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Financial Operations FAQ: Insurance



One of the main roles of IIROC’s Financial and Operations Compliance department (FinOps) is to assess whether firms have enough capital for the type and scope of their business activities. FinOps monitors firms for compliance with IIROC financial rules to reduce the possibility of financial failure due to excessive leverage or risky business practices.


Frequently asked questions

 


  1. Do insurance companies have to be registered in Canada in order to be able to issue an FIB policy to a Dealer Member?

  2. Do Dealer Members have to limit their insurance coverage to the maximum $25 million?

  3. Do Dealer Members have to report their client net equity on Schedule 10 even if they are providing the maximum required coverage of $25 million?

  4. Can a Dealer Member use an insurance policy other than Form 14, as long as the policy contains the required clauses?

  5. Does the maximum required coverage of $25 million apply to all clauses of the FIB Policy?

  6. Can temporary insurance coverage be arranged for the in-transit requirements should such requirement be infrequent?

  7. Can a Dealer Member use the courier’s insurance in lieu of the in-transit coverage?

  8. Should certified cheques be included in the calculation of the in-transit requirement if they are being transported to and from the Dealer Member’s offices?

  9. What is the logic of requiring a double aggregate limit for the FIB policy where such limit is stipulated?

  10. How should a double aggregate limit of $10 million coverage be reported on Schedule 10?

  11. Can a Dealer Member who has a required double aggregate coverage of $10 million use a single aggregate of $20 million?

  12. Do carriers have to include the client net equity of their introducers (type 1, 2, 3 &4) in their own calculation of their insurance coverage?

  13. Do introducing Dealer Members have to have their own insurance coverage or can they rely on the carrier’s coverage?

  14. If a carrier picks up securities from the introducer’s premises, whose insurance coverage would be used to cover the in-transit requirement?

  15. If the introducer ships securities to the carrier, whose in-transit coverage would be applicable?

  16. Is there a limit on how high the insurance deductible can be set at?

  17. What should a Dealer Member report as the actual insurance coverage on Schedule 10 if it is different for the various clauses (A through E) of the policy?

  18. For IIROC Dealer Members who are cross-guaranteed, do they require separate insurance coverages?

  19. Can individual or aggregate limits under the policy be affected by claims made by or on behalf of any of the Dealer Member’s subsidiaries?

  20. How would you deal with FIB policies that have other entities included in the policy?

  21. If a Dealer Member has a full reinstatement provision, should it be problematic to have other entities being included in the policy?

  22. How soon do insurance coverage violations have to be corrected?

  23. Does the insurance coverage requirement vary depending on the negotiability of securities?

  24. What is a primary insurance coverage and how is it different from secondary coverage?

  25. Can mail insurance be part of the FIB Coverage or does it have to be the subject of a separate coverage?

  26. Is there a minimum mail insurance requirement?

  27. Can mail insurance be part of a global coverage?

  28. Is mail insurance subject to the requirement to provide the IIROC with a 30-day cancellation notice?

  29. Can a Dealer Member be exempted from the registered mail insurance requirement?

  30. Are agents acting in a principal/agent relationship (IIROC Rule 39) covered for insurance purposes under the standard Form 14 FIB policy?

  31. Are Dealer Members required to have excess CIPF coverage?

  32. When the auditor confirms the financial institution bond at the time of the year-end audit, can the confirmation be with the insurance broker or should it be confirmed with the insurance underwriter?

  33. Does the requirement of a double aggregate limit (where an aggregate is stipulated) apply to registered mail insurance coverage?
     

 

1. Do insurance companies have to be registered in Canada in order to be able to issue an FIB policy to a Dealer Member?

Insurance required to be in force by a Dealer Member pursuant to IIROC Rule 400 may be underwritten directly by either (i) an insurer registered or licensed under the laws of Canada or any province of Canada or (ii) any foreign insurer approved by the Corporation. No foreign insurer shall be approved by the Corporation unless the insurer has the minimum net worth required of $75 million on the last audited balance sheet, provided acceptable financial information with respect to such Corporation is available for inspection, and the Corporation is satisfied that the insurer is subject to supervision by regulatory authorities in the jurisdiction of incorporation of the insurer which is substantially similar to the supervision of insurance companies in Canada.

 

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2. Do Dealer Members have to limit their insurance coverage to the maximum $25 million?

While Dealer Members have to ensure that they provide the minimum required insurance coverage, it would be prudent for the Dealer Member to have adequate coverage, based on their business needs, regardless of the maximum set in IIROC Rules.

 

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3. Do Dealer Members have to report their client net equity on Schedule 10 even if they are providing the maximum required coverage of $25 million?

Yes, IIROC requires the client net equity to be reported on Schedule 10.

 

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4. Can a Dealer Member use an insurance policy other than Form 14, as long as the policy contains the required clauses?

Yes, Dealer Members may use a policy other than Form 14, as long as the member can provide IIROC with legal opinions that the policy meets the minimums stipulated in Form 14.

 

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5. Does the maximum required coverage of $25 million apply to all clauses of the FIB Policy?

The maximum coverage applies to all FIB policy clauses except for the in-transit clause C, where the required coverage must be in place on a dollar for dollar basis (IIROC Rule 400.2(c)).

 

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6. Can temporary insurance coverage be arranged for the in-transit requirements should such requirement be infrequent?

Yes.

 

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7. Can a Dealer Member use the courier’s insurance in lieu of the in-transit coverage?

No.

 

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8. Should certified cheques be included in the calculation of the in-transit requirement if they are being transported to and from the Dealer Member’s offices?

No.

 

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9. What is the logic of requiring a double aggregate limit for the FIB policy where such limit is stipulated?

The requirement was made so that the coverage is extended to two simultaneous losses incurred by a Dealer Member at the same time.

 

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10. How should a double aggregate limit of $10 million coverage be reported on Schedule 10?

10 million

 

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11. Can a Dealer Member who has a required double aggregate coverage of $10 million use a single aggregate of $20 million?

Yes. The objective of the double aggregate limit requirement in IIROC Rule 400 is to ensure that two simultaneous losses are covered.

 

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12. Do carriers have to include the client net equity of their introducers (type 1, 2, 3 &4) in their own calculation of their insurance coverage?

Yes. Since the carrier has access to or control of the introducers’ client assets, then all such assets must be included in the carrier’s insurance calculation. The insurance requirement is based on the concept of stealable assets.

 

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13. Do introducing Dealer Members have to have their own insurance coverage or can they rely on the carrier’s coverage?

Introducers (of all categories) must have their own insurance coverage based on their own client net equity regardless of the carrier’s coverage. In spite of the duplication of the client net equity coverage, insurance requirement is a minimum membership requirement that Dealer Members have to comply with.

 

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14. If a carrier picks up securities from the introducer’s premises, whose insurance coverage would be used to cover the in-transit requirement?

The carrier’s policy would cover the in-transit requirement.

 

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15. If the introducer ships securities to the carrier, whose in-transit coverage would be applicable?

It would be the introducer’s coverage that would be required to cover the shipment.

 

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16. Is there a limit on how high the insurance deductible can be set at?

While the answer to the question is “No”, it should be understood that the concept of self-insurance is not acceptable. In other words, it is not acceptable for a member to provide capital in lieu of the insurance requirement.

 

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17. What should a Dealer Member report as the actual insurance coverage on Schedule 10 if it is different for the various clauses (A through E) of the policy?

The minimum common denominator must be used for reporting the actual insurance coverage on Schedule 10.

 

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18. For IIROC Dealer Members who are cross-guaranteed, do they require separate insurance coverages?

All IIROC Dealer Members must comply with the minimum standards of membership, which includes insurance coverage. If two Dealer Members are cross-guaranteed, they could either have their own separate policies or they could both be named in the same FIB insurance policy. If the latter, IIROC Rule 400.7(a) would not be an issue because of the cross-guarantee.

 

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19. Can individual or aggregate limits under the policy be affected by claims made by or on behalf of any of the Dealer Member’s subsidiaries?

According to IIROC Rule 400.7 (b)(ii), such individual or aggregate limits may only be affected by Member’s subsidiaries whose financial results are consolidated with those of the Dealer Member. Consolidation in this context applies to related companies, as defined in IIROC Rule 1.1 and not in terms of accounting consolidation of subsidiaries.

 

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20. How would you deal with FIB policies that have other entities included in the policy?

Other entities may be included in the Dealer Member’s policy by way of a global policy that must contain the required provisions stipulated in IIROC Rule 400.7. The important thing to note is that the Dealer Member’s coverage is kept intact.

 

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21. If a Dealer Member has a full reinstatement provision, should it be problematic to have other entities being included in the policy?

No, as long as the Dealer Member is the first named insured and the Dealer Member’s coverage is kept intact.

 

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22. How soon do insurance coverage violations have to be corrected?

Violations that do not exceed 10% of the insurance requirement must be corrected within two months of their determination. For violations of 10% or more, action must be taken by the Dealer Member to correct the deficiency within 10 days of their determination and the Dealer Member must immediately notify the Corporation.

 

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23. Does the insurance coverage requirement vary depending on the negotiability of securities?

In accordance with IIROC Rule 400.5(f), for the purposes of calculating insurance requirements, no distinction is to be made between securities in non-negotiable form and those in negotiable form.

 

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24. What is a primary insurance coverage and how is it different from secondary coverage?

Insurance coverage may be broken into more than one policy. One or more insurers may be involved and one of the coverages might be a global type while the other may be a direct coverage. A primary coverage would normally be for a certain amount, with a deductible. The secondary coverage would represent another layer of coverage with the deductible representing the same amount of primary coverage. The secondary coverage might be part of a global-policy coverage.

 

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25. Can mail insurance be part of the FIB Coverage or does it have to be the subject of a separate coverage?

The registered mail coverage can be put into place via a separate policy or through a rider to the FIB Form 14. The amount of the required coverage has to be enough to cover actual usage with no stated minimums.

 

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26. Is there a minimum mail insurance requirement?

No, the required coverage is based on actual usage.

 

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27. Can mail insurance be part of a global coverage?

Yes, mail insurance can be part of a global coverage. If so, however, the mail coverage should be subject to the same global policy provisions noted in IIROC Rule 400.7.

 

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28. Is mail insurance subject to the requirement to provide the IIROC with a 30-day cancellation notice?

Yes, mail coverage, per IIROC Rule 400.3, should be treated no differently than normal FIB coverage.

 

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29. Can a Dealer Member be exempted from the registered mail insurance requirement?

Yes, IIROC Rule 400.1 has been amended whereby the Corporation may exempt a Dealer Member from the requirement if the dealer member delivers a written undertaking to the Corporation that it will not use the mail for out-going shipment of money or securities, negotiable or non-negotiable, by first-class mail, registered mail, express or air mail.

 

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30. Are agents acting in a principal/agent relationship (IIROC Rule 39) covered for insurance purposes under the standard Form 14 FIB policy?

IIROC Rule 39.4(f) requires that the financial Institution Bond and insurance policies required to be maintained by the Dealer Member pursuant to IIROC Rule 17 and IIROC Rule 400 cover and relate to the conduct of the agent. To comply with IIROC Rule 39.4(f), a Dealer Member must have an agent rider added to its FIB in order to ensure that all its agents and the employees of those agents are covered by the FIB (Form 14) to the same extent as the firm’s own individual employees.

 

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31. Are Dealer Members required to have excess CIPF coverage?

Excess CIPF coverage is intended to provide added protection to clients of a Dealer Member in the event of an insolvency that is over and above the CIPF coverage limits. While this is a competitive advantage, it is not a minimum membership requirement.

 

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32. When the auditor confirms the financial institution bond at the time of the year-end audit, can the confirmation be with the insurance broker or should it be confirmed with the insurance underwriter?

The audit confirmation may be made with either the insurance broker or the insurance underwriter.

 

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33. Does the requirement of a double aggregate limit (where an aggregate is stipulated) apply to registered mail insurance coverage?

No. IIROC Rule 400.5 (with the double aggregate provision) does not apply to 400.1 (registered mail provision). Therefore, registered mail is not subject to the double aggregate provision.

 

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