CySEC updates the Investor Compensation Fund directive

April, 05, 2019, | AtoZ Markets The Cyprus Securities and Exchange Commission (CySEC) introduced recently a new Investor Compensation Fund directive that would apply to all Cypriot investment firms (CIF) that provide investments or any ancillary services. Following the updated rules of the Cypriot regulator, Atoz Markets reached to the Cyprus financial representatives and Cypriot-based brokers to get their opinion on the regulator’s initiative.

CySEC officials opinion on the investor compensation fund changes

Commenting on the new rules, CySEC chairman Demetra Kalogeru said: “The modernized regulatory framework governing the Investor Compensation Fund provides a balanced, proportionate and risk-based approach to determining the level of contributions required by member firms.

The reliability of the ICF is fundamental to maintaining investor confidence and, ultimately, investor protection. Our extensive consultations and related changes will help ensure that this is a well-funded and sustainable mechanism to support compensation to eligible investors in the event of market failure as a last resort. ”

How Cypriot brokers see the new ICF directive  

Commenting on the new rules, Head of Compliance at Squared Direct, Constantina Economidou said:

“The new ICF Directive is basically a new approach by the regulator with respect to the Investor Compensation Fund (ICF).

Applicable to all Cypriot Investment Firms (CIFs) providing investment or similar financial services to investors, ICF aims at securing the claims of covered clients of the CIFs in the event of an adverse scenario without disturbing market stability.

With the new ICF Directive an annual fee of €700 or €100 according to the CIF’s authorization for covering the ICF’s nominal cost of operations was introduced in addition to an increased annual contribution of 5‰ (five per thousand) of the eligible funds and financial instruments of a covered client based on a risk-based approach emanating from the type of financial instruments traded by CIFs .

Such reforms of ICF may contribute for CIFs to be in a position to cover contingent expenses that may arise in the case where compensation is activated for a large number of the covered investors of a CIF.”

CySEC updated framework may encourage CIFs investors

While answering whether CySEC reforms will help decrease losses of client funds observed in recent years, Constantina Economidou stated:

“Clients are advised to take due care in choosing their broker to control the use of the ICF as their first line of compensation in case of a collapse of a said broker.

In this respect, CySEC has changed the maximum allowed compensation for valid claims from the current €20,000 to either 90% of the cumulative claims of the covered investor or the amount of €20,000, whichever is lower. This means that, if the claim is for €50.000, the coverage will be €20.000, since 90% of this claim, equals to €45.000. However, if the claim is for €10.000, the coverage will be €9.000 (Min (€10.000 Χ 90%, €20.000) = €9.000).

It is possible that these updates on the regulatory framework may provide more confidence to the CIFs investors and ultimately more protection as the ICF will be well-funded from its members provided the new annual fees and the increasing of its members annual contribution for supporting the compensation of covered investors if this is deemed necessary as their last resort of compensation. “

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