Changes to Canada Deposit Insurance Corporation’s (CDIC) Reporting Rules for Trust Accounts effective April 30, 2022
The Canada Deposit Insurance Corporation (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 case of a member institution (MI) failure. Not all financial institutions are CDIC insured. A list of CDIC members is available on their website.
CDIC requires MIs to obtain and disclose information on accounts eligible for deposit insurance annually, including accounts held by trustees. This information is used to calculate deposit insurance coverage so that funds held in trust for beneficiaries receive optimal deposit insurance protection.
Under the Canada Deposit Insurance Corporation Joint and Trust Account Disclosure By-Law (JTDB), an 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 of each year. The requirement for law firms to comply with CDIC disclosure obligations is found in Law Society Rule 119.41:
A law firm that maintains a trust account at an approved depository that is insured by the Canada Deposit Insurance Corporation must comply with the reporting and disclosure obligations set forth in the Canada Deposit Insurance Corporation Act.
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 an 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 a MI failure.
New process effective April 30, 2022
As of April 30, 2022, CDIC is introducing new disclosure requirements for deposits held in trust following amendments to the federal CDIC Act. The new rules create a special category of Professional Trustees, which includes legal professionals, who have unique disclosure requirements.
The new rules 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 must 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 PTAs. To qualify for the Professional Trustee reporting rules as a law firm or legal professional, you 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; and
- annually re-attest to your status as a Professional Trustee to your financial institution.
- 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, you do not have to regularly report beneficiary information to CDIC MIs for that PTA account. However, you as a legal professional must meet your ongoing obligations to maintain your Professional Trustee status, including annually re-attesting your status to your financial institution(s).
- Failure to designate eligible trust accounts as PTAs results in the rules for general trust accounts applying, which are not well suited for PTAs. 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, view the CDIC overview of the changes, the CDIC Act, the CDIC website or call CDIC’s toll-free information line at 1.800.461.2342.
CDIC defines a Professional Trustee as including a lawyer, a partnership of lawyers or 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.
Professional Trustee Accounts (PTAs) are accounts that Professional Trustees designate as such with their Member Institution. By doing so, these trustees are no longer required to regularly report beneficiary information to CDIC member institutions for these accounts, and instead would only need to provide beneficiary information to CDIC upon CDIC’s request. Accounts with this designation continue to be insured to a maximum of $100,000 per beneficiary.
MIs include banks and federally regulated credit unions, as well as loan and trust companies and associations that take deposits governed by the Cooperative Credit Associations Act. A list of CDIC members is available on their website.
CDIC has resolved 43 MI failures affecting some two million Canadians; to date, no one has lost a dollar of deposits protected by CDIC.
Can I still use alphanumeric IDs to identify my client(s) when disclosing information under the new CDIC rules?
No. 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 must 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 MI’s failure. That would not prevent the client from seeking recovery through a bankruptcy proceeding or the courts.
he 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 case of a MI failure.
Professional Trustee designation must be maintained annually to ensure that client funds in the trust account(s) receive the maximum amount of recovery in case of a MI failure.
No. CDIC continues to insure eligible deposits in trust to a maximum of $100,000 per beneficiary under the new rules.
The new rules will take effect on April 30, 2022.
The Law Society of Alberta, in cooperation with the Federation of Law Societies of Canada, worked with the CDIC to ensure that Alberta lawyers have the option to designate their trust account as a PTA. 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 MIs and thus, protecting client confidentiality. Professional Trustees, however, must maintain up-to-date beneficiary records and provide the beneficiary information only upon request to CDIC, usually in the event of a MI failure. Prior to making such a disclosure, the legal professional or law firm must obtain the consent of their clients.