CSA Proposes Updates to Principal Distributor Model for Mutual Funds
The Canadian Securities Administrators (CSA) have proposed amendments to the principal distributor model for mutual funds, aiming to enhance investor protection, market transparency, and alignment with the core principles of National Instrument 81-105 Mutual Fund Sales Practices. The proposed changes seek to prioritize the interests of investors in mutual fund distribution.
Key updates include:
Principal distributors will be limited to offering mutual fund securities within a single fund family.
Fund managers must disclose principal distributor arrangements and compensation to investors.
The CSA recognizes the unique role of principal distributors, who benefit from exclusive rights or competitive advantages, often participating in product development and prospectus certification.
Unlike participating dealers, principal distributors face fewer conflicts of interest as they distribute securities within a single fund family. However, the proposed amendments aim to clarify existing rules and ensure compliance with the minimum conduct standards in NI 81-105.
The CSA is consulting on whether principal distributors should be allowed to have multiple relationships and examining the use of chargebacks by dealers, which the CSA views as a significant conflict of interest.
These amendments align with the CSA’s 2022-2025 Business Plan to improve mutual fund sales practices and improve investor confidence. Public comments are invited during the 90-day consultation period.
The North Star Advantage:
For firms navigating the proposed amendments to the principal distributor model, North Star provides comprehensive support, including guidance on submitting comments, compliance assessments, and strategic advice to align with evolving regulatory standards.
Contact us at info@northstarcompliance.com to explore how we can assist you.