Policies & Guidelines

Canadian Investor Protection Fund

Policies and Guidelines

CIPF Assessment Policy

February 2, 2018

ASSESSMENTS

CIPF is authorized to assess Members in order to provide resources for the Fund that it maintains to pay losses to eligible customers of insolvent Members, to repay any of its obligations under its credit facilities, and to pay operating expenses. All IIROC Dealer Members are required to be Members of CIPF and are required to pay an assessment to CIPF. The assessment is collected by IIROC and remitted to CIPF under the terms of the Industry Agreement.

POLICY

This Policy has been adopted by the CIPF Board to describe the basis and rate on which it intends to assess CIPF Members. Assessments are levied according to a formula and methodology which is determined by the CIPF Board in its discretion and may, without limitation, reflect risks relating to all Members, classes or groups of Members or individual Members including such risks as are identified in risk models adopted by IIROC

In the case of any question or dispute the interpretation of this Policy by the CIPF Board shall be final and conclusive. This Policy and any matters determined by the CIPF Board in respect of CIPF Member assessments may be amended from time to time in the sole discretion of the CIPF Board.

BASIS OF ASSESSMENT

Quarterly Assessment

An assessment is levied each quarter as of the due date of the March, June, September and December Monthly Financial Report.

The quarterly assessment is subject to a maximum and minimum amount.

Additional Assessments

The following additional assessments may also be levied:

During a Member’s first 36 months of CIPF Membership (New Member Assessment);
For the largest capital deficiency a Member incurs in any month (Capital Deficiency Assessment);
If required to cover the operational expenses of CIPF; and
To the extent necessary to permit CIPF in any calendar year to meet its obligations, when due, under any credit facilities provided to CIPF.

RATE OF ASSESSMENT

I) Quarterly Assessment

The CIPF Board determines an annual assessment target that takes into consideration various factors such as:

(a) Any shortfall between the actual fund size and the fund size required for the risks identified

(b) Total Fund expenses for the period

(c) Income earned on the fund assets

(d) The expected Member loss for the period as determined by the model

The assessment target is allocated to Members quarterly using the differential assessment formula under which each Member pays a percentage of the target assessment in proportion to its risk relative to all Members.

The Differential Assessment Formula is the Member’s share of risk multiplied by the Assessment Target

Where the Member's share of the risk is determined as follows:

(PD*EaD_{industry} * LD_{Industry} * CNE)_{Member} _{_______________________________________________}

∑(PD*EaD_{Industry} * LD_{Industry} * CNE)_{{All Members}})

PD is the probability of a Member defaulting and is determined using a model approved by the CIPF Board from time to time and posted to the Member’s section of the CIPF website.

EaD_(industry) is an estimated percentage loss to CIPF assumed to occur at the date of default. It is constant for all Members and is approved by the CIPF Board from time to time.

LD_(industry) is an estimated percentage loss to CIPF assumed to exist after the trustee has completed administration of the defaulting Member's estate. It is constant for all Members and is approved by the CIPF Board from time to time.

CNE is the client net equity reported on Form 1. A Member's monthly reported CNE total may be reduced, at the Member's option, for certain customer accounts approved by the CIPF Board and posted to the Member’s section of the CIPF website.

Quarterly Assessments are prorated for the number of days of Membership in the first quarter of Membership.

Adjustments to PD

CIPF reserves the right to review and adjust for transactions with related parties^[1] that have an impact on a Member’s PD.

II) Asset Location Assessment

An Asset Location Assessment may be levied in those instances where a Member is determined to have a high degree of Asset Location Risk as determined by the Member specific EaD calculated using CIPF's fund resource model (EaD_(calculated)).

Where a Member's EaD_(calculated) is greater than a percentage approved by the Board from time to time, an Asset Location Assessment may be levied as follows:

PD_{Member}*LD_{Industry} * (75% EaD_(calculated) - EaD_(industry))* CNE

III) Maximum Quarterly Assessment

The maximum Quarterly Assessment is ¼% of the aggregate of the Member’s Total Revenue as reported in the Monthly Financial Report for the immediately preceding four completed quarters.

Adjustments to Total Revenue

For Members where the maximum Quarterly Assessment might otherwise apply, CIPF reserves the right to review and adjust Total Revenue for transactions with related parties.

IV) Minimum Quarterly Assessment

The minimum quarterly assessment is $1,250, except for Members that have entered into a Type 1 Introducing Agreement with another Member, in which case the minimum quarterly assessment is $125.

V) Additional Assessments

i. New Member Assessment

New Members, or existing Members that are deemed to be new Members due to a business combination, pay a New Member Assessment in addition to the Quarterly Assessment. The New Member assessment is equal to the Quarterly Assessment and is paid for three years (36 months).

The New Member Assessment is prorated for the number of days of membership in the first quarter. The final New Member assessment is prorated so that it ends on the three-year anniversary of Membership.

Where sufficient data is not available to determine the PD of a new Member, the median of all Members is used.

Business combinations, such as mergers of Members, the purchase of a Member by another Member, or the purchase of a non-Member by a Member are reviewed by CIPF to determine whether or how, in the discretion of CIPF, a New Member Assessment is levied. Among other factors considered, is the impact of the transaction on the level and type of client assets, and the management of the new entity and the management controls and processes in place.

ii. Capital Deficiency Assessment

Where a Member has incurred a capital deficiency pursuant to IIROC rules in any month, the Member is assessed a Capital Deficiency Assessment.

The Capital Deficiency Assessment is determined by multiplying the Risk Adjustment Percentage ("RAP") by the annualized quarterly assessment for the quarter in which the capital deficiency incurred. The Capital Deficiency Assessment is payable in equal amounts over four quarters beginning with the quarter immediately following the quarter in which the capital deficiency was discovered.

The Capital Deficiency Assessment is subject to a minimum assessment of $1,250 per quarter, except for Members that have entered into a Type 1 Introducing Agreement with another Member, in which case the minimum quarterly assessment is $125.

RAP is the percentage obtained when the absolute value of the Member's capital deficiency is divided by its net allowable assets on the date of the capital deficiency, and such percentage is not to exceed 100%.

A capital deficiency is the largest known capital deficiency during a given month. If a deficiency extends over multiple months, the capital deficiency in each month is considered a separate capital deficiency unless CIPF in its discretion determines otherwise.

iii. Assessment To Cover Operational Expenses of The Fund

Where a special assessment is required to cover operational expenses not otherwise covered by other assessments, the rate of assessment will be determined by the CIPF Board after considering all relevant facts.

iv. Assessment To Meet Credit Obligations

Where a special assessment is required to permit CIPF in any calendar year to meet its obligations, when due, under any credit facilities provided to CIPF, the rate of assessment will be determined by the CIPF Board after considering all relevant facts.

VI) Resignations, Suspensions and Terminations

A resigning, suspended or terminated Member will be assessed a final quarterly CIPF assessment in the quarter in which all of the following three conditions have been met:

The Member has transferred all customer accounts to another Member.
The Member has no remaining approved persons other than shareholders, the Ultimate Designated Person, the Chief Compliance Officer and the Chief Financial Officer.
In the case of a resigning Member, the Member has provided written notice of its resignation to IIROC.

Any unpaid capital deficiency assessment will be due on the due date of the final quarterly assessment.

^[1] "Related parties" as defined by International Financial Reporting Standards under IAS 24 - Related party disclosures.

CIPF Assessment Appeal Procedures

June 23, 2020

Download Assessment Appeal Procedures

Background

These Assessment Appeal Procedures should be read in conjunction with CIPF’s Assessment Policy. The Assessment Policy sets out the basis and rate of assessment that will be levied on CIPF member firms.

CIPF is authorized to assess member firms pursuant to Section 2.1 of the Industry Agreement between CIPF and the Investment Industry Regulatory Organization of Canada (IIROC) dated September 30, 2008, as amended. Under the agreement, CIPF determines the amount of assessment that IIROC must collect for each member firm. IIROC Rule 41 requires member firms to pay those assessments.

Limited Appeals

The determination of CIPF's Assessment Policy and its application to member firms or any individual member firm is not subject to review or appeal by a member firm except only to the extent of the calculation of the amount of a member firm's Quarterly Assessment, New Member Assessment, Capital Deficiency Assessment, and Asset Location Assessment (ALA) within the formula and methodology adopted by CIPF for determining assessments. In particular, fund size, the basis of assessments, IIROC’s decision that a member firm was capital deficient, the rate of assessments (including, without limitation, the differential assessment formula, minimum and maximum assessments, identification and weightings of quantitative and qualitative factors and the probability of default assigned to a differential assessment rate), the Exposure at Default (EaD) as calculated using CIPF’s fund liquidity model, and the ALA EaD threshold, as approved by the Board, are not subject to review or appeal.

Appeals must be submitted in writing within 45 calendar days of the payment due date of the assessment amount subject to appeal.

Responsibility for setting the Assessment Appeal Procedures resides with the CIPF Board. However, the Board has delegated responsibility for overseeing compliance with the Assessment Appeal Procedures, and for deciding appeals to the Industry Risk Committee.

During the appeal process member firms are required to pay the assessed amount. If the member firm is successful in its appeal, CIPF will promptly refund the amount collected in excess of the adjusted assessment amount. Any costs incurred by a member firm relating to an appeal will not be paid by CIPF.

Appeal Procedures

A member firm can appeal the CIPF Assessment levied to it by submitting a request to the Vice-President, Industry Risk of CIPF, at [email protected] . Requests for an appeal must be made to CIPF in writing within 45 calendar days of the payment due date of the assessment amount subject to appeal. For Capital Deficiency Assessment appeals, which are typically payable over four installments, the appeal must be commenced in writing within 45 calendar days of the payment due date of the first installment.
Within 10 business days of receiving an appeal request, CIPF will acknowledge receipt of the request to the member firm and provide preliminary timelines for the appeal process.
Prior to commencement of an appeal that relates to CIPF’s determination of the probability of default calculated by the CIPF model, CIPF staff will review the factor inputs to determine if changes to the member firm’s probability of default are justified.
1. If CIPF staff concludes that a change is justified, it will advise the member firm of its adjusted assessment amount. The member firm can decide to accept the adjusted amount or continue with an appeal. Where the member firm accepts the adjusted amount CIPF will endeavor to refund any amount that has been paid by the member firm in excess of the adjusted amount within 30 days
2. If CIPF staff concludes that a change is not justified, it will discuss its review with the member firm. The member firm can decide whether or not to continue with its appeal.
Where the appeal continues or the assessment appeal does not require a review of the probability of default:
1. CIPF staff will prepare an Appeal Summary of Facts to assist the Industry Risk Committee in considering the member firm’s appeal.
2. The Summary of Facts will be provided to the member firm for review and comment. Comments received will be incorporated in the document.
3. The member firm will be asked to confirm that the Summary of Facts is complete and accurate.
4. The member firm will be notified, in writing, of the date, time and place of the appeal meeting.
5. The Industry Risk Committee and the member firm will be provided with:
6. The appeal meeting shall be attended by the Chair of the Industry Risk Committee, and at least 2 other Committee members, of which one must be a public Director.
7. Any participant in the appeal can appear in person or by teleconference.
8. The member firm may have legal counsel or other advisors present at the appeal, but it is not necessary to do so.
9. CIPF staff will also attend the appeal to take minutes, address questions or assist the Committee as required.
10. The member firm, or its legal counsel, or other advisors, may take notes or transcripts of the meeting at their own expense.
11. After the appeal CIPF staff, the member firm and its legal counsel or other advisors will be excused to permit the Industry Risk Committee to deliberate.
12. The Industry Risk Committee will decide on the appeal, by simple majority, and document the reasons for its decision.
13. The member firm will be advised in writing of the Industry Risk Committee’s decision including the reasons for the decision.
14. If the member firm’s appeal is successful, CIPF will endeavor to refund any amount that has been paid by the member firm in excess of the adjusted assessment within 30 days.