The contingency fund established to cover mutual fund dealer insolvencies is proposing to boost its assets available to cover client claims, from $30 million to $50 million, over the next five years.

In a notice to members, the Mutual Fund Dealers Association of Canada indicates that the MFDA Investor Protection Corporation fund is expected to reach its initial target of $30 million by the end of this year, and the IPC board has determined that it makes sense to accumulate another $20 million over the next five years.

It points to a number of reasons for the move, including: increased risk in the industry; increased coverage levels; comparison to other funds; and the history of failure of MFDA members; among other factors.

Indeed, the notice indicates that, “Experience shows that there is real risk that a [fund dealer] can become bankrupt.” It reports that several firms have failed over the past few years, although most of them were in Quebec, and the insolvencies were administered by the Autorité des marchés financiers and AMF compensation fund. But two insolvencies have taken place in Ontario, with one resulting in a small payout by the IPC.

Assuming that the recommendation to boost the size of the fund is adopted, the total amount to be raised by the assessments will fall from $5 million to $4 million per year for five years. As a result, each dealer’s assessment will, in future years, be reduced by approximately 20% from what it would have been under the current assessment, it notes.

The MFDA board has formed an IPC Issues Committee to consider the fund’s recommendation for an increase, among other things. The committee is seeking written comments from fund dealers by Sept. 1, and will be hosting two meetings to discuss these issues, one on July 15, and a joint meeting with the Investment Funds Institute of Canada on July 28.

IE