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Email this10:11 am
May 15, 2007
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https://www.cdic.ca/depositors...../fintechs/
Looks like we have some official language to reference now, including:
The fintech places your money in an account under your name at a member institution.
What happens if the fintech fails?
If the fintech fails, your money is not affected because you are the owner of the account at the CDIC member institution. Since the account is held in your name, it is not part of the fintech’s assets and won’t be used to pay any of its creditors. To access your funds, you must know what bank holds them. If you’re not sure where the account is held, contact your fintech.
The fintech deposits your money in trust at a member institution and names you as a beneficiary.
What happens if the fintech fails?
CDIC would not play a role in this process. The fintech will be subject to a conventional bankruptcy and liquidation process, but in this example your funds will stay in trust at the member institution where they were deposited.
When you’re not covered – the fintech places your money in an account in the fintech’s name.
What happens if the fintech fails?
CDIC would not play a role in this process. The fintech will undergo a conventional bankruptcy and liquidation process.
11:42 am
April 6, 2013
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That's only for Situation #1: The fintech places your money in an account under your name at a member institution.
That's not the case for Situation #2: The fintech deposits your money in trust at a member institution and names you as a beneficiary:
What happens if the fintech fails?
CDIC would not play a role in this process. The fintech will be subject to a conventional bankruptcy and liquidation process, but in this example [any of] your funds [still at the member institution] will stay in trust at the member institution where they were deposited.
1:10 pm
April 27, 2017
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Yes, in situation 2 CDIC is explicitly describing the money as remaining in trust at the bank - not as becoming ordinary assets of the bankrupt fintech and not available to satisfy the fintech’s ordinary creditors.
1:41 pm
August 30, 2023
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Are RBC Direct Investing and Questrade fintechs?
They are placing our GICs at other banks. So which situation is this #1 or #2?
1:50 pm
April 27, 2017
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zgic said
Are RBC Direct Investing and Questrade fintechs?
They are placing our GICs at other banks. So which situation is this #1 or #2?
RBC Direct Investing and Questrade are investment brokers rather than “fintechs”. For GICs the relevant CDIC rules are the broker-deposit rules. A broker can place a GIC either in client name (similar to #1) or in nominee name, in which case CDIC expressly treats the broker as trustee and the client as beneficiary (#2). So you need to check how your particular GIC is registered.
6:49 pm
April 6, 2013
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With investment dealers, the stocks, bonds, and GIC's are usually in nominee form (Situation #2).
There will be an indicator in the monthly brokerage account statements on holdings that are in client name form and/or not segregated.
That's why CIPF insurance is needed for investment dealer accounts. Statements may show that the dealer owes you a $50,000 Concentra Bank GIC and an $80,000 MCAN Mortgage Corporation GIC. But, the bankruptcy trustee may not find the same when it contacts Concentra and MCAN.
7:16 pm
October 27, 2013
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That said, client assets in nominee name are segregated from the brokerage's corporate capital and its operations and must be legally held in trust with another entity, e.g. a trust company, making them out of reach of a brokerage corporate creditor. CIRO supposedly provides some oversight in these matters.
The bigger issue is malfeasance whereby a brokerage undertakes an effort to break the rules and uses client assets in their own corporate operations, or as corporate collateral, and hence where I believe the real value of CIPF shines. I would be more concerned about that with upstarts and lesser boutique firms that are likely more capital lean and in accelerated growth mode rather than the brokerages of the big banks which have their compliance departments breathing down their necks.
9:17 am
April 6, 2013
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Investment dealers are not required to have a separate trust company hold their segregated client assets. They are allowed to hold the assets in trust as the trustee themselves. They need to have the assets in a separate trust account at CDS to make it easier to identify the segregated assets.
There is no real value having a separate trustee. The dealer would have full authority to move assets in and out of the segregated pool anyways to buy and sell securities for the clients.
If the dealer was going to go rogue as a trustee, the dealer would have moved the assets out of the trust before bankruptcy. One can't recover trust funds from parties who receive the funds as payment for services and things before the parties receive notice that funds were improperly taken from a trust.
2:08 pm
October 27, 2013
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Okay, fair enough. The big brokerages keep it in-house while I am aware at least some smaller boutique offerings contract with third parties for custodianship.
2:13 pm
April 6, 2013
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Yes, the introducing broker/carrying broker arrangement is still used. But, that's for the benefit of the dealer, not for the benefit of the dealer's clients.
To guarantee the trades they do, dealers need to post collateral until the trade actually settles. Apparently, it is not just a signed indemnity. That collateral could be up to 100% of the value of the trade.
Some small dealers are strained to do that. So, they have an arrangement with a carrying broker, with a larger balance sheet, to do the trades and put up the required collateral.
There are other reasons. I thought with modern dematerialization (reduction of paper stock certificates, paper bond coupons, paper cheques, …) the costs of doing transactions have gone down. It hasn't in practice because of the cost of the technology and the security for the digital technology.
