Regulators Issue Temporary Exemptions From The OEO Trailer Ban

The Ontario Securities Commission (OSC) recently announced a temporary exemption from the order execution only (OEO) trailer ban in order to facilitate client transfers and rebates of trailing commissions. Other Canadian securities regulators, including the British Columbia Securities Commission and Alberta Securities Commission, have released similar exemptions.

As we've previously discussed, amendments to National Instrument 81-105 Mutual Fund Sales Practices that came into force on June 1, 2022 prohibit the payment of trailing commissions to, and the solicitation and acceptance of trailing commissions by, dealers that do not have an obligation to make a suitability determination. Such dealers include OEO dealers and dealers acting on behalf of a "permitted client" that has waived suitability requirements.

Pursuant to the temporary exemption, between June 1, 2022 and November 30, 2023, OEO dealers and fund organizations will be exempted from the ban on paying and receiving trailer commissions from investment fund managers: (i) where a trailing commission is paid by the fund organization to the OEO dealer to facilitate dealer rebates for clients holding mutual funds in OEO dealer accounts prior to June 1, 2022, and clients who transfer mutual funds to OEO dealer accounts on or after June 1, 2022; and (ii) for a period of 45 days upon the acceptance of client-initiated transfers of mutual funds on or after June 1, 2022, where a trailing commission is paid by the fund organization to the OEO dealer, to facilitate processing of such client transfers.

For more information, see Ontario Instrument 81-508 Temporary Exemptions from the OEO Trailer Ban to Facilitate Dealer Rebates of Trailing Commissions and Client Transfers.

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