CDIC protection for WS Cash accounts increased to 500K | Page 3 | Wealthsimple | Discussion forum

It's pretty bad when people are misrepresenting how WS is set up, saying things that are incorrect, and accusing WS essentially of fraudulent misrepresentation. But it's up to WS to explain it more clearly, but for those with a certain mindset, they won't even believe facts.
That is why you don't listen to the free medical or financial advice of unlicensed people posting on the internet.

Loonie said
Correct me if I'm wrong, but I think what you are saying, Norman, is that the word "trust" means something here. We are trusting WS (Payments Inc?) to have our money always invested in a CDIC member with us listed as the beneficiary. All is well and good as long as they in fact do this.
By the same token, if their business is in trouble, they may decide to "borrow" from us without our knowledge. That would probably be illegal, but not impossible.
As we are kept in the dark as to exactly where our money has been placed, we are always at a disadvantage in trying to protect ourselves.

I seem to recall news stories of lawyers occasionally absconding with trust funds.

This is different from having a regular bank account in that if, for example, TD Bank were to be unable to give you back your money, CDIC would be directly responsible to you for that money.  

This is no different from a regular bank stealing from your account. CDIC does not cover fraud.

savemoresaveoften said

hmmm so WS is mis interpreting the coverage, or that its a grey idea of what WS said re CDIC coverage.
Unless the WS payment account balance are completely segregated and can not be used by WS at all, its 100% not safe in a sense...

That's correct. Wealthsimple's marketing is trying to make it look like one has CDIC coverage on one's balance in a Wealthsimple Cash account when one does not.

That's why Understand how CDIC coverage works in your Cash account says one will be dealing with Wealthsimple's bankruptcy trustee and not CDIC should Wealthsimple fail:

What happens if Wealthsimple goes out of business?

In the improbable event that Wealthsimple goes out of business, client funds are to be recovered in accordance with Canadian bankruptcy laws and proceedings.

“Wealthsimple Investments Inc., is a member of the Canadian Investment Regulatory Organization (CIRO) which means the cash balance held within customer accounts is protected by the Canadian Investor Protection Fund (CIPF)”. Investments at WS have the exact same insurance as at BMO et al.

Illicit borrowing and actions of rogue employees in relation to HISA (rather than investment) accounts are not protected under CDIC insurance regardless of which institution your HISA is with. You can read this on CDIC’s own website in plain English, so not a disadvantage for WS.

Norman1 said

mordko said
“Wealthsimple Investments Inc., is a member of the Canadian Investment Regulatory Organization (CIRO) which means the cash balance held within customer accounts is protected by the Canadian Investor Protection Fund (CIPF)”. Investments at WS have the exact same insurance as at BMO et al.

Illicit borrowing and actions of rogue employees in relation to HISA (rather than investment) accounts are not protected under CDIC insurance regardless of which institution your HISA is with. …

Both false.

Balance in Wealthsimple Cash account is with Weathsimple Payments Inc., not Wealthsimple Investments Inc.

Doesn't matter how a CDIC member fails. CDIC covers the insured account balance when member fails. Doesn't matter that CDIC won't cover balance lost when a member doesn't fail and funds were lost for some other reason.  

Both true. If you were to actually read what I wrote in the first statement, it referred to Wealthsimple Investments Inc. Which is covered by the exact same insurance as BMO InvestorLine and Scotia iTRADE which you referenced. To deny that is akin to denying 2+2=4. All of these companies are investment brokerage arms of their firms. Wealthsimple cash isn’t so the parallel with BMO InvestorLine does not apply.

With regards to CDIC coverage, forgive me for going with the primary source rather than with what someone asserted in a chatroom.

Does CDIC protect deposits in the event of fraud?
No. CDIC does not cover losses due to fraud.

https://www.cdic.ca/your-coverage/faqs/#information-q5

It is there in black and white. “Does not” stands for a negative in this context. Financial regulators provide protection against fraud. Wealthsimple Cash is subject to their supervision. Other HISA accounts are also subject to regulatory supervision for fraud prevention. As well as internal systems (of course).

CDIC has nothing to do with WS failing, yes. Because WS is not a member. The partner bank is not on the hook for WS misbehaviour. It is on the hook for the partner bank misbehaviour (CDIC isn’t).

Fraud is not covered by CDIC at member institutions either. If the fraud is extensive enough to bankrupt the institution only then CDIC will step in.

Financial institutions fail for all sorts of reasons, like liquidity problems, risk mismanagement, etc. If WS fails as a result of such an event then depositors are not impacted as their funds are with counterparty institutions. These deposits are placed in trust but belong to you, in the same way stocks belong to you even though they are not physically under your pillow.

In the event of fraud which does not bankrupt the institution, you are in the same boat as with CDIC members. No protection under CDIC. You are protected by the systems and regulators. And by institution’s financial strength. WS is not as large as the big 6 but it dwarfs credit unions.

The extra risk is in relation to fraud involving stealing of clients’ cash on a scale so large that it would bankrupt a 30bn corporation. Thats a pretty big failure of the institution. As well as financial regulators. Possible, of course, but rare. I am struggling to think of an example in recent memory, except for crypto operations in dodgy jurisdictions.

The question is whether WS place 100% of all cash account deposit with partner banks 100% of the time, and if that is clearly spelt out in the WS cash account agreement. If it is, then it is indeed ‘similar’ to direct CDIC coverage I imagine,

savemoresaveoften said
The question is whether WS place 100% of all cash account deposit with partner banks 100% of the time, and if that is clearly spelt out in the WS cash account agreement. If it is, then it is indeed ‘similar’ to direct CDIC coverage I imagine,  

Well, WS says so:

The balance in your Wealthsimple Cash account is held in trust for you with members of the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation.

I imagine it’s a fairly simple check in an audit. And by the regulator. I am not ruling out large scale fraud completely but (sadly) could happen anywhere. Won’t be keeping cash under the pillow regardless.

Doug said

Actually, no. This is incorrect, Norman. I can see how you see that, as you like to refer only to legal documents on the company's website, and Wealthsimple Cash involves multiple entities and isn't all that transparent. However, what I've been able to determine is the Cash account is offered by Wealthsimple Investments, …

Are you going explain how you determined that when both the Wealthsimple Cash user agreement and the Wealthsimple Cardholder agreement clearly say that the Wealthsimple Cash Account is with Wealthsimple Payment Inc., a money services business registered with FINTRAC?

mordko said

Well, WS says so:

The balance in your Wealthsimple Cash account is held in trust for you with members of the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation.

I imagine it’s a fairly simple check in an audit. And by the regulator. I am not ruling out large scale fraud completely but (sadly) could happen anywhere. Won’t be keeping cash under the pillow regardless.  

Agree fraud and rogue traders can show up at any FI, not just WS.

dont know how trust works, does it mean WS actually setup each customer's deposit as separate trust account at the bank ? I guess this is the only way for each to be individually insured for 100k per partner name. When I am moving cash back and forth between the cash account and the trading account to put in limit order, they have to adjust my cash balance in the trust account daily ? Thats a lot of admin even if done automatically. From an operation perspective, it makes more sense for it to be a one big trust account WS facing the partner bank, but then the 100k per WS customer wont apply. Most likely WS just allow some slippage daily so its not 100% CDIC 100% of the time. Not saying I care but those who wont go ove $100k at big5 may.

CDIC will cover any CDIC member failure, the reason (fraud or plain stupidity) why it fails is not relevant to the eligibilty of coverage.