Investors Compensation Fund
Pursuant to section 17 of the Investment Services and Activities and Regulated Markets Law of 2007 (‘the Law'), "A Cypriot Investment Firm (‘CIF') must be a member of the Investment Compensation Fund (‘ICF')". According to section 58 of the Law, a CIF is not allowed to provide investment services without participating in the Investors Compensation Funds.
The main purpose of the Investor Compensation Fund for clients of Cypriot Investment Firms is to secure the claims of the "Covered" clients against Cypriot Investment Firms, in situations where the latter is unable to meet such of its duties as arise from its clients' claims in connection with the investment services or the ancillary services it has provided, as long as such inability is directly related to its financial circumstances in respect of which no realistic improvement in the near future seems foreseeable.
The Fund compensates the covered clients for claims arising from the covered services provided by its members, so long as failure by the member to fulfill its obligations has been ascertained. Failure by a member to fulfill its obligations consists of its failure to:
(a) Either to return to its covered clients funds owed to them or funds which belong to them but are held by the member, directly or indirectly, in the framework of the provision by the said member to the said clients of covered services, and which the latter requested the member to returns, in exercise of their relevant right;
(b) Or to hand over the covered clients' financial instruments which belong to them and which the member of the Funds holds, manages or keeps on their account, including the case where the member is responsible for the administrative management of the said financial instruments.
Management of the ICF
In accordance to Section 60 of the Law, the management of the ICF, which includes their administration and representation, is exercised by an Administrative Committee consisting of five members, who must be of acknowledged authority and morals and have the necessary knowledge on financial or accounting or bank issues or issues of the capital market to discharge their duty.
Which clients are Covered?
ICF protects all clients of the CIF, except clients listed under the Law, Second Appendix (section 2), particularly:
1. Credit institutions;
3. Other authorized or regulated financial institutions;
4. Insurance undertakings;
5. Collective investment schemes and management companies of such schemes;
6. Pension funds and management companies of such funds;
7. Commodity and commodity derivatives dealers;
9. Other institutional investors;
10. Large undertakings meeting TWO of the following size requirements, on a proportional basis:
* Balance sheet total at least 20 000 000 euro
* Net turnover at least 40 000 000 euro
* Own funds at least 2 000 000 euro
11. National and regional governments , public bodies that manage public debt, central banks, international and supranational institutions such as the World Bank, the Internal Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organizations;
12. Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitization of assets or other financing transactions;
13. Administrative officers and directors of Ifs and persons closely linked
14. Undertakings connected to any IF which has become insolvent.
Which services are Covered?
ICF shall compensate all clients of any of its members established in the Republic in respect of claims arising out of the investment services they provide as well as ancillary services. ICF shall pay no compensation in respect of claims arising out of transactions involving individuals convicted of a criminal offence pursuant to the Prevention and Suppression of Money Laundering Activities Law.
Amount of Compensation
In accordance with Article 56 of the Investment Firms (IF) Law of 2002 to (No.2) of 2004, the compensation shall be of an amount of up to Twenty Thousand Euro (20.000). "Such compensation shall apply to the investor's aggregate claims as against a member of an ICF, irrespective of the number of accounts held, the currency and location of the provision of service",
Note: The Establishment and Operation of the Investor Compensation Fund for Clients of IF's that were issued pursuant to the Investment Firms (Ifs) Law of 2002, remain in force until they are replaced pursuant to the new Law.