Mutual fund chargebacks to be reviewed by Canadian regulators

Chargebacks occur when investors redeem their securities before a fixed schedule as determined by the dealer firm, and the dealing representative is required to pay back all or part of the upfront commission/fees.

The CSA announced the review Thursday and said it is responding to “concerns about potential conflicts of interest associated with this practice.”

The process will include submissions from fund managers on how they use chargebacks and will involve staff from the Canadian Investment Regulatory Organization (CIRO), the merged IIROC/MFDA regulator previously called the New SRO.

Seg funds

The review of mutual fund chargebacks follows a similar action on segregated funds and individual variable insurance contracts.

Public consultation on a discussion paper was instigated by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO).