Background

The Canadian Deposit Insurance Corporation, or CDIC, is a Canadian federal Crown corporation created by Parliament in 1967 to contribute to the stability of the financial system through orderly resolution of deposit insurance. It insures eligible Canadian deposits held in Canadian banks up to C$100,000 in the event of the failure of a member institution (MI). CDIC is fully funded by its members. Not all financial institutions are CDIC insured. A list of CDIC members is available on their website.

The CDIC regime requires MIs to obtain and disclose information on accounts eligible for deposit insurance to the CDIC annually, including accounts held by trustees. This information is used to calculate deposit insurance coverage to ensure funds held in trust for beneficiaries receive optimal deposit insurance protection.

Current Process

Under the Canada Deposit Insurance Corporation Joint and Trust Account Disclosure By-Law (JTDB), a MI has the obligation to annually notify certain trustee depositors, including legal professionals, about their disclosure requirements.  The notification is to be sent during the month of April in each year and the trustee depositor must make its disclosure to the MI by May 30^th of each Year.

Under the current CDIC disclosure reporting requirement, legal professionals must disclose the beneficiaries of trust accounts directly to their financial institutions annually. This report requires the name, address and balance attributed to each beneficiary. In the case of a law firm, the name and address can be substituted by an alpha numeric ID to protect solicitor-client privilege as long as that ID can be found in the firm’s up-to-date records. The financial institution then shares that information with CDIC so that it can identify beneficiaries of trust accounts in the event of the failure of a MI.

Updating the information ensures that eligible deposit monies will be covered by CDIC up to a maximum of $100,000 per beneficiary and will be insured separately from other deposits in your pooled trust account.  Without this information, the account deposit will only be eligible for coverage in total of $100,000 in the event of the failure of a MI.

New Process Effective April 30, 2022

As of April 30th, 2022, CDIC is introducing new disclosure requirements for deposits held in trust following amendments to the federal CDIC Act. The new rules will create a special category of Professional Trustees, which includes legal professionals, who will have unique disclosure requirements.

The new rules will require law firms or legal professionals who hold funds in trust to designate those accounts as Professional Trustee Accounts (PTAs) with their financial institutions that are insured by CDIC. Rather than making an annual disclosure of the identities of the beneficiaries of trust accounts, law firms and legal professionals must attest annually to their financial institution that they qualify as a professional trustee under the CDIC Act and indicate which accounts are PTAs. Law firms and legal professionals will be asked to provide information identifying beneficiaries directly to CDIC only in the event of the failure of a financial institution. CDIC will no longer accept alphanumeric IDs in lieu of information identifying clients as beneficiaries; therefore, prior to making such a disclosure, the law firm or legal professional would have to obtain the consent of their client(s) to protect solicitor-client privilege.

What do I need to do now?

Trust accounts held by Professional Trustees are not automatically treated as professional trust accounts. To qualify for the professional trustee reporting rules, a law firm or legal professional must:

• Hold a deposit account “In Trust” at a CDIC MI;
• Designate all CDIC insured trust accounts as PTAs with your financial institution;
• Complete the required attestation to your financial institution that you qualify as a Professional Trustee and provide your contact information;
• Meet ongoing obligations as a Professional Trustee:
  • Maintain up-to-date beneficiary records;
  • Specify the type of deposit account;
  • Provide information to CDIC upon request;
• Annually re-attest to your status as a Professional Trustee to their financial institution

Please Note

• To designate an account or accounts as PTAs, or remove a Professional Trustee designation, you must contact your financial institution. These requests must be done directly with your financial institution.
• Once an account is designated as a PTA, the legal professional does not have to regularly report beneficiary information to CDIC member institutions for that PTA account. However, legal professionals must meet their ongoing obligations to maintain their professional trustee status, including annually re-attesting their status to their financial institution(s).
• Failure to designate eligible trust accounts as PTAs would result in the rules for general trust accounts applying, which are not well suited for professional trust accounts. These rules require updated disclosure of beneficiary information every time there is a change in either a beneficiary or their interest in the deposit, and there is no longer the ability to submit an updated beneficiary list after the MI fails. Further, since CDIC will no longer accept alphanumeric IDs in place of information identifying beneficiaries, law firms or legal professionals would be required to obtain client permission prior to each disclosure.

For more information regarding the changes to disclosure requirements consult the CDIC overview of the changes, the CDIC Act, visit CDIC’s website or call CDIC’s toll-free information line at 1-800-461-2342.

FAQ’s

Who are professional trustees?

• CDIC defines a professional trustee as including a lawyer or partnership of lawyers, a law corporation or a notary or partnership of notaries in the province of Quebec, when they act in that capacity as a trustee of money for others.

What is a professional trustee account (PTA)?

• A professional trust account is an account that Professional Trustees can designate are a new classification of trustees who may opt into less onerous disclosure requirements for accounts they designate Professional Trustee Accounts (PTAs).

Can I still use alphanumeric IDs to identify my client(s) when disclosing information under the new CDIC regime?

• As of April 30, 2022, alphanumeric IDs will no longer be acceptable for the disclosure of trust beneficiaries. Since legal professionals can no longer use this option, they will have to obtain the consent of clients before disclosing identifying information to CDIC. A client who does not consent to the disclosure will not be eligible for compensation through CDIC in the event of a member institution’s failure. That would not prevent the client from seeking recovery through a bankruptcy proceeding or the courts.

Why are these new rules important for trustees?

• The new rules are important because they affect how deposits held by professional trustees receive deposit insurance protection, and how CDIC would address these deposits in the event of failure of a CDIC member institution.
• Professional trustee designation must be maintained annually to ensure that client funds in the trust account(s) receive the maximum amount of recovery in event of the failure of a CDIC insured financial institution.

Do the new rules change how my deposits are protected?

• CDIC continues to insure eligible deposits in trust to a maximum of $100,000 per beneficiary under the new rules.

When do these new rules take effect?

• The new rules will take effect on April 30, 2022.

Who are CDIC Member Institutions (MI)?

• MIs include banks, federally regulated credit unions as well as loan and trust companies and associations governed by Cooperative Credit Associations Act that take deposits. A list of CDIC members is available on their website: cdic.ca.
• CDIC has resolved 43 MI failures affecting some two million Canadians; to date, no one has lost a dollar of deposits protected by CDIC

How is client confidentiality protected with the new reporting rules?

• Once an account is designated as a PTA, the lawyer benefits from less onerous and more streamlined reporting requirements by not reporting beneficiary information regularly to CDIC member institutions and thus, protecting client confidentiality. Professional Trustee’s however, must maintain up-to-date beneficiary records and provide the beneficiary information only upon request to CDIC, usually in the event of failure of a CDIC member institution. Prior to making such a disclosure, the legal professional or law firm would have to obtain the consent of their clients.