Decision 2023-PDG-0041: Extension of the General Decision Regarding Temporary Exemption from Certain Obligations of National Instrument 81-105 to Facilitate Broker Discounts on Trail Commissions and Client Transfers

DECISION NO. 2023-PDG-0041
Extension of the General Decision Regarding a Temporary Exemption from Certain Obligations of National Instrument 81-105 on the Business Practices of Mutual Fund Dealers to Facilitate Discounts Granted by Brokers on Trail Commissions and Transfers by Clients

Having regard to subsection 3) of section 2.2 and subsection 4) of section 3.2 of National Instrument 81-105 on the Business Practices of Mutual Fund Dealers, RLRQ, c. V-1.1, r. 41 (the "NI 81-105") which prohibit:

1. Members of the organization of a mutual fund dealer ("MFD") (the "investment fund managers" or "IFMs") from paying trail commissions to participating brokers if those members know or ought reasonably to know that the participating brokers were not required to conduct a suitability assessment, such as placement brokers offering non-advised accounts (the "executing brokers") in connection with the subscription and holding, by a client, of a mutual fund security placed by means of a prospectus (a "mutual fund security");

2. Such executing brokers to solicit trail commissions from an IFM or to accept that an IFM pay trail commissions to them (collectively, the "prohibition on payment of trail commissions");

Having regard to Decision No. 2022-PDG-0023 issued on April 1, 2022 by the Autorité des marchés financiers (the "Autorité") exempting, under certain conditions, IFMs and executing brokers from the obligations related to the prohibition on payment of trail commissions to which they have been subject since June 1, 2022 for the following purposes (the "exemption decision"):

1. In the case of mutual fund securities held with trail commissions in non-advised accounts, to facilitate the granting of a discount by the broker for securities held and ongoing exchanges;

2. In the case of transfers of mutual fund securities held with trail commissions to non-advised accounts for:

a) the executing broker to determine whether the IFM has established that an identical or similar exchange is possible or whether a discount on management fees can be used during the grace period, and, in the absence of a discount on management fees, the executing broker carries out the identical or similar exchange determined by the IFM after the deadline, or, if earlier, after the date on which the executing broker can manually carry out identical and similar exchanges, failing which the executing broker grants a discount;

b) facilitate a discount granted by the broker regarding a transfer by the client;

Having regard to the exemption decision which will cease to have effect on November 30, 2023;

Having regard to the factual situation that led to the exemption decision and which remains unchanged;

Having regard to the need to provide clear guidance quickly to IFMs and executing brokers regarding the possibility of extending the exemption decision to ensure their compliance with obligations related to the prohibition on payment of trail commissions;

Having regard to the conditions set out in the exemption decision which are similar or identical to those set out in decisions issued by securities regulators in other Canadian jurisdictions (the "decisions of other Canadian jurisdictions");

Having regard to the decisions of other Canadian jurisdictions which do not provide for an expiry date or which have been or will be extended;

Having regard to the need to extend the exemption decision to ensure fair and harmonized application of obligations related to the prohibition on payment of trail commissions;

Having regard to section 263 of the Securities Act, RLRQ, c. V-1.1 (the "Act") which allows the Autorité, under the conditions it determines, to exempt a person or group of persons from all or part of the obligations provided for by Titles Two to Six of this Act or by regulation, when it considers that this exemption does not prejudice the protection of savers;

Having regard to the analysis of the Principal Directorate of Investment Products and Sustainable Finance as well as the recommendation of the Superintendent of Securities Markets to grant this exemption on the grounds that it does not prejudice the protection of savers;

Therefore:

The Autorité extends the exemption decision for the same purposes and conditions provided therein.

This decision takes effect on December 1, 2023 and will cease to have effect on the date of its revocation.

Done on August 17, 2023.

Marie-Claude Soucy
Interim Chief Executive Officer