Investor Protection Funds
Canada uses different investor/depositor protection frameworks depending on the type of firm and account. For example, CIPF focuses on securities accounts at dealer firms, while CDIC focuses on eligible deposits at member banks and certain other institutions. Credit union deposits are typically covered through provincial deposit insurance (coverage varies by province).
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 a member firm’s insolvency (generally, CIRO dealer members). CIPF does not cover losses due to changing market values.
Coverage Details
Coverage limits are detailed in the CIPF Coverage Policy. As a general summary, limits are often described as:
- $1 million for all general accounts combined (such as cash and margin accounts, and typically accounts like TFSAs and FHSAs), plus
- $1 million for all registered retirement accounts combined (such as RRSPs, RRIFs, and LIFs), plus
- $1 million for all RESPs combined, where the client is the subscriber of the plan.
Example
An investor holds assets worth $1,310,000 divided among different accounts. If the dealer firm 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.
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:
Key Takeaways
- CIPF: Provides coverage limits that are commonly summarized as $1 million for general accounts, plus $1 million for registered retirement accounts, plus $1 million for RESPs (subscriber), subject to the CIPF Coverage Policy.
- 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: 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, and your provincial deposit insurance organization for more detailed information.
## What is the primary role of the Canadian Investor Protection Fund (CIPF)?
- [ ] Insuring accounts held at mutual fund companies
- [ ] Covering losses due to market value changes
- [x] Protecting eligible customers in the event of the insolvency of a member firm
- [ ] Insuring deposits at banks and credit unions
> **Explanation:** The primary role of CIPF is to protect eligible customers in the event of a member firm’s insolvency. It does not cover losses due to market value changes.
## Which types of accounts are combined and treated as one general account under CIPF coverage?
- [ ] Registered accounts and trusts
- [x] Cash and margin accounts (and typically accounts like TFSAs and FHSAs)
- [ ] Bank accounts and credit union accounts
- [ ] Mutual fund accounts
> **Explanation:** CIPF commonly describes a $1 million limit for all general accounts combined, such as cash and margin accounts (and typically accounts like TFSAs and FHSAs), subject to the CIPF Coverage Policy.
## Under CIPF’s general summary of limits, how much coverage is provided for all registered retirement accounts combined (e.g., RRSPs and RRIFs)?
- [ ] $100,000
- [ ] $500,000
- [x] $1 million
- [ ] $2 million
> **Explanation:** CIPF commonly describes a $1 million limit for all registered retirement accounts combined (such as RRSPs and RRIFs), subject to the CIPF Coverage Policy.
## Under CIPF’s general summary of limits, how much coverage is provided for all RESPs combined where the client is the subscriber?
- [ ] $100,000
- [ ] $500,000
- [x] $1 million
- [ ] $2 million
> **Explanation:** CIPF commonly describes a $1 million limit for all RESPs combined where the client is the subscriber, subject to the CIPF Coverage Policy.
## Which statement best describes when CIPF protection can apply?
- [x] When a member firm becomes insolvent and eligible client property is missing
- [ ] When a client loses money due to normal market fluctuations
- [ ] When a security issuer defaults on a bond payment
- [ ] When an investment performs below expectations
> **Explanation:** CIPF is designed to protect eligible clients when a member firm becomes insolvent and client property is missing; it does not cover market losses.
## How much insurance does the Canada Deposit Insurance Corporation (CDIC) provide for eligible deposits per depositor in each member institution?
- [ ] $50,000
- [x] $100,000
- [ ] $200,000
- [ ] $500,000
> **Explanation:** The Canada Deposit Insurance Corporation (CDIC) insures eligible deposits up to $100,000 per depositor in each member institution.
## For a deposit to be eligible for CDIC insurance, it must be held under what conditions?
- [x] In Canadian currency and payable in Canada
- [ ] In foreign currency and payable outside Canada
- [ ] In any currency and payable outside Canada
- [ ] Only in foreign currency and within Canada
> **Explanation:** To be eligible for CDIC insurance, deposits must be held with a member institution in Canadian currency and payable in Canada.
## How does CDIC handle deposits held in different branches of the same member institution?
- [ ] Insured separately
- [ ] Not insured at all
- [ ] Prorated amongst branches
- [x] Not insured separately
> **Explanation:** Deposits held in different branches of the same member institution are not insured separately; they are combined for insurance purposes.
## How is the CIPF funded?
- [x] By assessments on CIPF member firms
- [ ] By the Canadian federal government
- [ ] By the Bank of Canada
- [ ] By the CDIC
> **Explanation:** CIPF is funded through assessments on its member firms.
## Which of the following accounts is not covered by CDIC?
- [ ] Registered retirement savings plans
- [x] Foreign currency accounts
- [ ] Trusts
- [ ] Tax-free savings accounts
> **Explanation:** CDIC insures eligible deposits in Canadian currency but does not cover foreign currency accounts.