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96-02 : Use of a Financial Intermediary When Investing Client Trust Funds

It has come to the Society's attention that some lawyers have been utilizing the services of a Financial Intermediary when investing client trust funds. In these instances, the trust cheque that is prepared to establish the investment is made payable to the Financial Intermediary. The Financial Intermediary then invests the monies on behalf of the lawyer at an eligible savings institution. Members should be advised that this practice violates Rule 1 30(1)(a) which requires that

 

"A member may, after first depositing trust money in a pooled trust account, subsequently withdraw the trust money or a portion of it and deposit it in a specific trust investment account provided the specific trust investment account is opened in the name of the member in trust for the person to whom the money belongs, with the name of the person to whom the money belongs disclosed on the deposit document".

The Rules define a "specific trust investment account" as follows:

 

"specific trust investment account means a separate interest-bearing account opened by a member in trust for a specific client at a savings institution, and includes a daily interest savings account, a term deposit or a guaranteed investment certificate."

The Rules further define "savings institution" as follows:

 

"savings institution means a chartered bank or a trust company which is authorized by law to receive money on deposit and is insured by the Canada Deposit Insurance Corporation, or a credit union or caisse populaire incorporated under The Credit Unions and Caisses Populaires Act."

When a Financial Intermediary is used, the concern arises that from the time the funds leave the control of the lawyer, until such time as the funds are placed at an eligible savings institution, the trust funds are not insured by CDIC or the Credit Union Deposit Guarantee Corporation. Therefore, the use of a Financial Intermediary is not permitted under the Law Society Rules.

(October 1996)

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