A member or a law firm with a pooled or specific trust investment account at a savings institution insured by Canada Deposit Insurance Corporation, (“CDIC”) must register as a professional trustee with CDIC through their savings institution. That professional trustee designation must be maintained annually. This is required 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.
The Society wishes to remind members of Law Society Rule 5-53 which requires compliance with the reporting and disclosure requirements set forth in The Canada Deposit Insurance Corporation Act (the “Act”), and the Schedule thereto.
CDIC insures eligible deposits at each member institution in the event that a member financial institution is unable to meet its debt obligations. Not all financial institutions are CDIC insured. Notable exceptions in Manitoba are credit unions or caisse populaires incorporated under The Credit Unions and Caisses Populaires Act.
Eligible deposits include the types of accounts used for trust accounts (chequing accounts, daily interest savings accounts, term deposits or guaranteed investment certificates). In all cases eligible deposits must be payable in Canada.
CDIC coverage is extended to a maximum of $100,000.00, inclusive of interest, for each eligible deposit. It is the responsibility of a member or firm to ensure compliance with CDIC requirements so that, to the extent eligible under the Act, each client’s interests are protected for the maximum possible coverage.
Effective after April 30, 2022, there is an amended CDIC disclosure and reporting system. The new regime will create a special category of “professional trustees”, which includes lawyers, who will have unique disclosure requirements. Rather than making an annual disclosure of the identities of the beneficiaries of trust accounts, a member or law firm will be required to advise their CDIC insured savings institutions that their accounts are “professional trustee accounts”, and will be asked to provide information identifying beneficiaries only in the event of the failure of the savings institution. If a savings institution were to fail, the CDIC would require this information to identify those eligible for compensation through the deposit insurance program. Prior to making such a disclosure, the member or law firm would have to obtain the consent of their clients. A client who does not consent to the disclosure will not be eligible for compensation through the CDIC. That would not prevent the client from seeking recovery through a bankruptcy proceeding or the courts.
To qualify for the professional trustee reporting rules, a member or law firm must:
- Designate all CDIC insured pooled and/or specific trust accounts as professional trustee accounts with their savings institution(s);
- Maintain up-to-date trust account beneficiary records capturing required information;
- Attest annually to savings institution(s) their continued eligibility as a professional trustee and confirm which accounts are to be treated as professional trustee account(s);
- Provide/update the member or law firm’s own contact information to their savings institution(s);
- Notify their savings institution(s) if their status changes (i.e. they no longer qualify as a professional trustee); and
- When requested, deliver information on beneficiaries of professional trustee accounts electronically to the CDIC in a manner that permits data extraction and manipulation. To facilitate calculation of an insurance determination, CDIC has defined Professional Trustee Data Requirements that outline the specifications for formatting the submission.
Failure to re-attest each year will result in the account or accounts losing the professional trustee account designation.
A member or law firm must have, and thereafter maintain professional trustee status. The alternative status of “trustee” is not an option because the bylaw that had permitted the use of alpha-numeric code in place of the client name has been repealed and, therefore, client confidentiality can no longer be protected. In addition, a trustee who is not a professional trustee has significant reporting obligations that are not designed or suitable for a law firm trust account and client funds would be placed at risk. As such, the Law Society therefore requires all trust accounts to have professional trustee account status and be maintained as such with CDIC through their savings institution(s).
For further information members are referred to the provisions of the Canada Deposit Insurance Corporation Act R.S.C. 1985, c. C-3, and the Schedule thereto.
[Updated as to Rule numbers, June 2017]
[Updated to reflect CDIC rule changes, February 2022]
The Law Society of Manitoba
200 – 260 St. Mary Ave.
Winnipeg, Manitoba, R3C 0M6