Public feedback sought on proposed changes to deferred sales charges investors are required to pay

The Financial Services Regulatory Authority of Ontario (FSRA) is taking steps to better protect customers by proposing to eliminate deferred sales charges (DSC) on new segregated fund contracts, and restricting their use on existing ones. DSCs are sales charges that customers pay if they withdraw their own money from a segregated fund contract before the end of a time period specified in the contract.

FSRA is proposing two separate amendments to the Unfair or Deceptive Acts or Practices (UDAP) Rule. If approved, the proposed amendments would ban sales of new individual segregated fund contracts with DSCs effective June 1, 2023. This would bring the regulation of segregated funds in Ontario in line with securities regulators across Canada, who ended DSCs for mutual funds effective June 2022, and the expectations of insurance regulators across the country.

“Insurers and agents in Ontario need to treat customers fairly and provide them with product options that suit their needs,” said Huston Loke, Executive Vice President, Market Conduct. “These charges raise serious consumer protection concerns for customers who may need to access their own investments. FSRA is moving to stop sales of new individual segregated fund contracts that include DSCs and to ensure fairness for customers who remain in existing contracts.”

The proposed UDAP rule amendments would:

  • prohibit insurers from issuing new individual segregated fund contracts that use DSCs on or after June 1, 2023
  • introduce customer protections that address the use of DSCs for all individual segregated fund contracts, regardless of when the customer purchased them, including customer disclosure and limits on the use of existing DSC options

To review the proposed rule amendments and submit your feedback, please visit FSRA’s website. The consultation period is now open and will close on February 23, 2023.

Individual segregated fund contracts are insurance products with investment features. These contracts provide guarantees that can protect customers if the value of their investments decreases. Individual segregated fund contracts are offered by insurance companies and sold by life insurance agents.

The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) have consulted with the public about upfront compensation models related to sales charges other than DSCs, such as the Advisor Chargeback sales charge. For more information about that consultation, see this announcement from CCIR and CISRO.

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FSRA continues to work on behalf of all stakeholders, including consumers, to ensure financial safety, fairness, and choice for everyone.

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