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Investor Compensation Scheme



The Investor Compensation Scheme is a rescue fund for investors that are clients of failed investment firms licensed by the Malta Financial Services Authority (MFSA). We can only pay compensation if a licensed investment firm is unable or likely to be unable to pay claims against it. In general this is when the licensed firm stops trading or becomes insolvent.

The Investor Compensation Scheme is managed by a Committee appointed by MFSA. This Committee is made up of persons representing MFSA, the Central Bank, licensed firms, the banks and customers.

The Investor Compensation Scheme does not regulate licensed investment firms. Business conducted by investment firms licensed under the Investment Services Act is regulated by MFSA.

We aim to treat everyone fairly and openly. However we can only pay compensation according to the Investor Compensation Scheme Regulations (the Regulations). By explaining how these rules generally operate, we wish to prevent any misunderstandings or unrealistic expectations about what we can do.


Purpose of the Scheme

The Scheme is intended to promote confidence not only in licensed investment firms, but more importantly, in the financial system as a whole. It draws its justification from the fact that an investor is not generally in a position to make a comprehensive assessment of the risks affecting a licensed investment firm.


Firms covered by the Scheme

The following firms are covered by the Scheme:

  • Firms licensed under the Investment Services Act, 1994 incorporated in Malta including their branches in the European Economic Area (“EEA”), if any;
  • Certain firms incorporated in EEA States which may join the Scheme to supplement the cover available from the scheme operating in their home country in respect of investments made by their Malta offices;
  • Certain firms incorporated outside the EEA in respect of investments taken by their Malta offices;
  • The firm’s own literature in relation to the Scheme may state to which scheme(s) the firm belongs. If this information is unavailable, you should ask your firm to provide you with more information in this respect.

The Management Committee of the Investor Compensation Scheme can also advise you if a firm participates in the Scheme. You can also click here to see a list of present participants.

(The EEA stands for European Economic Area. Created in 1994, the EEA combines the countries of the European Union and member countries of EFTA (European Trade Association). Countries that belong to the EEA are: Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. Countries that are EEA member countries but NOT part of the European Union are: Norway, Iceland, Liechtenstein.)


Limits applicable in the event of a claim

The Scheme covers 90% of a firm’s net liability to an investor in respect of investments which qualify for compensation under the Investment Services Act subject to a maximum payment to any one person of €20,000.

A firm’s total liability to an investor is the aggregate of all accounts in the name of that investor in any currency, including the investor's share in a joint account or a client account.

Joint accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits described above.

In respect of investments held by a person acting as trustee or nominee for one or more persons, the investment making up the claim shall be deemed to belong to the beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons.

The following will be deducted from the amounts payable under the Scheme:

  • payments received from investment compensation schemes elsewhere;
  • payments from any insurance policy taken out by the claimant in respect of the investment;
  • payments from the liquidator or receiver; and
  • any amounts which had a right of set-off at the date of declaration.

 

Currencies covered by the Scheme

The Scheme covers investments in any currency.


Types of investments covered

Most types of investments are covered. Certain investments are not covered by the scheme, such as:-

  • Investment by companies which are not permitted to draw up abridged balance sheets in terms of the Companies Act.
  • Amounts invested by another firm for its own account.
  • Investments arising out of transactions in connection with which there has been a conviction under the anti money-laundering legislation.
  • Investments by financial institutions.
  • Investments by insurance undertakings.
  • Investments by governments, central administrative authorities or local or regional governments or authorities.
  • Investments by collective investment undertakings.
  • Investments by pension and retirement funds.
  • Investments by a credit institution's own directors, managers, members personally liable, holders of at least 5% of the institution's capital, persons responsible for carrying out the statutory audits of the institution's accounting documents and depositors of similar status in other companies in the same group.
  • Investments by close relatives and third parties acting for the depositors referred to in the paragraph above.
  • Investments by other companies in the same group which provide consolidated accounts.
  • Investments which do not disclose the investor’s identity.
  • Investments for which the investor has, on an individual basis, obtained from the same institution rates and financial concessions which have helped to aggravate its financial situation.
  • Debt securities issued by the same institution and liabilities arising out of own acceptances and promissory notes.
  • Investments held by nominees, trustees or other third parties acting on behalf of or in the interest of the persons referred to in this schedule to the extent of the funds held in such capacity.

 

Activation of the Scheme

The Scheme is activated upon the occurrence of one of the criteria prescribed in regulation 13 of the Investor Compensation Scheme Regulations. The most likely of these events is a Court’s decision to put the investment firm into liquidation. The Scheme will also be activated if the Malta Financial Services Authority, as regulator of investment firms in Malta, determines that a firm has been unable to meet its obligations arising from claims by its investors for reasons which are directly related to its financial circumstances and has no current prospect of being able to do so.


Points to remember

You cannot claim compensation on the basis of:

  • Market movements resulting in a decrease in the value of an investment.
  • Poor investment advice.
  • A failed investment that had been duly executed
  • A failure of a collective investment scheme.
  • Inflation.
  • A decrease in interest rates.


Last Updated: 09 Feb, 2017