If an investment dealer becomes insolvent, special rules determine what happens to client property. The most important name to remember is CIPF.

 

1️⃣ CIPF — Canadian Investor Protection Fund

📌 Short Description: CIPF is a protection fund that helps return eligible client property that is missing when a CIRO member investment dealer becomes insolvent.

🌟 Golden Point: CIPF protects eligible missing client property when a member dealer fails — it does NOT protect against investment or market losses.

🔑 Think: Dealer Failed + Client Property Missing → CIPF 🛡️

Example:

Your shares are worth less because the market dropped → ❌ Not CIPF

Your CIRO member dealer becomes insolvent and eligible property that should be in your account is missing → ✅ CIPF may apply

 

💰 CIPF Coverage Limits

CIPF generally provides separate $1 million coverage limits for different account categories.

 

1️⃣ General Accounts — Maximum $1 Million Combined

  • Cash accounts

  • Margin accounts

  • TFSA

  • FHSA

Example: Cash Account = $700K + TFSA = $500K → Total = $1.2M → Maximum coverage = $1M

 

2️⃣ Registered Retirement Accounts — Maximum $1 Million Combined

  • RRSP

  • RRIF

  • LIF

Example: RRSP = $800K + RRIF = $400K → Total = $1.2M → Maximum coverage = $1M

 

3️⃣ RESP Accounts — Maximum $1 Million Combined

Example: RESP = $1.3M → Maximum coverage = $1M

🌟 Golden Point: The limits apply separately by CIPF account category, not simply as one $1 million limit for everything.

🔑 Think: General → $1M 💵 | Retirement → $1M 👴 | RESP → $1M 🎓

 

🔄 What Happens When a Dealer Becomes Insolvent?

Step 1 — Dealer Becomes Insolvent

The dealer cannot meet its financial obligations.

Step 2 — Customer Assets Are Identified

Client cash, securities, and other eligible property are identified.

Step 3 — Customer Assets Are Pooled

Available customer property is pooled and distributed among customers according to the applicable insolvency rules.

Example:

Nav → $500K
Sarah → $300K
John → $200K
Total owed → $1M

Dealer has only $800K of customer property available.

➡️ The available property is distributed among customers according to the applicable rules.

Step 4 — CIPF Covers Eligible Shortages

If eligible client property remains missing, CIPF may cover the eligible shortage, subject to its coverage limits and rules.

🌟 Golden Point: CIPF helps return missing client property — it does not compensate clients because their investments lost value.

 

2️⃣ Securities Firm Bankruptcy

📌 Short Description: Special rules under Canada’s Bankruptcy and Insolvency Act (BIA) deal with customer property when a securities firm becomes bankrupt.

🌟 Golden Point: Client property is subject to special protections and distribution rules rather than simply being treated like the firm’s ordinary property.

🔑 Think: Dealer Bankruptcy → Special Client Property Rules 📜

 

3️⃣ General Creditors

📌 Short Description: People or businesses the failed dealer owes money to that do not have specific client-property protection.

🌟 Golden Point: Eligible client property protections are dealt with separately from ordinary creditor claims under the applicable insolvency rules.

🔑 Think: Clients’ Protected Property ≠ Ordinary Dealer Debt

 

🌟 Golden Exam Rule

CIPF → Dealer Insolvency + Missing Property 🛡️

General Accounts → Up to $1M 💵

Registered Retirement Accounts → Up to $1M 👴

RESP Accounts → Up to $1M 🎓

Market Loss → Investor Bears the Loss 📉

BIA → Bankruptcy & Customer Property Rules 📜

General Creditor → Ordinary Claim Against Dealer 💵

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