Today we are going to discuss the Canadian Investor Protection Fund (“CIPF”) and the Canadian Deposit Insurance Corporation (“CDIC”) as we have had a lot of questions over the years in regards to this topic. Usually this comes up during time periods of major crisis occurring in the investment world. People want to know: “How safe is my money? What protection do we have in place in case of financial failure?”
The CIPF is a not-for-profit insurance program established by the provincial and territorial securities regulators across Canada. The CIPF is designed to protect investors from the insolvency of an individual investment firm.
Accounts are covered for up to $1 million in shortfalls in an account with securities, futures contracts, segregated insurance funds or cash. A shortfall is the difference between the market value of the account and what the insolvent company can return to the customer. While investment firms rarely become insolvent, the CIPF exists to protect investment accounts. It is important to note that the CIPF only protects investors for losses that result from the insolvency of an investment firm. It does not protect investors from losses occurring for other reasons.
Insurance is purchased by member firms through the CIPF. As long as you have an investment account with a member firm, you do not need to purchase additional insurance, and you benefit from this insurance at no charge. Even non-Canadian residents who have investment accounts with Canadian member firms can benefit from the insurance program.
The CIPF is sometimes confused with the CDIC, a corporation established by the Canadian Federal government in 1967 to insure consumer banking deposits. CIPF insurance is more generous than CDIC insurance. Whereas consumer savings deposits are insured up to $100,000 Canadian, an investor can receive upwards of $1 million Canadian in investor protection.
Who Qualifies for CIPF Protection?
If you meet the four criteria below, you are eligible for CIPF protection:
- You have an account with a member firm that is disclosed in the records of the firm.
2. The member firm has become insolvent.
3. The firm, as a result of its insolvency, has failed to return or account for property it was holding on your behalf on the insolvency date.
4. You are not considered ineligible for coverage under the CIPF Coverage Policy.
There is no requirement that you live in or be a citizen of Canada.
A member firm is an investment dealer that is a member of the Investment Industry Regulatory Organization of Canada (“IIROC”). Investment dealers that are members of IIROC are also automatically members of CIPF.
Who Does Not Qualify for CIPF Protection?
• Anyone who materially contributed to the insolvency of the member firm or who has the power to control the firm.
• Directors and general partners of the member firm.
• Some shareholders and limited partners (with 5% or more) of the member firm.
• Other IIROC member firms or firms registered with a securities regulator.
What Does CIPF Cover?
Missing property - This is property held by a member firm on your behalf that is not returned to you following the firm’s insolvency. Missing property can include:
• futures contracts
• segregated insurance funds
CIPF does not cover:
Losses resulting from any of the following:
- a drop in the value of your investments for any reason
- investments that were not suitable for you
- fraudulent or other misrepresentations that were made to you
- misleading information that was given to you
- important information that was not disclosed to you
- poor investment advice
- the insolvency or default of the company or organization that issued your security
Securities held directly by the client – meaning that you have received the share certificate or other ownership documentation for the investment that you own. CIPF coverage does not apply in this case since the firm is not holding this property for you.
CIPF does not guarantee the value of your investment
CIPF’s role is to ensure the return of a client’s property held by a member firm, if the member firm become insolvent. CIPF does not guarantee the value of the property.
Since its creation in 1969, CIPF has stepped in to help investors following the failure of 21 investment dealers. In fact, CIPF has paid or provided $47 million for claims and related expenses net of recoveries arising from these failures.
Yet many investors are unaware of the significant benefits of CIPF Coverage when a member investment dealer fails.
What about the other insurance program - CDIC - Canada Deposit Insurance Corporation
What is the CDIC? The CDIC is a non-profit crown corporation launched in 1967.
It is funded by premiums paid by their member financial institutions (which is why you benefit from this security blanket for free). The CDIC insures your deposits in the event of a bank’s collapse. Thanks to their oversight, no Canadian has lost even a single dollar due to the closure of a bank since their inception.
The CDIC insures over $800 billion in deposits at over 80 member institutions.
Keeping up with the COVID-era concern to hold onto hard-won dollars, the CDIC’s most recent initiatives include expanding coverage to include eligible deposits at member institutions in all foreign currencies, and GICs with terms greater than five years.
What does CDIC insurance cover?
Like any insurance coverage, the CDIC has its maximum pay-out limits. In the event your member financial provider closes, they will insure up to $100,000 in deposits in each of the following seven categories:
- Deposits held in one name: Personal chequing, savings and GICs accounts
- Deposits held in more than one name: Joint chequing, savings accounts and GICs
- Deposits held in an RRSP: RRSP savings accounts and GICs
- Deposits held in a TFSA: TFSA savings accounts and GICs
- Deposits held in an RRIF: RRIF savings accounts and GICs
- Deposits held in a trust
- Deposits held for paying taxes on mortgaged properties
The $100,000 maximum coverage per category is also per bank because each member organization pays premiums to make this insurance available to you. To put this in dollars and cents, when you have $100,000 in a savings account at one bank, and $100,00 in a savings account at another bank, you will receive $200,000 worth of coverage ($100,000 worth of coverage per bank).
Like the CIPF, the CDIC covers shortfalls as opposed to total value. So in the unlikely event of a bank failure the insolvency trustee would look at all funds owed to depositors, compare it to all funds available for distribution, and would cover the shortfall of each depositor proportionately up to the $100,000 limit.
Stay happy, stay safe, stay well!
The CM Group