Foreign Currency in an RRSP.

CASE SUMMARY

This proposed class action was commenced on August 2, 2006 and amended on March 6, 2007. It is brought on behalf of a class of individuals against BMO Nesbitt Burns Inc., BMO Trust Company, BMO Bank of Montreal and BMO Investorline inc. in respect of foreign exchange transactions in RRSP, RRIF and RESP accounts.

The proposed class includes all present and former clients of the defendants who held or hold RRSP(s), RRIF(s) or RESP(s) and who, since June 14, 2001, have incurred foreign currency conversion charges in these accounts.

The claim alleges that the defendants have systematically converted foreign currency in these accounts to Canadian currency without instructions from the customers, and without there being any need to do so, based upon revisions to the Income Tax Act which came into effect on June 14, 2001. Also, in effecting all currency conversions, the defendants levy an undisclosed conversion fee in addition to the amount that they actually pay to buy or sell currency. The claim alleges that the defendants failed to change their operational practices after the June 14, 2001 change to the Income Tax Act which allows RRSPs, RRIFs and RESPs to hold foreign currency as an investment, and further alleges that the reason for the defendants’ failure to effect a change was so that they could continue to earn profits from the foreign exchange fees, at the expense of the class members.

The claim seeks damages for all the fees charged in association with the unauthorized conversion of foreign currency to Canadian funds during the claim period. It also seeks repayment of all the hidden foreign exchange fees levied by the defendants on transactions where the customer did authorize a conversion of funds from Canadian to a foreign currency; but had no notice and did not agree to payment of the hidden fee. Each time a foreign exchange fee is charged by the defendants it depletes the funds in the customer’s retirement or education fund.

TD Settles Class Action

TD Waterhouse will also add the following disclosure to each confirmation slip:

Currency Conversion & Fixed Income Fees: We will act as principal in fixed income and currency conversion transactions. TD Waterhouse and parties related to us apply discretionary conversion rates and may earn revenue on the spread between the bid and ask prices and TD Waterhouse's cost of the currency

Conversion of currency will take place on the trade date.

02 April 2003

Court certifies class action against TD

October 2001

click on box below for committee members.

Letter to BMO Financial Group's Advisory Council on Retirement

Moshe Milevsky would neither return my calls or respond to my letter. I was directed to speak with Eva Innes, Head of Marketing and Client Strategy at BMO.

09 October 2006

For further information on BMO Financial Group's Advisory Council on Retirement you will be advised to contact

Eva Innes, Head of Marketing and Client Strategy at BMO Harris Private Banking (416-359-4770).

Apparently Ms. Innes is more aware than the Council's members as to what the Council's agenda is.

	Foreign Exchange Policy Revision

	Foreign Exchange Policy Revision pertaining to Registered Plans	02 April 2007

	see: BMO cuts fees for currency exchange	21 April 2007

Questrade with it's good business sense

stands out from the Bay Street crowd.

Online upstart stands out with offer to hold greenbacks in RRSPs

10 January 2008

Online upstart stands out with offer to hold greenbacks in RRSPs	10 January 2008

BMO cuts fees for currency exchange	April 21 2007

Needless costs of currency conversion	March 24 2007

Investor sues bank over currency conversion fees	March 24 2007

B.C. judge opens door to class actions against banks	07 January 2007

Suit launched against BMO for converting accounts to C$	15 September 2006

Have a happy 69th birthday - and then roll over RRSP	11 September 2006

Automatic currency conversions highlight sweet deal for banks, brokers	24 August 2006

Bank profits in Canada demand action	23 August 2006

Suit sheds light on obscure bank fee	23 August 2006

Brokers' exchange practices under fire	14 August 2006

BMO, affiliates named in lawsuit	10 August 2006

BMO facing proposed $100 million class-action lawsuit	10 August 2006

BMO faces lawsuit over savings plan fees	10 August 2006

Client sues BMO over currency cost	09 August 2006

$100,000,000.00 class action lawsuit commenced against BMO Nesbitt Burns Inc., BMO Trust Company and BMO Bank of Montreal	09 August 2006

Bank of Montreal Sued Over Pension Plan Currency Conversions	09 August 2006

BMO facing $100-million class action lawsuit on behalf of RRSP, RRIF clients	09 August 2006

BMO hit with $110-million lawsuit	09 August 2006

Clients launch class action against BMO	09 August 2006

Currency conversion can wipe out gains	24 July 2006

Richard Croft on Foreign Currency in an RRSP	21 July 2006

The value of foreign currency in RRSPs	04 July 2006

Global diversification in RRSPs still faces hurdles	29 March 2006

U.S. dollars in RRSP Error regarding foreign currency in RRSP "Foreign cash used to be prohibited in an RRSP but that has now been changed. The Canada Revenue Agency Interpretation Bulletin to which you refer states in part as follows: "Money denominated in any currency is a qualified investment except where the money is held for its collectible value, or the fair market value of the money exceeds its stated value as legal tender in its country of issue."	January 2005 18 July 2005

Rules on RRSP foreign assets clarified	January 12, 1994

E9804235	13 May 1998
Money is a qualified investment under paragraph (a) of the definition of "qualified investment" in section 204 of the Income Tax Act (the "Act") only if it is legal tender in Canada. As stated in paragraph 7 of Interpretation Bulletin IT-320R2, foreign currency is not a qualified investment for an RRSP trust.

E9820478	18 September 1998
To avoid adverse tax results, the RRSP trust must convert foreign currency into Canadian dollars when such an investment is sold, and convert Canadian dollars to foreign currency prior to purchasing another such investment. Each conversion has a cost and thus reduces the assets in the RRSP available for retirement. ... This was considered to be an unintentional result and the Department agreed not to apply those provisions where the foreign currency was converted to Canadian currency or used to acquire a qualified investment within a reasonable period of time (usually one month).

00004025.E40	29 August 2000
Although US currency is a non-qualified investment, there is no requirement that an RRSP dispose of a non-qualified investment. There may be tax consequences, however, if a non qualified investment is held in the RRSP. After June 27, 1999, certain foreign currency and deposits thereof will be a qualified investment for an RRSP, RRIF and RESP - proposed by August 8, 2000 legislation under Finance release #2000-059. ... I am also pleased to inform you that on August 8, 2000, the Department of Finance announced proposed legislation which will generally allow RRSPs to hold foreign currency as a qualified investment after June 27, 1999.

2001-0099384	12 October 2001
I understand that officials of the Department of Finance previously advised XXXXXXXXXX that legislation was being drafted which would allow an RRSP or an RRIF to hold deposits of foreign currency, but at the time it had not yet been passed into law by Parliament. I am pleased to advise that the legislation was enacted on June 14, 2001.

IT320-R3	01 July 2002
Money and deposits of money ¶ 14. Money and deposits of money may be qualified investments. Money denominated in any currency is a qualified investment except where the money is held for its collectible value, or the fair market value of the money exceeds its stated value as legal tender in its country of issue. A deposit of money is a qualified investment if it is an amount defined to be a deposit by the Canada Deposit Insurance Corporation Act or an amount on deposit with a branch in Canada of a bank (including, after June 27, 1999, a branch in Canada of an authorized foreign bank). Bank and authorized foreign bank have the meanings assigned to those words by section 2 of the Bank Act. Prior to 2003, a deposit also includes an amount on deposit with a bank outside of Canada that is listed in Schedule I or II to the Bank Act.

So if Canada Revenue Agency does not require foreign currencies to be converted to Canadian dollars within a registered plan then why does your financial services provider require it?

Well, let's follow the money.

Here are three major bank bid/ask spread on the currencies.

(We will simplify matters and focus strictly on U.S./CAD)

Institution	FX Rates (July 28, 2006)	US/CAD Bid Ask Spread	Difference on $20,000 CAD	%
Royal Bank		1.1064 - 1.1511	$894	4.47
Toronto Dominion Bank		1.1096 - 1.1516	$840	4.20
Scotia Bank		1.1075 - 1.1475	$800	4.00

The fact that the financial services providers charge such an astronomical fee is only a part of the issue here.

The fact that you must convert Canadian dollars to the currency of the investment you wish to purchase is not an issue.

The issue is that once you have disposed of the foreign investment -

there is no need for the financial services provider to convert the foreign currency back into Canadian dollars

- unless you have instructed them to do so.

If you did authorize the conversion - did you also authorize the rate of the conversion?

Furthermore, any interest/dividend income paid in a foreign currency does not need to be converted.

According to a recent study conducted by Ipsos-Reid on behalf of the RBC Financial Group,

sixty-eight percent of Canadians currently have an RRSP.

The reported average current market value of Canadians total personal RRSPs is $64,600.

The cost to Canadians is hundreds of millions of dollars.

The benefit to financial services providers is the reciprocal.

Is what you read in the newspapers today accurate in light of what you now know?

Here are a couple of examples of what you might be told, or are being told, by your financial services providers.

28 July 2006

17) Can I have a USD dollar RRSP to purchase US securities?

Unfortunately, at this time Canada Revenue Agency does not allow RRSP accounts to be held in a foreign currency.

You are able to purchase securities denominated in US dollars in your RRSP account, however the cost of the trade will be converted into Canadian funds at the end of the business day rate. Similarly, when you sell a US dollar denominated security in your RRSP account, the proceeds will be converted back to Canadian dollars so that they can settle in your account.

https://www.canada.etrade.com/pages/retire/rrspFAQ.shtml

E-Trade corrects their error early January 2007.

17) Can I have a USD dollar RRSP to purchase US securities?

Unfortunately, at this time E*TRADE Canada does not offer this service.

You are able to purchase securities denominated in US dollars in your RRSP account, however the cost of the trade will be converted into Canadian funds at the rate applicable at end of the business day. Similarly, when you sell a US dollar denominated security in your RRSP account, the proceeds will be converted back to Canadian dollars.

02 August 2006

Which investments are RRSP-eligible?

Eligible Investments

Foreign Content

*Foreign-currency denominated deposits

*Note that although the Income Tax Act now allows foreign-currency deposits as an eligible investment under the 30% foreign-content allowance, to date no financial institution has developed the capability of holding more than one currency in an RSP account.

The securities regulators are aware of the tax laws but have failed to rein in those registered under provincials securities laws.

THE INVESTMENT DEALERS ASSOCIATION

AMENDMENTS TO FORM 1, NOTES AND INSTRUCTIONS TO STATEMENT A REGARDING FOREIGN CURRENCY CASH BALANCES HELD IN REGISTERED RETIREMENT SAVINGS PLAN ACCOUNTS

NOTICE OF COMMISSION APPROVAL

15 July 2005

The Ontario Securities Commission approved proposed amendments to Form 1, Notes and Instructions to Statement A regarding foreign currency cash balances held in RRSP accounts. In addition, the British Columbia Securities Commission did not object, and the Alberta Securities Commission and the Autorité des marchés financiers approved the proposed amendments. The purpose of the amendments is to permit the classification of foreign currency cash balances held in RRSP accounts at an acceptable institution, that is a participating organization in either CDIC or AMF (with respect to deposit insurance), as allowable assets.

A copy and description of the proposed amendments were published on July 15, 2005, at (2005) 28 OSCB 6156. No comments were received.

"Foreign currencies can be held in your RRSP as foreign property"

November 12, 2002

(page 10)

Well, you would think that the IDA Approved Panel Auditors would have said something to the IDA.

After all, to qualify you had to "develop audit guidelines and procedures tailored to the specific risks and needs of investment dealers".

Need I say more ?!?

Investment Dealers Association of Canada - Bulletin #3522

13 March 2006

"With the elimination of the RRSP foreign content limit and expected increase in the flow of foreign currency funds into RRSP accounts, it was necessary to make the amendments to correct the inconsistent and inappropriate treatment of these funds."

Did it really take the IDA 5 Years to figure it out? Or were they just making far too much money to bother before being found out???

	IDA Unauthorized Trading Penalty Guidelines
One of the five primary values set out in the Code of Ethics states that “Registrants must conduct themselves with trustworthiness and integrity, and act in an honest and fair manner in all dealings with the public, clients, employers and colleagues.” There is a relationship of trust and confidence that exists between a registrant and client. When a registrant executes trades without the knowledge or consent of his/her client, the registrant has breached his/her ethical obligations to his client.

Questions and Answers

Q:	Who administers my RRSP?
A:	A trust company
Q:.	What is a trust company?
A:	A trust company is a financial institution that operates under either provincial or federal legislation and conducts activities similar to those of a bank. However, because of its fiduciary role, a trust company can administer estates, trusts, pension plans and agency contracts, which banks are not permitted to administer.
Q:	How many are there and who are the trust companies in Canada?
A:	The following 47 institutions are regulated under the federal Trust and Loan Companies Act and are authorized to accept deposits, which may be eligible for deposit insurance provided by the Canada Deposit Insurance Corporation.
Q.	What duties are owed to the RRSP account holder by a trust company?
A.	The trust companies are bound by the contract which you signed when providing your RRSP funds to your financial services provider. They also owe a fiduciary duty to you as an account holder.

Which regulatory bodies are responsible, or should at minimum be held responsible, for not properly monitoring these activities?

The British Columbia Securities Commission

The Alberta Securities Commission

The Saskatchewan Financial Services Commission

The Manitoba Securities Commission

The Ontario Securities Commission

Autorité des marchés financiers

The New Brunswick Securities Commission

The Nova Scotia Securities Commission

Registrar of Securities, Corporate Affairs C-6, Yukon Territories

Registrar of Securities, Dept. of Justice, Northwest Territories

Registrar of Securities, Dept. of Justice, Nunavut

Department of Government Services, Newfoundland & Labrador

Office of the Attorney General, Prince Edward Island

The Investment Dealers Association of Canada