3.2.4 Investor Protection Funds

Investor Protection Funds

The securities industry safeguards the investing public from losses caused by the financial failure of firms within the self-regulatory system. The covered account types include those of IIROC dealer members, MFDA members, banks, trust and loan companies, and credit unions.

Canadian Investor Protection Fund (CIPF)

Founded in 1969, the Canadian Investor Protection Fund (CIPF) aims to maintain investor confidence by protecting eligible customers in the event of an IIROC dealer member’s insolvency. Note that CIPF does not cover client losses due to changing market values or accounts held at non-IIROC member firms.

Coverage Details

• All customer accounts are covered, either as part of a general account or as separate accounts.
• Accounts such as cash, margin, short sale, options, futures, and foreign currency are combined and treated as one general account entitled to a maximum coverage of $1 million.
• Separate accounts, such as registered accounts and trusts, each receive up to $1 million in coverage unless combined with other separate accounts.

Example

An investor holds assets worth $1,310,000 divided among different accounts. If the IIROC dealer becomes insolvent, CIPF protection would apply as follows:

• Cash Account ($20,000) + Margin Account ($85,000) = $105,000 (protected)
• RRSP ($940,000) + RRIF ($200,000) = $1,000,000 (protected)
• RESP ($65,000) = $65,000 (protected)

In total, the investor’s assets would be protected up to $1,170,000.

Mutual Fund Dealers Association Investor Protection Corporation (MFDA IPC)

The MFDA IPC, created in 2005, extends protection to eligible customers of insolvent MFDA member firms. It’s important to note that MFDA IPC does not cover losses from market value changes, unsuitable investments, or issuer default.

Each customer account—classified as part of a general account or a separate account—is eligible for a maximum coverage of $1 million.

Quebec Exclusion

MFDA IPC coverage is unavailable in Quebec since the MFDA is not recognized as a self-regulatory organization in the province. Quebec maintains its own compensation fund.

Canada Deposit Insurance Corporation (CDIC)

The Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation, provides deposit insurance to uphold the stability of Canada’s financial system. CDIC insures eligible deposits up to $100,000 per depositor per CDIC member institution.

Insurance Criteria

• Deposits must be in Canadian currency, held at member institutions, and payable within Canada.
• CDIC insures different types of accounts separately, with each account type covered up to the $100,000 maximum.

Example

Assume deposits as follows:

• $80,000 (cash in your name)
• $120,000 (RRSP)

If the institution fails, CDIC will cover $180,000 total: $80,000 for the cash deposit and $100,000 of the RRSP.

Did You Know?

CDIC separately covers seven deposit categories up to $100,000. These categories include deposits in one name, more than one name, registered savings plans, RRIFs, Tax-Free Savings Plans, trusts, and deposits for property taxes.

Provincial Insurance Corporations

Provinces may have organizations specifically protecting credit union member deposits, often termed as deposit insurance corporations or similar. Coverage terms and limits vary, so checking with your province is essential.

Dive Deeper

For more thorough information on different coverage forms and their specific terms, visit the respective corporations’ websites:

• CDIC
• CIPF
• MFDA IPC
• Financial Consumer Agency of Canada

Key Takeaways

• CIPF: Covers eligible accounts up to $1 million per general and separate accounts under IIROC dealer members.
• MFDA IPC: Offers up to $1 million in coverage per general and separate accounts for MFDA member firm insolvencies; does not cover accounts in Quebec.
• CDIC: Insures deposits up to $100,000 per deposit category in member institutions.
• Provincial Insurance: Different regions have unique agencies and coverage terms for credit union deposits.

Frequently Asked Questions (FAQ)

Q: What kinds of losses are not covered by CIPF?

A: Losses due to changing market values are not covered by CIPF.

Q: Does the MFDA IPC cover accounts held in Quebec?

A: No, MFDA IPC is not recognized in Quebec. Quebec has its own compensation fund.

Q: How are deposits covered under CDIC?

A: CDIC insures eligible deposits up to $100,000 per deposit type category within a single member institution.

Q: Where can I get more detailed information about investor protection funds?

A: You can explore the websites of CDIC, CIPF, MFDA IPC, and your provincial insurance organization for more detailed information.