The recent collapse of MF Global once more reminded us that we have in place an important safety net for investors whose brokerage firm faces bankruptcy. MF Global, as US based securities firm, collapsed on October 31, 2011 after making disastrous bets on European debt. Its Canadian subsidiary filed for bankruptcy four days later.
In this case, the process may not have been perfect, but the outcome is pretty good. Canadian clients have had their accounts transferred, intact, to other brokerage firms and it doesn’t look like anyone lost money.
Here’s how it works in Canada. We have the Canadian Investor Protection Fund (CIPF) which was established by the investment industry to ensure the return of assets belonging to eligible customers if a member becomes insolvent.
First, you have to be doing business with a dealer member of the self-regulatory Investment Industry Regulatory Organization of Canada (IIROC). It’s over 200 members make contributions to the CIPF of up to 1% of their revenue annually. Over the past 40 years, its members have contributed up to $36 million and no eligible customers have lost their assets.
To be eligible, your investment must be acquired and recorded in your client account. Your loss must be the result of insolvency, not from a major downturn in the marketplace, an unsuitable investment, or the default of an issuer of securities. Assets may include cash, securities, commodities, futures contracts, segregated insurance funds and other property.
There is a limit of $1-million for a customer’s general account and $1-million for each separate account. The CIFP’s detailed coverage policy is available on its website.
It’s comforting to know that Canadian dealer bankruptcies are rare. Since 1969, there have been only 17. But it is even more comforting to know, that if it happens to you, and your firm is a member of CIPF, you will be able to recover up to a million dollars/per account of your money.
There are a lot of lessons to be learned from reading the Canadian Securities Administrators’ 2010 Enforcement Report. Read, for example, the Alberta case called Kustom Design Financial Services Inc. This is a company which held seminars supposedly offering financial education. It was, instead, a cover for the illegal selling of securities to vulnerable investors. […]
In August, the BC Securities Commission (BCSC) issued one notice of hearing, three enforcement decisions, and a news release about reciprocal orders against three individuals. The Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association (MFDA) did not release any decisions or settlements relating to BC residents. You can find a summary […]