Eligible Investments

The Scheme only covers eligible investments. Eligible investments are defined as follows:

The following investments therefore are amongst those not covered by the scheme:

Eligible Investors

The scheme is only available for certain types of investor. Such investors are often referred to as "private", "ordinary" or “retail” investors.

Investments by professional and institutional investors, as per the definition provided in MiFID, are not covered by the scheme. Professional investors are those who may be deemed to possess the experience, knowledge and expertise to make their own investment decisions and properly assess the risks they incur.

Under the Markets in Financial Instruments Directive (MiFID), there is a third category of client - 'eligible counterparties'. For the purposes of GICS these are deemed to be equivalent to professional clients and are therefore outside the scope of the scheme.

For the purposes of calculating the number of eligible clients under the scheme, if the investor can be deemed professional in respect of any service or instrument at any point in time, then they would be deemed as professional investors for the purposes of GICS and therefore not afforded any of the protections. Firms will therefore be obliged to inform clients of this.

Categories of investors who are deemed to be professionals

  1. Firms which are required to be authorised or regulated to operate in the financial markets. The list below should be understood as including all authorised entities carrying out the characteristic activities of the entities mentioned: entities authorised by a Member State under a Directive, entities authorised or regulated by a Member State without reference to a Directive, and entities authorised or regulated by a non-Member State− These are:
    • Credit institutions
    • Investment firms
    • Other authorised or regulated financial institutions
    • Insurance companies
    • Collective investment schemes and management companies of such schemes
    • Pension funds and management companies of such funds
    • Commodity and commodity derivative dealers
    • Locals - A firm dealing for its own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets, or dealing for the accounts of other members of those markets and being guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such a firm is assumed by clearing members of the same markets.
    • Other institutional investors
  2. Large undertakings meeting 2 of the following size requirements on a company basis: balance sheet total: EUR 20.000.000, net turnover: EUR 40.000.000, own funds: EUR 2.000.000.
  3. National and regional governments, public bodies that manage public debt, the Gibraltar Savings Bank, Central Banks, international and supranational institutions such as the World Bank, the IMF, the ECB, the EIB and other similar international organisations.
  4. Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.
  5. Investors with similar status in other firms within the same group and close relatives and third parties acting on behalf of these investors
  6. Other firms in the same group.
  7. Investors who have any responsibility for or have taken advantage of certain facts, such as information not generally available to the public, relating to an investment firm which gave rise to the firm's financial difficulties or contributed to the deterioration of its financial situation.
  8. Persons responsible for carrying out the statutory audits of investment firms' accounting documents.

Where the client of an investment firm is an undertaking referred to above, the investment firm must inform it prior to any provision of services that, on the basis of the information available to the firm, the client is deemed to be a professional client, and will be treated as such unless the firm and the client agree otherwise.

Clients assessed as professional

Where the investment firm makes a determination based on an adequate assessment of the expertise, experience and knowledge of the client, which gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his own investment decisions and understanding the risks involved, then the firm can consider such investor as a professional client.

Where an assessment has been conducted under MiFID to classify a client and the client is categorised as a professional for the purposes of MiFID, this assessment will suffice for GICS - the client can be considered professional and would not be considered an eligible investor.

As part of the above mentioned assessment a minimum of two of the following criteria should be satisfied:

  1. The investor has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
  2. The size of the investor's financial instrument portfolio, defined as including cash deposits and financial instruments exceeds 0,5 million Euro;
  3. The investor works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

If investors have already been categorised as professionals under parameters and procedures similar to those above, it is not intended that their relationships with investment firms should be affected by any new rules adopted by firms.

Retail clients opting-up to professional status

Where a client who has been classified as retail, advises the firm post the relevant assessment conducted by the firm, that he wants to be considered as professional, i.e. is an elective professional, the firm is still required, prior to considering the client as professional for the purposes of GICS, to conduct an assessment. This is to ensure that an adequate assessment of the expertise, experience and knowledge of the client is undertaken by the investment firm, and gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his own investment decisions and understanding the risks involved. Hence at least two of the following is satisfied:

  1. The investor has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
  2. The size of the investor's financial instrument portfolio, defined as including cash deposits and financial instruments exceeds 0,5 million Euro;
  3. The investor works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

And;

  1. The investor must state in writing to the investment firm that they wish to be treated as a professional investor;
  2. The investment firm must give the investor a clear written warning of the protections and investor compensation rights they will lose;
  3. The investor must state in writing, in a separate document from the contract, that they are aware of the consequences of losing such protections.

Before deciding to accept any request, investment firms must be required to take all reasonable steps to ensure that the client requesting to be treated as a professional client meets the relevant requirements stated above.

“Elective” professional clients under MiFID are non-eligible clients for the purposes of GICS.

Professional clients opting-down to retail status

Professional clients may wish to opt-down and be treated as retail clients under MiFID, such clients would not be eligible for cover under GICS.

Under MiFID, a firm may agree to a request from a professional investor to be categorised as a retail investor, or such a re-categorisation occurs as a result of the firm’s assessment of that client’s suitability or appropriateness i.e. where a professional client ‘opts down’ to the retail category, such a client would not be eligible for compensation under the scheme, by virtue of having been considered a professional investor at some other point. These clients would need to be advised by the firm that their re-categorisation as a retail client would not change their treatment under the scheme i.e. this type of client would continue to be excluded from the scope of the scheme.

Treatment of all clients as retail

Firms opting to categorise all their investors as retail investors for the purposes of MiFID, should continue to classify investors as eligible or professional for the purposes of GICS, and these classifications should not change irrespective of the client’s ‘new’ and ‘temporary’ treatment under MiFID. For example, when a participant of the scheme has historically reported 20 eligible clients and 25 professional clients but now under MiFID will be categorising all investors as retail investors for those purposes, the number of eligible clients reported in the GICS quarterly return would still be 20 clients and not 45.

Firms should advise clients accordingly of whether protection is in fact afforded to them under the Scheme.

Firms must have appropriate written internal policies and procedures to categorise investors.