The Investor Compensation Scheme Act 2002 was passed by the House of Assembly on 14 June 2002 to give effect to EU Directive 97/9/EC which requires Member States to establish investor compensation schemes. The Act came into operation on the 24th July 2003.
It is a condition of a firm's authorisation that the firm is a member of the Scheme. Branches of Gibraltar firms operating in other EEA States can 'top-up' into that State's scheme. Where the firm ceases to provide services and surrenders its authorisation to conduct such business, it will still be liable to pay any contributions should another firm fail between the date of the surrender and the expiry of six months.
Branches of non-EEA State firms are also required to participate in the Scheme where their home country does not offer equivalent protection.
The Act establishes The Gibraltar Investor Compensation Board. This Board is charged with administering the Scheme and is independent of the Financial Services Commission or Government of Gibraltar. The Board may employ persons to provide services for the day-to-day administration of the Scheme, or for administering claims for compensation.
Appointments to the Board are made by the Minister responsible for Finance and consists of the Financial Services Commission (FSC) Chief Executive Officer, the FSC Head of Banking and Investments and individuals nominated from the following industry associations:
- Gibraltar Funds & Investment Association (GFIA)
- Gibraltar Bankers Association (GBA)
- Gibraltar Society of Accountants (GSA)
- General Council of the Bar in Gibraltar (GCBG)
The Board meets bi-annually and the table below lists the current members *(and alternates) in attendance at meetings held in 2013/2014:
|Recent attendance at GICS Meetings by Members|
+ No longer a member
The quorum of the Board is three members, one of whom must be the Chairman.
The Board is a body corporate and may be sued in its name. However, members of the Board have immunity from prosecution or suit for all actions or omissions while carrying out the functions of the Board unless any action or omission is shown to have been in bad faith.
The Board is required to have its accounts audited, and these must be published within three months of the end of the audit having taken place.
Establishment of funds
The Board has to establish :
- a fund to meet its administrative costs; and
- a fund for each default, as the need arises.
The Board may levy administrative fees to cover administrative costs from Scheme participants. It may also hold its monies in a range of assets. The Board also has the power to borrow money and take out insurance policies.
A firm is in default for the purposes of the Scheme as soon as the Chief Executive Officer of the Financial Services Commission (FSC) makes a declaration to that effect. This must take place within 21 days of any of the following events occurring :
- it appears to the Chief Executive Officer of the FSC that a participant is unable to meet its obligations to investors in relation to investments held through it;
- a winding-up order is made;
- a voluntary winding-up resolution is passed;
- a creditors’ meeting is called;
- a receiver is appointed;
- a voluntary arrangement with its creditors is made.
The Board must pay compensation to an investor (who qualifies) in respect
of an eligible investment if a firm is in default and the Board is satisfied
that the firm in default holds or controls that eligible investment.
Verified claims must be paid within three months of the establishment of the
claim. The Board may seek, in exceptional circumstances, an extension of
this period by a further period of up to three months.
The Board must be in a position to provide claimants with a clear form in which they can submit their application for claims. This form must be in English in Gibraltar, and in the official language of the EEA State where a branch of a Gibraltar investment firm is situated. The form must state the right of the Board to subrogation (i.e. to take over ownership of assets in respect of which compensation has been paid). The form must also require claimants to give :
- their identity and address;
- the capacity in which they claim;
- evidence of the eligible investments;
- proof that they have made a claim to the liquidator or receiver; and
- any other information or documents reasonably required by the Board.
Amount of Compensation
The total amount of compensation each successful claimant is entitled to receive is limited to the lesser of :
- 90% of the total amount of all eligible investments held by the claimant with the investment firm in default, or
- the Sterling equivalent of Euro 20,000.
The following will be deducted from the amounts payable by the Scheme :
- payments received from investor compensation schemes elsewhere;
- payments form 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.
Investments held in joint names will be divided according to the investors’ shares or equally if there is no indication available of the share of each investor. Partnerships or similar associations will be treated as one claimant. Investments held by trustees, or their equivalent, will be treated as one claimant unless each of the beneficiaries can be separately identified, and had a separate right under the trust before the date of the declaration by the Commissioner.
Investments will be converted into Sterling at the official rate on the date nearest to the declaration by the Commissioner.
Claimants who are dissatisfied with decisions of the Board in respect of compensation may appeal to the Supreme Court.
Fees and levies
Each year, the Board may require each participant to pay an amount
determined by the Board. These fees will seek to cover the expected
administrative expenses in that year together with any shortfall in previous
financial years of receipts over administrative expenses. These fees become
due at the beginning of each financial year of the Board, or, in the case of
a new participant, the date on which it becomes a participant.
The Board will also be required to take a decision on the amount and apportionment of start-up costs of the Scheme.
It is also possible for the Board not to charge administrative fees in any financial year if it has sufficient funds already.
On the Chief Executive Officer of the FSC declaring a default, the Board will levy, from the remaining participants, one or more levies to meet the costs of the compensation payable under the Scheme.
The will be calculated as follows:
- Each participant will contribute a percentage of the total payable in compensation. The percentage payable by each participant will depend upon the size of that participant's eligible client base (i.e. eligible investors holding eligible investments)
- An eligible investor, in the case of an investment manager or adviser, is a person with whom the firm has a current contractual agreement to provide such services or, in the case of any other authorised firm, is a person for whom the firm is holding money or other assets in all of its designated client accounts with either banks or other brokers.
- Each participant will complete a quarterly return showing its eligible clients and a similar return on a date to be notified in the case of each declaration of default.
Similarly, once all payments have been effected by the Board, any surplus
funds will be repaid to participants in the same proportion as the levy was
Written notice must be given to each participant when raising the levy. This must state:
- the amount of the participant’s contribution;
- the method by which it is calculated; and
- the date on which it is due (at least 14 days after the notice).
If a firm fails between the notice of the levy and payment being made, the liability of that firm will be cancelled.
Participants must make available to the Board all information which it
requires in order to carry out its functions. This duty also extends to the
successor of a participant (liquidator, receiver, etc). The duty in relation
to the liquidator or receiver extends to information which will assist the
Board in exercising its rights of subrogation.
The Board will be considered a creditor of a firm which is in default. It can also nominate a member (or alternate) to sit upon a creditor's committee or committee of inspection and is also entitled to receive any notice addressed to creditors as well as being able to attend and vote at any creditors' meeting.
The liquidator or receiver of a defaulting firm must pay to the Board any amount realised in respect of an eligible investment up to the amount of compensation paid or payable by the Board to the claimant.
Before paying any compensation, the Board must receive confirmation from the claimant that :
- his rights in respect of that investment will vest in the Board;
- he will assist the Board in exercising those rights;
- he will pay the Board any amounts he receives in respect of those rights, after deduction of any amount the Board may be required to repay him, and
- any prospect of recovering an amount in excess of the compensation payable will vest in the Board, who may settle the claim.
Any amount received by the Board shall be paid into the fund established in respect of the default in question.
Withdrawals from the scheme
If a firm does not comply with the requirements of the Ordinance, the Board will inform the Chief Executive Officer of the FSC who may decide to revoke the authorisation granted to it under the Financial Services (Markets in Financial Instruments) Act. Investors with eligible investments at the time of revocation of that firm's authorisation will still be covered by the Scheme and the firm will still need to pay the annual fees as well as any levies that are imposed.
Information for investors
All participants in the Scheme must make available to their investors
information about the scheme(s) to which they belong as well as a summary of
the provisions of the scheme(s) including the amount and scope of their
coverage. actual or intending investors may ask firms for details about the
conditions for compensation and the procedures for claiming it and the firm
must provide this. All this information must be provided in English when
given in Gibraltar or in the official language of the member state where a
branch is established.
Advertisements for investments do not have to make reference to the level of coverage but must make factual references to the existence of the scheme and participation of the firm in the scheme and any other schemes to which the participant belongs.