With the ban on new sales of deferred sales charge (DSC) segregated funds in effect, Ontario’s regulator continues to consult on further measures to address DSC seg funds purchased before the ban.

The proposal from the Financial Services Regulatory Authority of Ontario (FSRA) would allow insurers to benefit from simplified disclosure as they replace DSCs with “unequivocally better” sales charges for clients with existing pre-authorized DSC payments. Switching to the advisor chargeback option won’t qualify for the streamlined disclosure.

“If the updated proposed amendment is approved, insurers may simplify the information they provide customers if they give the customer a new sales charge option that is better than a DSC in every way,” FSRA said in a release.

The changes are based on feedback during the previous consultation period and aim to clarify conduct that fails to adhere to the Unfair or Deceptive Acts or Practices Rule.

A new sales charge option is “unequivocally better” than a DSC if the percentage amount of any initial charge and the management expense ratio is no greater than for the DSC, and the new sales charge doesn’t involve any new conflicts, the updated proposal says.

In such cases, disclosure is focused on the new sales charge option, instead of describing all options available. Also, the client can receive the disclosure “promptly” after the insurer first applies the new sales charge option instead of before.

Simplified disclosure won’t be available if the advisor chargeback option will apply to the pre-authorized deposits. One of the benefits of the proposed changes is the reduced likelihood of clients being subject to the advisor chargeback, FSRA said in its request for comment.

The regulator also said insurers would benefit from lower compliance costs, since they wouldn’t need to provide clients with more costly detailed disclosures, and agents would spend less time answering questions due to client confusion around detailed disclosures.

A flowchart illustrating the proposed changes and required disclosures is available on the last page (Appendix D) of the request for comment.

The proposal would apply to transactions that occur after the amendment takes effect (i.e., the amendment won’t be retroactive).

The consultation ends June 30.