The Investment Firms Law (“IF Law”) was amended in February, 2004, in order to be harmonised with Directive 97/9/EC of the European Parliament and the Council of 3rd March, 1997, on investor compensation schemes. In view of the above amendment, two separate compensation funds were established, one for clients of investment firms and one for clients of credit institutions which offer investment services, as defined in Article 3 of Directive 93/22/EEC. The latter is known as the Investor Compensation Fund (“ICF”) for Clients of Banks.
The above amendment enabled the two competent supervisory authorities, ie the Central Bank of Cyprus (“CBC”) and the Cyprus Securities and Exchange Commission (“CySEC”) to proceed with the issue of relevant Regulations for the operation of the two Funds.
According to the Regulations for the establishment and operation of the ICF for clients of banks, all Cyprus incorporated banks, which offer investment services as defined in Annex I of the IF Law, are obliged to become members of the ICF. Branches of such banks which operate in other countries outside the Republic of Cyprus are also obliged to become members of the ICF.
Banks having their registered office in a third country which maintain a branch in the Republic or provide in the Republic investment and/or non-core services on a cross-border basis, must also become members of the ICF provided that no cover by a similar Fund of a third country, at least equivalent to the one prescribed by the Cyprus Regulations, is extended to its covered clients in the Republic.
According to the Regulations which were issued by the CBC and approved by the House of Representatives in April, 2004, the object of the ICF is to secure the claims of the covered clients against banks, members of the ICF, through the payment of compensation in cases where the bank concerned is unable, due to its financial circumstances and when no realistic prospect of improvement in the above circumstances in the near future seems possible: (a) to return to its covered clients funds owed to them or funds which belong to them but are, directly or indirectly, held by the bank in the context of providing investment services to the said clients or (b) to hand over to covered clients financial instruments which belong to them and which the bank concerned holds, manages or keeps on their account.
The ICF does not cover institutional and professional investors. The total payable compensation to each covered client of an ICF’s member may not exceed €20.000, irrespective of the number of accounts held, currency and place of offering the investment service.
The above Regulations have been amended and were published in the Official Gazette of the Government on 8 June, 2007. The text of the amended Regulations can be found in this website, only in Greek.