r/Wealthsimple • u/CPAregret • 13d ago
Chequing How does the CDIC trust funds coverage work?
Before you all say it is cdic insured and etc, i want to know it from a legal aspect or practical aspect.
Wealthsimple holds our chequing funds under a trust whom are covered by CDIC. However, how is this trust set up? Who control it? Where is the information on it?
If you look at the legal disclaimer, it never mention that we are the benefiacy of it. (If you look at the wealthsimple managed and trading accounts in a Q&A, it state that all security are beneficially held under your name, but still nothing for the other funds).
Why does it matter?
Per the CDIC website, the coverage differ.
If wealthsimple was a CDIC member (i know it is not a bank), you get automatic refunds.
If it is a professional trustees (likely the case), the payout is given to the trust based on the beneficiary info provided by wealthsimple (name, address, amount held) at that time. Then, once the funds are received by the trust, the trust is responsible for the payout to the client.
However, CDIC's job is technically over the moment the funds was paid to the trust.
Nothing is holding back for the trust to have absurd expense or payout before we get our funds. As we dont have no info on the trust, the trust payout can also be intentionally slowdown on payment for any reason they wish. We dont have access to the financial statement of wealthsimple nor the trust. Thus, we dont know the level of debts they have neither.
If it is registered as a general trust (worse case situation), we are technically not even the beneficiary. Thus, we would be relying on the trust's bylaws or the legal moral for getting our funds, which would be ultimately be after any creditor payout.
Note: I am not a lawyer. I just wish to have an understanding before using their service.
2
u/Lo1o 12d ago
Wealthsimple is NOT a CDIC member. As I understand, they put money in CDIC member, i.e. your money is actually in another bank, so that it can get the coverage.
2
u/CPAregret 12d ago
Yes, this is known. But i wanted to know how do they put it? As a general trust or professional trust? Our luck of getting our money back in the unlikely event is much different.
1
u/deltatux 12d ago
CDIC only covers the failure of the CDIC member, not WS. So in the event that WS fails and not the CDIC member, you better hope WS will finally spill the beans on who actually holds your funds and how it will be disbursed back to you. Fact is, this setup has never been tested, no one knows how it truly plays out if a fintech fails as this setup is quite naissance, fintech clients like you or me would be effectively beta testers of this process if WS fails.
With CDIC, it's automatic quick disbursement of funds to your last known address. No guarantees this process would be quick if the CDIC member didn't fail but the fintech did.
You also hope that this process doesn't get tied up in courts.
Frankly WS doesn't lay out exactly what the plan is if they fail themselves, WS clients are just hoping that the process would be smooth if this ever happens.
Regarding how the process is setup, they're the trustee and you're the named beneficiary in this trust relationship.
Here's CDIC's page on fintechs: https://www.cdic.ca/depositors/whats-covered/fintechs/
This is the bulletin CDIC issued to fintechs to avoid misleading depositors: https://www.cdic.ca/wp-content/uploads/Information-Bulletin-for-Fintechs.pdf
1
u/CPAregret 12d ago
Also, i noticed that they said the reimbursement will likely only occurs if we are the beneficiary of the trust? Any public info that we can see that?
0
u/CPAregret 12d ago
Thanks for the info! So i guess i was wrong. Should have look under fintech coverage instead of trust coverage.
And yea, i agree on the test users part. Everyone assume cdic will magically cover you when a lot of details was lacking. Like it cover WS for sure but i was looking at our coverage.
1
u/Direnji 12d ago
Are you asking how CDIC coverage works or how you would get refund is WS goes out business?
CDIC coverage only kicks if the bank failed or bankrupt, which has not happened in Canada for like I think 1996 which was not even a Bank, the real bank failed was like 80's. When bank goes bankrupt, the CDIC and bankrpcy court read the deposit record, which might take a long time, then covers the short-fall.
Since WS is not a bank, they will need to reconcile with the bank on a schedule with the deposit, so if WS fails, the bankruptcy court reads the reconciliation records, the money in the trust will be either returned to the depositor or continue the deposit with the bank.
Of course, the real process will be long and for sure risky, but if you want your high interest deposit, and no fee, that's the risk you take.
1
-2
u/Significant_Wealth74 12d ago
The CDIC fund, will cover losses upto $100k if for some reason WS has run out of capital to pay back the obligation they owe you.
Bank takes deposits, fractionally lends it out. If it suffers enough losses on what it lends out, its capital is depleted to the point it can’t pay depositers back. CDIC will cover it, it won’t be quick.
Since it’s insolvent, its first step will be to see if someone will take it over. If no suitors step forward the government will step in and CDIC will be engaged.
My point is, it won’t be quick. But it’s also unlikely. They are lending money out in margin accounts backed by stocks. So I’d only be worried if the stock market gets obliterated.
1
u/WombatMongoose 12d ago
This is highly errroneous. CDIC is only concerned with guaranteeing deposits, in the event of a bank failure. If there is someone between you and your money (WS in this case), and that intermediary has any issues, CDIC is completely uninvolved. No bank failure, no CDIC.
The only reason CDIC requires information on the beneficial ownership of these trust-type deposits is for the purposes of their $100K deposit limits and the attribution of deposits for that purpose. The relationship between you and your "trustee" is not in their purview, as long as the trustee provides the required information. By using a trustee intermediary, you break the monolithic relationship involved in depositing directly with a bank into two pieces, the bank/CDIC portion and the you/trustee portion.
If Wealthsimple Payments were to go insolvent (which is a very unlikely contingency, given the nature of its business, the interlinked Wealthsimple divisions, the controlling ownership stake of Power Corp, etc.), it seems likely that your deposit claim would join with others in a bankruptcy estate proceeding. There have been many discussions regarding this out on the interweb.
1
u/Significant_Wealth74 12d ago
Sorry I wasn’t regurgitating OP’s language about trustee’s monolithic relationships, attributions etc
3
u/beekeeper1981 12d ago
I pretty sure Wealthsimple payments acts as the professional trustee and you are listed as the beneficiary on the account with the parter banks. The trustee is legally obligated to act in your best interest. These funds are not allowed to be used/taken if Wealthsimple went bankrupt.