Law Society of Saskatchewan DR UpdatesDR Updates Changes to Canadian Deposit Insurance Corporation’s (CDIC) Reporting Rules for Trust Accounts effective April 30, 2022
Changes to Canadian Deposit Insurance Corporation’s (CDIC) Reporting Rules for Trust Accounts effective April 30, 2022
March 21, 2022The 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 30th of each Year. The requirement for law firms to comply with CDIC disclosure obligations is found in Law Society of Saskatchewan Rule 1531**.
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.
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