The security breach that occurred in Kaleido is causing a cold sweat for several savers who fear losing their hard-earned money to fund their children’s studies.
Kaleido announced on Jan. 25 in a statement that it will refund all funds lost on Jan. 18 from several customer accounts, including refunds and government subsidies. “It is the company’s desire that none of our customers be adversely affected by this situation,” wrote Julie Cyr, vice president of marketing and customer experience at Kaleido.
Kaleido, which was called Universitas until 2019, sold group plans until it changed its business model on May 1 to offer individual scholarship plans. The Company continues to comply with the agreements concluded with the owners of collective products until their expiration date.
Kaleido alleges that the fraud did not involve its internal systems and that false evidence of participation in the study was used to withdraw funds from customer accounts.
He also reports that he has taken steps to increase surveillance levels. In 2023, it should implement dual authentication, which will increase account security by requiring a third element of identification in addition to the username and password.
The incident, however, draws attention to the protection of Registered Education Savings Plans (RESPs), popular with parents and grandparents.
Read also: RESP: an important investment for families
Collective or individual: notable differences
In a group RESP system, members’ contributions are pooled and invested together. Earnings are then distributed to eligible beneficiaries of the same age who apply for an education allowance (EAP). Thus, those who do not continue their education give part of their kitten to young people who do.
The group plan requires parents to pay fixed amounts on a regular basis, while the individual plan is more flexible. Since investment products are more limited in the collective formula, this can also affect returns.
By comparison, in an individual (or family) RESP, you decide how the investment is distributed and the profits go to the beneficiary. Amounts can be transferred to another child or collected in certain cases if the young person does not continue his education.
If you are worried about the misadventures of several Kaleido clients or are considering transferring your assets, know that you can return all your deposits invested in an individual RESP at any time.
It may be stricter to exclude them from group plans, which sometimes charge significant fees to recoup the amounts invested. In the spring of 2021, the Supreme Court authorized a class action against RESP group administrators who charge fees described as “improper”.
Kaleido is currently working with the Royal Canadian Mounted Police on an investigation with KPMG security experts to determine the source of the fraud.
In Quebec, funds deposited with RESPs are protected in the event of bankruptcy by the Canadian Deposit Insurance Corporation and Autorité des Marchés financiers (AMF) up to $100,000, but not in the event of fraud. “The RESP company is responsible for insuring reimbursement in the event of fraud outside the company,” writes Sylvain Teberge, an AMF spokesman.
Kaleido has this insurance: “We are in talks with our insurer and will cooperate with him in his investigation,” says Julie Cyr.
The AMF enforces regulations in the financial sector and can conduct investigations. It also has the power to suspend licenses to practice and impose fines on violating professionals.
It has a compensation fund to compensate victims in certain situations (maximum $200,000 per person), such as if an investigation proves an employee or company was responsible for the fraud. This fund does not intervene if the fraud comes from outside the company. It also does not apply in cases of fault, error, negligence or inadvertent omission on the part of the professional.
Investors who feel offended may also file a complaint with the Financial Security Chamber or take their case to small claims court or higher courts, depending on the amount wagered.
UPDATE 01/30/2023: This article has been changed after several inaccuracies were reported to us by Kaleido, the latter no longer offers group RESPs as of May 1, 2022. We apologize. We have also added details of the legal remedies available to consumers facing this situation.