Date: 6th May 2019,
Subject: CySEC’s Investor Compensation Fund (“ICF”) Directive 13th of March 2019.
To whom it concerns:
- AIFMs which provide the services of paragraph 6 of Section 6 of the AIFM Law of 2013;
- Management companies, which provide the services of paragraph 4 of Section 109 of the Open-Ended Undertakings for Collective Investments Law of 2012.
CySEC has revised certain provisions in regards to the Investor Compensation Fund. Most importantly the ICF contribution is no longer based solely on the offered investment services; instead the ICF contribution shall be calculated using a risk-based approach, taking into account the reliability of statements of eligible funds and financial instruments (as per External Auditor’s assessment), the clients’ eligible funds and financial instruments of a respective member and the timing of the payment of the annual contribution.
In addition, as per CySEC’s announcement, the new ICF Directive includes the following changes:
- Removing any provisions in relation to limiting or refunding the contributions of the members that will be paid to the ICF pursuant to the New ICF Directive;
- Requiring ICF members to keep an independently audited and client-segregated minimum cash buffer of 3 ‰ of their clients’ eligible funds and financial instruments;
- Not limiting potential extraordinary contributions by an ICF member in the event of an adverse scenario which requires the ICF to fund compensation due to investors, should the necessary requirements be met;
- Applying the discretion provided for in Directive 97/9/EC on the levels of investor compensation such that the maximum limit of compensation coverage equals €20,000 or 90% of the covered investor’s claim, whichever is lower;
- Ensuring the payment of initial contributions must be made by candidate members or existing members prior to obtaining an authorisation to operate and/or prior to extending their authorisation to operate–but only after the core criteria for granting authorization by CySEC has been examined and upon receiving relevant approval instructions by CySEC;
- Introducing an annual registration fee for ICF members to cover the nominal cost of the ICF’s operation so that the ICF is in a position to cover contingent expenses that may surface, such as the cost incurred for the collecting, recording and assessing the claims of covered investors, in the event that the compensation procedure for a large member (e.g. a member with thousands of investors) is activated.
Should you need more information about the implications of the abovementioned changes, please contact us on 25508201.