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Government Regulation and Protection Funds

On the FPE1® and FPE2® examinations it is likely that you will be tested on your knowledge of government regulations and, in particular, client protection funds. In this e-newsletter, I will describe regulations and protection funds in respect to banks, trust companies, life and health insurance companies, investment dealers and mutual fund dealers.

Banks and Trust Companies

In Canada, the Office of the Superintendent of Financial Institutions (OSFI) oversees the activities of banks and certain activities of federally incorporated life and health insurance companies and trust companies. For example, OSFI attempts to protect the public against the bankruptcy of a bank, or federally incorporated life and health insurance company, or trust company, by setting capital requirements and conducting audits on these financial institutions.

In respect to protection funds, the federal government backs the Canada Deposit Insurance Corporation (CDIC), which protects clients of banks and federally incorporated trust companies against the bankruptcy or insolvency of a bank or trust company. CDIC coverage is as follows:

  • Each individual’s account and deposits are covered for a maximum of $100,000.
  • Any deposit with an original maturity date of more than five years is not covered by the CDIC.
  • Foreign currency deposits are not covered by the CDIC.
  • Joint accounts are considered an individual account for coverage purpose. For example, if John and Mary (husband and wife) have personal accounts and a joint account at a bankrupt bank, they would be covered for a maximum of $300,000 ($100,000 each and the joint account is covered for a maximum $100,000)
  • All deposits held in RRSPs with the same member institution, including deposits in a self-directed RRSP, are covered for a maximum of $100,000 (principal and interest combined).
  • All deposits held in RRIFs with the same member institution, including deposits in a self-directed RRIF, are covered for a maximum of $100,000 (principal and interest combined).
  • Spousal RRSP contributions are combined with other deposits held in RRSP plans, under the name of the spouse or common law partner, with the same member institution, and are not combined with deposits of the contributor.
  • Deposits held in trust are insured to a maximum of $100,000. All eligible deposits having both the same trustee and the same beneficiary are combined. If the trust deposit has more than one beneficiary, the portion owned by each beneficiary is insured up to $100,000.

Life and Health Insurance Companies

The federal and provincial governments share jurisdiction over regulating life and health insurance companies in Canada. In general, federal legislation attempts to ensure federally incorporated life and health insurance companies remain solvent. This is the responsibility of the Office of the Superintendent of Financial Institutions (OSFI). Provincial/ territorial legislation deals with insurance contracts issued to the public, agent licensing, and supervision of provincially incorporated life insurance companies.

The Canadian Council of Insurance Regulators (CCIR), an association of provincial/territorial insurance regulators, promotes an effective regulatory system and harmonized insurance policies and regulation across Canada.

The Canadian Life and Health Insurance Association (CLHIA) is the self-regulatory organization (SRO) for the life and health insurance business. The CLHIA engages in self-regulation, working with the provincial superintendents of insurance. The CLHIA’s life and health insurance industry consumer protection plan is called Assuris. Within limits, Assuris protects Canadian policy owners against the loss of benefits should a CLHIA member company become insolvent or bankrupt and be forced to wind up its affairs.

In the event of insolvency or bankruptcy of a member company, Assuris guarantees clients protection and continued coverage as follows:

  • For life insurance death benefits, the greater of $200,000 or 85% of the promised benefits
  • The greater of $60,000 cash value of a life insurance policy or 85% of the promised benefits
  • A maximum of $100,000 for non-registered accumulation plans
  • A maximum of $100,000 for RRSPs, RRIFs, pension policies and other policies registered under the Income Tax Act
  • The greater of $2,000 per month of income for annuities, disability income policies, long-term care policies or 85% of the promised benefits
  • For other health benefits including critical illness, the greater of $60,000 or 85% of the promised benefits
  • The greater of $60,000 for segregated funds or 85% of the promised benefits

Investment Dealers and Mutual Fund Dealers

In Canada, the regulation of securities, including mutual funds, falls under provincial and territorial jurisdiction. In a Canada that includes ten provinces and three territories, there are thirteen securities acts and thirteen securities administrators. The major purpose of a securities act is to protect the investor. Securities administrators register companies that sell securities and mutual funds to the public. Two separate registration categories include investment dealers (who can sell a broad range of securities, including mutual funds, to the public) and mutual fund dealers (who can sell mutual funds and related products to the public).

The Investment Industry Regulatory Organization of Canada (IIROC) is the self-regulatory organization that oversees investment dealers in Canada. The Mutual Fund Dealers Association (MFDA) is a self-regulatory organization that oversees mutual fund dealers in Canada (except Quebec).

In respect to protection funds, investment dealers are required to contribute to the Canadian Investor Protection Fund (CIPF), which is overseen by the IIROC. Mutual fund dealers are required to contribute to the Investor Protection Corporation (IPC), which is overseen by the MFDA.

Canadian Investor Protection Fund (CIPF)

When an investment dealer becomes insolvent or bankrupt, the CIPF deems that the client has two categories of accounts for coverage purpose, general and separate.

A general account is the total of all accounts in the name of the individual. For example, if Susan has four accounts personally, including a cash account, margin account, options account and futures account, the balances in these accounts (less any loans) would be totalled and included in her general account. The general account provides maximum coverage of $1 million.

In respect to joint accounts, the client’s proportionate share in the joint account is added to their general account. If Robert has $300,000 in his cash account and Robert and Gwen have a joint account worth $800,000, Robert would add half this amount of $400,000 to his general account (assuming the account is split equally). Robert’s general account would now be worth $700,000 ($300,000 + $400,000). The other $400,000 from the joint account would be added to Gwen’s general account. If the amount added from the joint account causes the general account to exceed $1 million, the general account would be capped at $1 million.

In addition to the general account, a client is deemed to have separate accounts. There are various types of separate accounts. Each separate account is covered for a maximum of $1 million. Types of separate accounts include: retirement accounts (the total of RRSPs, RRIFs, LIRAs, LIFs, etc); registered education savings plans; testamentary trusts; and various other categories. If Sandra has an $800,000 RRSP, a $100,000 RRIF and a $150,000 RESP set up for her daughter Julie, Sandra would have two separate accounts. The retirement account would be covered for $900,000 ($800,000 RRSP and $100,000 RRIF), while the RESP would be covered for $150,000.

Investor Protection Corporation (IPC)

Mutual fund dealers (with the exception of Quebec) must contribute to the Investor Protection Corporation (IPC). If a MFDA firm goes bankrupt or insolvent, clients are covered by the IPC for up to $1 million. IPC is similar to CIPF in covered amounts and accounts (general and separate accounts).

For more information on these industry protection funds, please visit:



You might want to attempt the following questions. The answers will be taken up in the next e-newsletter.

1. The Exceptional Bank, a Canadian Schedule I Bank, declared bankruptcy on March 1, 2012. As of that date, Samantha and Richard Spires, sister and brother, had the following accounts:

Personal Chequing Account (PCA): $30,000
Savings Account: $40,000
7 Year Guaranteed Investment Certificate: $9,000.

Savings Account: $36,000
US Savings Account: $46,000 US ($46,500 Canadian)

Samantha and Richard:
Joint Savings Account (Joint with Rights of Survivorship): $112,000

What is correct about the CDIC coverage for Samantha and Richard, respectively?

  1. Samantha: $126,000; Richard: $92,000
  2. Samantha: $120,000; Richard: $86,000
  3. Samantha: $129,000; Richard: $132,000
  4. Samantha: $100,000; Richard: $86,000

2. Jon invested a $100,000 lump sum into a Canadian Equity segregated fund contract with Lucky Life Insurance Company. It had a 75% death guarantee and maturity guarantee. Unfortunately for Jon, Lucky Life Insurance Company ended up going out of business. This occurred during a spectacular stock market crash. His segregated fund contract’s value dropped to $55,000. Jon was so upset about this that he had a massive heart attack and died. What is Assuris’ liability to the beneficiary?

  1. $75,000
  2. $63,750
  3. $60,000
  4. $8,750

3. Omar has cash and securities of $1 million in a RRSP account, $40,000 in a cash account, $90,000 in a joint account (rights of survivorship) with his brother, and $5,000 in a trust account in the name of his son. The trust account has a valid trust agreement. All of the accounts are held at his investment dealer, Dependable Securities Inc., an IIROC member that went bankrupt. How much protection is received under CIPF, for Omar?

  1. Omar’s cash account: $40,000 insured
    Omar’s share in joint account of $45,000 [$90,000/2] insured
    Omar’s RRSP account: $1 million insured
    Omar’s son’s trust account: $5,000 insured

  2. The value of Omar’s general account, which combines his interests in all accounts is insured for $1 million.

  3. Omar’s general account: $130,000 insured
    Omar’s separate account, which combines his RRSP and son’s trust account, is insured for $1 million.

  4. Omar’s cash account: $40,000 insured
    Omar’s joint account interest is a separate account: $90,000 insured.
    Omar’s son’s trust account: $5,000

Concluding Comments

This is just a reminder that beginning with this June 9, 2012, exam, both FPE1 and FPE2 will be completed electronically at computer-based testing facilities across Canada. Candidates for FPE1 and FPE2 will now complete the exam on computers at the testing centres. Previously, FPE1 was a paper-based examination.

We at Foran and Advocis want to wish you good luck on your endeavours with the Advocis CFP program.


Ron Foran, CFP, CFA, CLU, FCSI
President, Foran Financial Institute

Ron Foran is the founder of Foran Financial Institute. He has lectured extensively for 25 years on investments and financial planning across Canada and globally. Ron has a passion for teaching, training and assisting students to pass exams and is the primary instructor for Foran securities and investment management seminars. If you want to learn more about Ron or Foran Financial Institute, please go to


Note: Advocis does not award the CFP® and Certified Financial Planner® designation. The right to use the marks CFP®, CERTIFIED FINANCIAL PLANNER® and CFP(logo) is granted under licence by FPSC to those persons who have met its educational standards, passed the FPSC's Certified Financial Planner Examination, satisfied a work experience requirement, and agreed to abide by FPSC Code of Ethics.