Tel: 514 395-0337, ext. 4482 Toll-free: 1-800-525-0337, ext. 4482 gabriel.chenard@lautorite.qc.ca
Junjie (Jack) Jiang Securities Analyst, Corporate Finance Nova Scotia Securities Commission Tel: 902-424-7059
Tel: 403-297-4295 chad.conrad@asc.ca
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Heather Kuchuran Ella-Jane Loomis Director, Corporate Finance Senior Legal Counsel Securities Division Financial and Consumer Services Commission Financial and Consumer Affairs Authority of of New Brunswick Saskatchewan Tel: 506-453-6591 Tel: 306-787-1009 Email: ella-jane.loomis@fcnb.ca heather.kuchuran@gov.sk.ca
Louis-Philippe Nadeau Analyst, Investment Funds Oversight Autorité des marchés financiers Tel: 514-395-0337 ext. 2479 louis-philippe.nadeau@lautorite.qc.ca
ANNEX A THE MANITOBA SECURITIES COMMISSION MSC RULE 2022-2 (Section 149.1, The Securities Act)
LOCAL AMENDMENTS TO NATIONAL INSTRUMENT 81-105 MUTUAL FUND SALES PRACTICES IN MANITOBA
1. National Instrument 81-105 Mutual Fund Sales Practices is amended by this Instrument. 2. Section 3.1 is repealed. 3. This Instrument comes into force in Manitoba on June 1, 2022. 4. This Instrument may be cited as MSC Rule 2022-2.
1. 2. 3.
ANNEX B LOCAL CHANGES TO COMPANION POLICY 81-105 MUTUAL FUND SALES PRACTICES IN MANITOBA
Companion Policy 81-105 Mutual Fund Sales Practices is changed by this document. Section 4.1.2 is deleted. This change become effective in Manitoba on June 1, 2022.
ANNEX C THE MANITOBA SECURITIES COMMISSION MSC RULE 2022-3 (Section 149.1, The Securities Act)
LOCAL AMENDMENTS TO NATIONAL INSTRUMENT 81-101 MUTUAL FUND PROSPECTUS DISCLOSURE IN MANITOBA
1. National Instrument 81-101 Mutual Fund Prospectus Disclosure is amended by this Instrument. 2. Form 81-101F3 Contents of Fund Facts Document is amended (a) in subsection (1) of the Instructions under Item 1.2 of Part II by deleting “, deferred sales charge”, (b) in subsection (2) of the Instructions under Item 1.2 of Part II by deleting “For a deferred sales charge, provide the full sales charge schedule.”,
(c) in subsection (3) of the Instructions under Item 1.2 of Part II by deleting “For a deferred sales charge, include a range for the amount that can be charged on every $1,000 redemption.”, and
(d) in subsection (4) of the Instructions under Item 1.2 of Part II by deleting the following: In the case of a deferred sales charge, the disclosure must also briefly state: • any amount payable as an upfront sales commission; • who pays and who receives the amount payable as the upfront sales commission; • any free redemption amount and key details about how it works; • whether switches can be made without incurring a sales charge; and • how the amount paid by an investor at the time of a redemption of securities is calculated, for example, whether it is based on the net asset value of those securities at the time of redemption or another time..
3. This Instrument comes into force in Manitoba on June 1, 2022. 4. This Instrument may be cited as MSC Rule 2022-3.
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2. 3. 4.
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ANNEX D LOCAL CHANGES TO COMPANION POLICY 81-101 MUTUAL FUND PROSPECTUS DISCLOSURE IN MANITOBA
Companion Policy 81-101 Mutual Fund Prospectus Disclosure is changed by this document.
Section 4.1.6 is deleted. Section 5.6 is deleted. The Sample Fund Facts Document in Appendix A – Sample Fund Facts Document is replaced by the following:
[insert Sample Fund Facts Document here] These changes become effective in Manitoba on June 1, 2022.
XYZ Mutual Funds
XYZ canadian Equity Fund – series B
This document contains key information you should know about XYZ Canadian Equity Fund. You can find more details in the fund’s simplified prospectus. Ask your representative for a copy, contact XYZ Mutual Funds at 1-800-555-5556 or investing@xyzfunds.com, or visit www.xyzfunds.com.
Before you invest in any fund, consider how the fund would work with your other investments and your tolerance for risk.
Quick facts Fund code: date series started: total value of fund on June 1, 20XX: Management expense ratio (MER):
XYZ123 March 31, 2000 $1 billion 2.25%
Fund manager: Portfolio manager: distributions: Minimum investment:
XYZ Mutual Funds Capital Asset Management Ltd. Annually, on December 15 $500 initial, $50 additional
What does the fund invest in? The fund invests in a broad range of stocks of Canadian companies. They can be of any size and from any industry. The charts below give you a snapshot of the fund’s investments on June 1, 20XX. The fund’s investments will change.
top 10 investments (June 1, 20XX) 1. Royal Bank of Canada 2. Toronto-Dominion Bank 3. Canadian Natural Resources 4. The Bank of Nova Scotia 5. Cenovus Energy Inc. 6. Suncor Energy Inc. 7. Enbridge Inc. 8. Canadian Imperial Bank of Commerce 9. Manulife Financial Corporation 10. Canadian National Railway Company total percentage of top 10 investments total number of investments
7.5% 7.1% 5.8% 4.1% 3.7% 3.2% 3.1% 2.9% 2.7% 1.9% 42.0% 93
How risky is it? The value of the fund can go down as well as up. You could lose money.
One way to gauge risk is to look at how much a fund’s returns change over time. This is called “volatility”.
In general, funds with higher volatility will have returns that change more over time. They typically have a greater chance of losing money and may have a greater chance of higher returns. Funds with lower volatility tend to have returns that change less over time. They typically have lower returns and may have a lower chance of losing money.
Investment mix (June 1, 20XX) Industry Financial services Energy Industrial goods Business services Telecommunication Hardware Healthcare services Consumer services Media Consumer goods
34.0% 26.6% 16.5% 6.4% 5.9% 3.7% 2.3% 2.1% 1.9% 0.6%
Risk rating XYZ Mutual Funds has rated the volatility of this fund as medium. This rating is based on how much the fund’s returns have changed from year to year. It doesn’t tell you how volatile the fund will be in the future. The rating can change over time. A
fund with a low risk rating can still lose money. Low Low to Medium medium Medium to high
High
For more information about the risk rating and specific risks that can affect the fund’s returns, see the Risk section of the fund’s simplified prospectus.
no guarantees Like most mutual funds, this fund doesn’t have any guarantees. You may not get back the amount of money you invest.
XYZ Mutual Funds
XYZ canadian Equity Fund – series B
How has the fund performed? This section tells you how Series B units of the fund have performed over the past 10 years. Returns are after expenses have been deducted. These expenses reduce the fund’s returns.
Year-by-year returns This chart shows how Series B units of the fund performed in each of the past 10 years. The fund dropped in value in 3 of the 10 years. The range of returns and change from year to year can help you assess how risky the fund has been in the past. It does not tell you how the fund will perform in the future.
%
30 20 10
0 -10
-20 -30
-6.9
20XX
26.7
20XX
12.9
20XX
16.2
20XX
15.1
20XX
5.3
20XX
-22.9 20XX
24.1
20XX
15.7
20XX
-7.0
20XX
Best and worst 3-month returns This table shows the best and worst returns for Series B units of the fund in a 3-month period over the past 10 years. The best and worst 3-month returns could be higher or lower in the future. Consider how much of a loss you could afford to take in a short period of time.
Best return Worst return
Return 32.6% -24.7%
3 months ending April 30, 2003 November 30, 2008
If you invested $1,000 at the beginning of the period Your investment would rise to $1,326. Your investment would drop to $753.
average return The annual compounded return of Series B units of the fund was 6.8% over the past 10 years. If you had invested $1,000 in the fund 10 years ago, your investment would now be worth $1,930.
Who is this fund for? Investors who: • are looking for a long-term investment • want to invest in a broad range of stocks of Canadian companies • can handle the ups and downs of the stock market.
Don’t buy this fund if you need a steady source of income from your investment.
a word about tax In general, you’ll have to pay income tax on any money you make on a fund. How much you pay depends on the tax laws where you live and whether or not you hold the fund in a registered plan, such as a Registered Retirement Savings Plan or a Tax-Free Savings Account.
Keep in mind that if you hold your fund in a non-registered account, fund distributions are included in your taxable income, whether you get them in cash or have them reinvested.
XYZ Mutual Funds
XYZ Canadian Equity Fund – Series B
How much does it cost? The following tables show the fees and expenses you could pay to buy, own and sell Series B units of the fund. The fees and expenses — including any commissions — can vary among series of a fund and among funds. Higher commissions can influence representatives to recommend one investment over another. Ask about other funds and investments that may be suitable for you at a lower cost.
1. Sales charges You may pay a sales charge when you buy the fund.
Sales charge option Initial sales charge
in per cent (%) 0% to 4% of the amount you buy
What you pay How it works in dollars ($) $0 to $40 on every • You and your representative decide on the rate. $1,000 you buy • The initial sales charge is deducted from the amount you buy. It goes to your representative’s firm as a commission.
2. Fund expenses You don’t pay these expenses directly. They affect you because they reduce the fund’s returns. As of March 31, 20XX, the fund’s expenses were 2.30% of its value. This equals $23 for every $1,000 invested. Annual rate (as a % of the fund’s value)
Management expense ratio (MER) This is the total of the fund’s management fee (which includes the trailing commission) and operating expenses. XYZ Mutual Funds waived some of the fund’s expenses. If it had not done so, the MER would have been higher.
Trading expense ratio (TER) These are the fund’s trading costs.
Fund expenses
2.25%
0.05%
2.30%
More about the trailing commission The trailing commission is an ongoing commission. It is paid for as long as you own the fund. It is for the services and advice that your representative and their firm provide to you.
XYZ Mutual Funds pays the trailing commission to your representative’s firm. It is paid from the fund’s management fee and is based on the value of your investment. The rate depends on the sales charge option you choose.
Sales charge option Initial sales charge Deferred sales charge
Amount of trailing commission in per cent (%) in dollars ($) 0% to 1% of the value of your investment each year $0 to $10 each year on every $1,000 invested 0% to 0.50% of the value of your investment each year $0 to $5 each year on every $1,000 invested
XYZ Mutual Funds
XYZ canadian Equity Fund – series B
How much does it cost? cont’d
3. Other fees You may have to pay other fees when you buy, hold, sell or switch units of the fund.ann
Fee Short-term trading fee Switch fee Change fee
What you pay 1% of the value of units you sell or switch within 90 days of buying them. This fee goes to the fund. Your representative’s firm may charge you up to 2% of the value of units you switch to another XYZ Mutual Fund. Your representative’s firm may charge you up to 2% of the value of units you switch to another series of the fund.
What if I change my mind? Under securities law in some provinces and territories, you have the right to:
• withdraw from an agreement to buy mutual fund units within two business days after you receive a simplified prospectus or Fund Facts document, or
• cancel your purchase within 48 hours after you receive confirmation of the purchase.
In some provinces and territories, you also have the right to cancel a purchase, or in some jurisdictions, claim damages, if the simplified prospectus, annual information form, Fund Facts document or financial statements contain a misrepresentation. You must act within the time limit set by the securities law in
your province or territory. For more information, see the securities law of your province or territory or ask a lawyer.
For more information Contact XYZ Mutual Funds or your representative for a copy of the fund’s simplified prospectus and other disclosure documents. These documents and the Fund Facts make up the fund’s legal documents.
XYZ Mutual Funds 123 Asset Allocation St. Toronto, ON M1A 2B3
Phone: (416) 555-5555 Toll-free: 1-800-555-5556 Email: investing@xyzfunds.com www.xyzfunds.com
To learn more about investing in mutual funds, see the brochure understanding mutual funds, which is available on the website of the Canadian Securities Administrators at www.securities-administrators.ca.
® Registered trademark of XYZ Mutual Funds.
ANNEX E THE MANITOBA SECURITIES COMMISSION MSC RULE 2022-4 (Section 149.1, The Securities Act)
LOCAL AMENDMENTS TO NATIONAL INSTRUMENT 31-103 REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS IN MANITOBA
1. National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations is amended by this Instrument.
2. Paragraph 8.7(4)(a) is amended by deleting “deferred or contingent sales charge or”. 3. Paragraph 14.2.1(1)(b) is repealed. 4. This Instrument comes into force in Manitoba on June 1, 2022. 5. This Instrument may be cited as MSC Rule 2022-4.
ANNEX F LOCAL CHANGES TO COMPANION POLICY 31-103 REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS IN MANITOBA
1.
2.
3.
Companion Policy 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations is changed by this document.
Section 14.2.1 is changed: (a) by replacing “purchase” with “redemption” in the second paragraph, (b) by deleting “upon the redemption of the security” in the second paragraph, and (c) by replacing the second bullet in the fourth paragraph with the following: • the sales charge options available to the client and an explanation as to how such charges work. Any redemption fees or short-term trading fees that may apply should also be discussed.
These changes become effective in Manitoba on June 1, 2022.