1. 1 Canadian Investor Protection Fund

2. 2

3. 3 Topics  Update 2009 Failures Re-alignment Assessment Communication Strategy  Enterprise Risk Management Purpose of Risk Management Function Risk Management Framework Risk Categories and Mitigation  Compensation Funds

4. 4 Update 2009 Failures  5 Members suspended by Investment Industry Regulatory Organization of Canada (“IIROC”) but no insolvencies  2 Ponzi style frauds – not CIPF Members Earl Jones – 150 investors lost CAD$75 – CAD$100 million Gary Sorenson – 3,000 investors lost CAD$100 – CAD$400 million

5. 5 Update 2009 (cont’d) Re-alignment  MOU with CSA and new Industry Agreement with IIROC (self-regulatory organization) became effective September 29, 2008  Major Changes Eliminated CIPF oversight of IIROC Replaced CIPF’s veto over policy changes that affect the Fund with moral suasion to IIROC Board or, if necessary, increased assessments for added risk

6. 6 Update 2009 (cont’d) Re-alignment (cont’d)  Regulatory financial filing continues to be addressed to CIPF and IIROC  CIPF no longer does field exams but continues to receive and analyze the data from Members and Auditors for risk management purposes  CIPF seconds staff to IIROC to maintain industry knowledge and readiness to work on insolvencies

7. 7 Update 2009 (cont’d) Assessment  Q3 2009 will be the first quarter of the full differential assessment method  Members will no longer be able to pay on the lesser of revenue and differential assessment  CIPF to collect $2 million per quarter in fiscal 2009/2010 versus $2.5 million per quarter in 2008/2009

8. 8 Update 2009 (cont’d) Free Credits versus Client Net Equity Client net equity continues to increase with the recovery of the markets in 2009, however, client free credits have leveled off at $35 billion.

9. 9 Update 2009 (cont’d) Profit and Loss July 2009 year-to-date revenue has decreased by 1.4%, however profit improved by 9.2%, compared to the same period in 2008. Revenue and profit for the three months ended July 2009 are above trend.

10. 10 Update 2009 (cont’d) Regulatory Capital Regulatory capital available for use continues to increase, however much of the new capital remains unemployed resulting in a capital cushion of $10.5 billion.

11. 11 Communications As the result of research conducted in 2008, we developed the following objectives:  Increase advisor awareness and understanding of CIPF’s mandate, coverage, eligibility and the IA’s role as chief communicator with investors  Better inform individuals preparing for a career in the investment industry about CIPF at point of entry  Increase awareness and understanding of CIPF’s mandate and the coverage with the media

12. 12 Communications (cont’d) The elements of the plan to implement these objectives included:  Creation of continuing education module for IAs completed in 2008  Informing IAs via a tri-annual electronic newsletter “Worth Knowing”, two have been issued in 2009  Updating our website – launch in fall 2009

13. 13 Communications (cont’d)  Contemporizing our logo and refreshing the information about CIPF – to be applied to the CIPF brochure, Member decal and website in 2009/2010

14. 14 Enterprise Risk Management Purpose of Risk Management Function CIPF’s risk management function is designed to:  Identify exposures that could impair CIPF’s ability to carry out its mission  Assess the probability / impact of those exposures  Mitigate the risk introduced by those exposures by ensuring procedures and controls are in place to minimize the impact of the exposures

15. 15 Risk Management Framework CIPF’s Mission is: To contribute to the security and confidence of customers of Canadian investment dealers by maintaining adequate resources to return assets to customers in cases where a Member becomes insolvent. Enterprise Risk Management (cont’d)

16. 16 Risk Management Framework (cont’d) As such, an exposure is any event that impairs CIPF’s ability to return customer assets on a timely basis in the event of an insolvency and/or causes customers of Members to lose confidence in CIPF’s ability to return their assets. Enterprise Risk Management (cont’d)

17. 17 Risk Management Framework (cont’d) Examples of exposures include failure to:  maintain an adequately sized fund either through calculation of fund size or controlling the cost of insolvency  maintain the correct infrastructure, including retaining qualified staff  honour valid claims on a timely basis  communicate coverage correctly  maintain up-to-date coverage policies Enterprise Risk Management (cont’d)

18. 18 Risk Categories CIPF has identified the following four major risk categories that could prevent CIPF from carrying out its mission: 1.Member Default Risk 2.Financial Risk 3.Operational Risk 4.Reputational Risk Enterprise Risk Management (cont’d)

19. 19 1.Risk Categories – Member Default CIPF’s risk of loss, including costs incurred for administration, in the event of a Member’s insolvency. Enterprise Risk Management (cont’d)

20. 20 1a)Member Risk The risk that CIPF does not have the powers to control the quantum of risk it is exposed to. Mitigation  Fund Size Formula  Participation in policy formation  Coverage Policy with specified limits Enterprise Risk Management (cont’d)

21. 21 1b)Problem Member Identification The risk that CIPF does not promptly identify Member firms that pose an unacceptable level of risk to the Fund. Mitigation  Industry Agreement: Reliance on IIROC examinations Information sharing policy with IIROC  Track public information  Insolvency Manual including decision tree Enterprise Risk Management (cont’d)

22. 22 1c)Intervention The risk that CIPF cannot or does not take effective action with respect to a problem Member. Mitigation  Ability to petition into bankruptcy  Industry Agreement  MOU with CSA includes obligation to report  Insolvency Manual including decision tree Enterprise Risk Management (cont’d)

23. 23 2.Risk Categories – Financial The risk associated with managing CIPF’s investment portfolio. Enterprise Risk Management (cont’d)

24. 24 2a)Availability of Funds to Meet Customer Obligations The risk that the funds in the portfolio will not be available to CIPF to honor its obligations due to:  Inability to liquidate the portfolio  Failure of third party issuer to meet obligation, including the line of credit providers and re- insurance provider  Failure of custodian to return assets  Adverse change in the market value of the CIPF investment portfolio Enterprise Risk Management (cont’d)

25. 25 2b)Availability of Funds to Meet Customer Obligations (cont’d) Mitigation  Investment Policy, government bond ladder  Custodial Agreement with third party  Insurance Policy issuer is A rated  Line of Credit issuers are Schedule 1 Banks Enterprise Risk Management (cont’d)

26. 26 3.Risk Categories – Operational CIPF’s risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Enterprise Risk Management (cont’d)

27. 27 3a)People The risk that CIPF is unable to hire and retain a sufficient number of qualified staff for the work required and ensure that those staff maintain their professional competency. Mitigation  Ongoing training  Employee Handbook of Policies and Procedures  Compensation and Benefits Policies  Succession planning Enterprise Risk Management (cont’d)

28. 28 3b)Information The risk that CIPF does not maintain timely, accurate and relevant financial information to facilitate informed decisions. Mitigation  Financial Procedures Control Manual  Assessment Model Enterprise Risk Management (cont’d)

29. 29 3c)Technology The risk that CIPF’s technology hinders staff’s ability to efficiently and effectively carry out their primary responsibilities. Mitigation  CIPF Network Administration Binder of detailed procedures Enterprise Risk Management (cont’d)

30. 30 3d)Process The risk that CIPF fails to develop effective internal controls to safeguard its assets and ensure such controls are operating effectively. Mitigation  Financial Procedures Control Manual Enterprise Risk Management (cont’d)

31. 31 3e)Legal / Compliance The risk that CIPF fails to identify and comply with its legal and other obligations and requirements. Mitigation  Requested statutory immunity  Legal counsel budget  Compliance with bylaws and constating documents  Register of contracts Enterprise Risk Management (cont’d)

32. 32 3f)Business Continuity The risk that a disruption impacting CIPF’s personnel, information, premises, technology or operations will impede its ability to carry out its mandate. Mitigation  Certified and Tested Business Continuity Plan  Test annually by having management team work remotely for 1 day and perform specified tasks Enterprise Risk Management (cont’d)

33. 33 3g)Security The risk that CIPF fails to maintain the safety of the resources required to carry out its mandate, including human resources, physical assets and information. Enterprise Risk Management (cont’d)

34. 34 3g)Security (cont’d) Mitigation  Privacy Policy  Insurance Policies  Human Resources Policies  Employee Handbook of Policies and Procedures  Office in Class A building  Business Continuity Plan Enterprise Risk Management (cont’d)

35. 35 4.Risk Categories – Reputational The risk of an event that significantly affects stakeholders’ perceived trust and confidence in CIPF. Enterprise Risk Management (cont’d)

36. 36 4a)Claims Handling The risk that CIPF does not respond to legitimate claims as set out in its coverage policy. Mitigation  Claims Procedures Enterprise Risk Management (cont’d)

37. 37 4b)Coverage Policies Not Up to Date The risk that the coverage policies do not address current market conditions. Mitigation  Participation on Industry Committees  Claims Hearings by CIPF Board Members  Bankruptcy Act Authorities of Trustee Enterprise Risk Management (cont’d)

38. 38 4c)Communication The risk that CIPF does not correctly or effectively communicate its role and the scope of its coverage. Mitigation  Communication – research  Customer query log  Education modules for Investment Advisors Enterprise Risk Management (cont’d)

39. 39 Compensation Funds  CIPF and its counterparts in the US and UK joined IOSCO in 2009 to ensure a regular forum for Funds to meet and exchange information  Canada will host the 2010 IOSCO Annual Conference in Montreal, Quebec. A meeting of compensation funds will be arranged for all interested parties