With a large number of financial organizations in Canada come a large number of acronyms.
Both the Canadian Investor Protection Fund (CIPF) and the Canada Deposit Insurance Corporation (CDIC) are organizations designed to protect consumers in the financial sector.
CIPF vs CDIC key points:
The CIPF is funded by member financial institutions and protects client accounts (cash and securities) from losses of up to $1 million per client if a member institution becomes insolvent.
The CDIC provides deposit insurance for clients of member institutions of approximately $100,000 in most cases for savings accounts and certain deposits.
What is the Canadian Investor Protection Fund (CIPF)?
The CIPF is a not-for-profit organization that was created to provide protection to clients of its member firms in the event that a member firm becomes insolvent. CIPF is funded by its member firms, which include investment dealers, mutual fund dealers, and scholarship plan dealers.
Its primary purpose is to compensate clients who have lost money as a result of the insolvency of a member firm.
In the event that a CIPF member firm becomes insolvent, the CIPF will step in to compensate eligible clients for their losses, up to a maximum of $1 million per client.
This includes any cash or securities held by the firm on behalf of the client, as well as any unfulfilled purchase or sale transactions.
The CIPF does not cover losses resulting from market fluctuations or from the performance of the investments themselves.
What is the Canadian Deposit Insurance Corporation (CDIC)?
The CDIC is a federal Crown corporation that provides deposit insurance to depositors in the event that a member institution fails.
The CDIC is funded by premiums paid by its member institutions, which include banks, trust companies, and loan companies. Its primary purpose is to protect depositors in the event of a failure of a member institution and to promote stability in Canada’s financial system.
In the event that a CDIC member institution fails, the CDIC will step in to protect depositors by providing insurance for their deposits up to certain limits. For most depositors, the CDIC insures deposits up to a maximum of $100,000 per depositor, per insured category.
This includes deposits held in chequing accounts, savings accounts, and term deposits, as well as other types of deposits. The CDIC does not cover investments such as stocks, bonds, or mutual funds.
Differences between the Canadian Investor Protection Fund (CIPF) and the Canadian Deposit Insurance Corporation (CDIC)
There are several key differences between the CIPF and CDIC.
The CIPF provides protection to clients of its member firms in the event of the firm’s insolvency, while the CDIC provides insurance for deposits at member institutions in the event of their failure.
A key difference is the types of financial institutions that are covered by each. The CIPF primarily covers investment dealers and mutual fund dealers, while the CDIC covers banks, trust companies, and loan companies.
Another difference is the amount of protection that is offered by both organizations. The CIPF provides compensation of up to $1 million per client in the event that a member firm experiences bankruptcy, while the CDIC insures deposits up to a maximum of $100,000 per depositor per insured category.
The CIPF does not cover losses resulting from market fluctuations or from the performance of the investments themselves. The organization is not designed to protect against market volatility but rather from the inability of an investment member firm to honour a client’s investments or assets.
The CDIC does not cover investments such as stocks, bonds, or mutual funds. Some investments or holdings that are covered by the CDIC include:
- Guaranteed investment certificates (GICs)
- Term deposits
- Savings accounts
- Chequing accounts
History of Actions by Both Organizations
Both CIPF and CDIC have had to get involved with failing organizations in the past. These involvements have helped to protect Canadians’ assets and maintain faith in the Canadian financial system.
History of Involvement by CDIC
The CDIC has helped protect investors from the failure of over 40 member institutions in 1970.
Some more recent examples include:
- 1996 – Security Home Mortgage Corporation
- 1995 – NAL Mortgage Company
- 1995 – North American Trust Company
- 1995 – Income Trust Company
- 1994 – Monarch Trust Company
- 1994 – Confederation Trust Company
- 1993 – Prenor Trust Company of Canada
Since the creation of the Canadian Deposit Insurance Corporation, it has helped to protect over two million Canadian depositors.
History of Involvement by CIPF
The CIPF has helped to protect investors from the failure of over 21 member institutions going back to 1970.
Some recent examples include:
- 2001 – Maxima Capital Inc.
- 2001 – Rampart Securities Inc.
- 2002 – Thomson Kernaghan & Co. Limited
- 2011 – MF Global Canada Co.
- 2012 – Barret Capital Management Inc.
- 2012 – First Leaside Securities Inc.
- 2015 – Octagon Capital Corporation
Both the CIPF and the CDIC are essential elements of the Canadian financial landscape that help to maintain a high level of investor confidence in the system.
Although both the CDIC and CIPF are in place to help investors in the event of unforeseen financial institution insolvencies, they are very different in their scope and function.
The CIPF is designed to help protect investor assets at member financial institutions, including both cash and securities, for up to $1 million per client. It is not designed to protect members from losses that result from market declines.
The CDIC is designed to protect deposits at member institutions of up to $100,000 in most cases. Eligible assets that are covered typically include savings accounts, chequing accounts, and GICs.
If you are new to investing and the financial landscape in Canada, make sure to check out my guide on investing for beginners in Canada.