The Mutual Fund Dealers Association has decided to establish its own $30-million investor protection fund after being unable to resolve issues that would allow it to join the Canadian Investor Protection Fund in time to meet the provincial regulators’ deadline of early 2005.

In a notice to members, the MFDA reports that it began discussions with CIPF in the spring of this year. As a result, it has concluded that, “… many of the differences identified between the businesses and risks of MFDA members and investment dealers could be resolved. However, the timeline to do so could not be completed by early 2005 as it involved amending the rules of both organizations.” The MFDA said it won’t be completing its first full field exam schedule until the end of 2005.

The provincial regulators expect the MFDA customer protection to be available by early in 2005, and the MFDA says it is committed to satisfying this requirement. The MFDA’s board has decided to establish the MFDA IPC as soon as possible.

The MFDA IPC would offer similar coverage as CIPF — all financial products held by an MFDA member would be eligible for coverage and that the amount of coverage per separate account would be $1 million. The MFDA board believes that this can be achieved with an initial fund containing liquid financial assets of $30 million. It proposes to raise $5 million from its members and to take out a line of credit of at least $25 million to cover the balance.

The assessments on MFDA firms will be calculated according to assets under administration, with a similar amount to be assessed over the subsequent five years. It is expected the first quarterly assessment of $1.25 million would be payable March 31, subject to regulatory recognition of IPC.

The MFDA IPC must be approved by regulators. It intends to submit a plan for approval, but to get the fund established by early 2005, the organization of MFDA IPC will proceed immediately. The fund will have an independent board of directors consisting of a majority of public directors, with the balance from members.

With MFDA IPC as an interim vehicle, the MFDA will initiate an application to CIPF to become a sponsoring SRO of CIPF. And, the MFDA and MFDA IPC will continue to review what changes to both MFDA and CIPF requirements may be necessary and appropriate to permit MFDA to participate in CIPF. CIPF has indicated that it looks forward to an opportunity to welcome MFDA as a sponsoring SRO, the MFDA says.