MFDA to go it alone on investor protection fund

(October 14, 2004) After years of debate, the Mutual Fund Dealers Association has decided to set up its own $30 million investor protection fund, opting out of joining the already-established Canadian Investor Protection Fund (CIPF), at least for the time being.

Initially, the MFDA said it would establish its own fund, but backtracked on the issue following member comments suggesting that two separate investor protection funds would be costly and unnecessary.

The MFDA began talks with the CIPF this spring. Although the MFDA says that the different business models of fund dealers and investment dealers could likely be overcome, the process could not be completed by 2005, a deadline set by Canada’s securities regulators.

“The board of directors has carefully considered the circumstances and has decided to proceed with the establishment of the MFDA investor protection fund (IPC) as soon as possible,” the MFDA said in a bulletin issued today. “However, the proposal would be similar to the CIPF, namely that all financial products held by an MFDA member would be eligible for coverage and that the amount per account would be $1 million.”

The MFDA says it believes an initial fund containing assets of $30 million will provide adequate protection. It’s proposing to raise $5 million from member assessments and to secure a $25 million line of credit from a financial institution.

Member payments would be based on a fund dealer’s assets under administration and assessed over a five-year period, starting in 2005.

Still, the MFDA is describing its investor protection fund as an “interim vehicle” and says it will initiate an application to the CIPF to become a sponsoring self-regulatory organization of the CIPF “so that customers acquiring financial products from Canadian investment dealers and mutual fund dealers can look to one customer protection fund, i.e., CIPF.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com