CySEC introduces changes to Investor Compensation Fund framework

Maria Nikolova

Under the new requirements, ICF members will have to keep an independently audited and client-segregated minimum cash buffer of 3‰ of their clients’ eligible funds and financial instruments.

The Cyprus Securities and Exchange Commission (CySEC) today issues its final Policy Statement which sets forth the legal framework governing the operation of the Cyprus Investor Compensation Fund (ICF). The publication of this Policy Statement happens nearly two years after the Cypriot regulator issued a consultation paper on the proposed amendments to this legal framework.

The reforms aim to ensure the ICF secures the claims of covered clients of regulated entities who are fully registered members of the ICF in the event of an adverse scenario without disturbing market stability. The obligation to participate in the ICF applies to all entities providing investment services and ancillary custody services irrespective of whether clients’ funds and financial instruments are held. This means that participation in the ICF is compulsory for Cyprus Investment Firms (CIFs) too.

The reforms envisage calculating members’ annual ICF contributions using a risk-based approach, which takes into account the reliability of statements of eligible funds and financial instruments, the amount of clients’ eligible funds and financial instruments of a respective member and the timing of the payment of the annual contribution.

Under the changes, 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 will be removed.

ICF members will be required to keep an independently audited and client-segregated minimum cash buffer of 3‰ (3 per 1,000) of their clients’ eligible funds and financial instruments.

There will be no limiting of 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.

The new rules apply 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.

Furthermore, the payment of initial contributions will have to 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.

Under the revised legal framework, an annual registration fee for ICF members to cover the nominal cost of the ICF’s operation will be introduced, 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.

It would be interesting to see whether the ICF would actually help investors. Certain Cypriot institutions that formally aim to help clients of financial services companies have been pretty clumsy. Navigating the website of the Cypriot Financial Ombudsman, for instance, is a task suitable solely for those who like labyrinths.

    Read this next

    Digital Assets

    Celsius founder Mashinsky agrees to shared lawyers with Sam Bankman-Fried

    Former Celsius CEO Alex Mashinsky has addressed potential conflicts of interest in his legal representation during a brief hearing in a New York courtroom.

    Digital Assets

    Sam Bankman-Fried captured in first jail photo

    Sam Bankman-Fried, the once-billionaire founder of FTX, has been spotted looking quite different with a new beard and a slimmer figure in a photo that’s been making rounds, reportedly taken inside New York’s Metropolitan Detention Centre.

    Market News

    Bitcoin stalls at $53,000 level, Ethereum reaches $3,000

    Bitcoin (BTC) faced renewed resistance at the crucial $53,000 level on Tuesday, indicating that the primary cryptocurrency is likely to continue consolidating before making its next decisive move.

    Digital Assets

    UK targets new laws for stablecoins and crypto staking within six months

    The United Kingdom is gearing up to enact fresh legislation regulating stablecoins and crypto staking within the next six months.

    Web3

    Masa’s Milestones Before Mainnet Launch

    Since its launch in August 2022, Masa, the premier decentralized network for personal data, has experienced rapid growth, securing over 1.2 million unique wallets and accumulating more than 23 million data points. Despite a bear market, the network has attracted over 40,000 node operators to its testnet within just 18 months.

    Digital Assets

    Web3 Greatest Startup Competition Hits $10M in Prizes

    We’re thrilled to announce the return of the highly anticipated Startup Competition at Paris Blockchain Week. With a staggering array of prizes totaling over $10 million, encompassing funding, grants, credits, accelerations, listing, and more, this competition has become a cornerstone event within the blockchain startup ecosystem.  

    Digital Assets

    Hedge fund Tyr Capital faces dispute over exposure to FTX

    Crypto hedge fund Tyr Capital found itself embroiled in a dispute with one of its clients concerning its investment exposure to the bankrupt digital assets exchange FTX, as reported by the Financial Times on Tuesday.

    Retail FX

    Plus500 revenue down to $725 million, unveils $100M share buyback

    Israeli-based, but London-stock market listed Plus500 Ltd (LON:PLUS) today reported its 2023 results, which came “significantly ahead” of analysts’ estimates.

    Education

    Strategies for Profiting from Interest Rate Fluctuations

    The world of Forex trading is a complex and dynamic domain where interest rates play a pivotal role in shaping currency values. Octa’s team of financial experts delves into this intricate relationship, providing traders with a comprehensive understanding and strategies to harness economic indicators for enhanced trading performance.

    <