There are three major investor protection regimes in Canada:
Investors who have deposits at chartered banks (RBC, TD, etc.) are protected by the Canada Deposit Insurance Corporation (CDIC). CDIC protects each investor up to $100,000 per bank but only covers cash and cash equivalents such as Savings Accounts, Term Deposits, and Guaranteed Investment Certificates (GICs).
Investors who have accounts with a mutual fund dealer registered with the Mutual Fund Dealer Association (MFDA) are protected by the Investment Protection Corporation (IPC). This regime protects each investor up to $1,000,000 across all of their non-registered accounts PLUS an additional $1,000,000 across all of their registered accounts. Only Mutual Funds are insured by this regime.
Investors who have accounts with a broker registered with the Investment Industry Regulatory Organization of Canada (IIROC) are protected by the Canadian Investor Protection Fund (CIPF). This regime protects each investor up to $1,000,000 across all of their non-registered accounts PLUS an additional $1,000,000 across all of their registered accounts. Any securities, commodity and futures contracts, segregated insurance funds and cash.
These three regimes only protect deposits and investments from losses specifically associated with bank or investment broker insolvency, namely bankruptcy. If a bank or an investment broker- dealer were to go bankrupt, these investor and depositor protection regimes would insure all eligible deposits and investments up to the stated limit. However, these regimes do not protect against fraud, losses due to changes in market value, or inappropriate investment advice. Fortunately, Canada has strong financial regulations meaning bank and broker insolvencies are rare, usually only affect very small regional trusts and brokers.
Ultimately, these insurance regimes only come into play when during a worst case scenario where a bank or investment broker goes bankrupt. By limiting your savings and investments to large, national corporations with healthy business statements, there is a very good chance that you will never be affected by a bankruptcy. In fact, here at Somerset Financial Management we monitor all risks to our clients' accounts, including risks associated with the strength of the banking and investment sector. We aim to make sure our clients never need to file for CDIC, CIPF , or IPC insurance claims.
Shaun R. Simms
CEO & Lead Wealth Advisor