Canada’s financial system is known around the world for its stability, but it isn’t immune to the pressures that face global banking. Economic uncertainty, changing regulations and shifting investment markets can all lead to a lack of trust in financial institutions.
Protection for investments and deposits, however, can play a role in bolstering investor confidence and injecting dependability into financial systems—which is where the Canada Deposit Insurance Corporation (CDIC) and the Canadian Investor Protection Fund (CIPF) step in.
What happens if your financial institution fails?
Canadians generally have two basic sources of account protection: the Canada Deposit Insurance Corporation (CDIC), and the Canadian Investor Protection Fund (CIPF). The CDIC is a federal Crown corporation, established by an act of Parliament in 1967, and CIPF is a not-for-profit corporation created by the Canadian investment industry in 1969.
The CDIC protects eligible deposits, within stated limits, made to member institutions—banks, trust companies, loan companies, and federal credit unions— in case a member institution goes under.
CIPF, for its part, protects property in client accounts, again within specified limits, if a CIPF member— investment firms that are members of the Investment Industry Regulatory Organization of Canada (IIROC)—fails.
What does each type of protection cover?
Although the two institutions may sound similar, they provide coverage for different types of financial institutions and were established to fill two different purposes:
The CDIC ensures Canadians don’t lose the money they’ve deposited as cash and Guaranteed Investment Certificates (GICs); invested funds are not covered by the CDIC. The goal of CDIC is to ensure that Canadians feel confident in the Canadian banking system. Without these protections in place, depositors might prefer to stash their money away under the mattress instead.
In contrast, CIPF doesn’t cover investment losses. The goal of CIPF is to return your property, such as securities and cash, if your investment dealer folds.
How are hybrid accounts protected?
In recent months, the difference between these two forms of coverage has gained attention, in part because Canadian online portfolio manager Wealthsimple launched Wealthsimple Cash in January 2020. This hybrid account combines the features of a high-interest savings account, a prepaid Visa debit account and a regular spending account (the latter is similar to a traditional chequing account).
Unlike Wealthsimple’s previous Smart Savings accounts, which are eligible for CDIC coverage (as they were deposited with CDIC members), Wealthsimple Cash accounts are eligible for protection by CIPF, not CDIC. Balances in Wealthsimple Cash accounts are held in an account with Canadian ShareOwner Investments, Wealthsimple’s custodial affiliate dealer, which is a CIPF member. (As an investment dealer, Canadian ShareOwner Investments, holds and custodies investor assets for Wealthsimple customers.) CIPF protection is triggered, however, only if Canadian ShareOwner goes insolvent, not Wealthsimple.
Now that Canadians have access to a “bank-like” product that doesn’t have the traditional protections offered to banking clients, should they be worried about the lack of depositor protection on these “hybrid” accounts—or is the coverage provided by the CIPF adequate? Let’s take a closer look at how the CIPF’s coverage works.
How CIPF protects Canadian investors
When an investor opens an account with a CIPF member, they automatically receive CIPF coverage. In other words, you don’t need to apply or take any other action in order to be protected.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
