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Investment Services Act (Cap. 370) Investor Compensation Scheme (Amendment) Regulations, 2006 (L.N.36 Of 2006 )

INVESTMENT SERVICES ACT (CAP. 370)Investor Compensation Scheme (Amendment) Regulations, 2006

IN exercise of the powers conferred by article 12 of the Investment Services Act, the Prime Minister and Minister of Finance, acting on the advice of the Malta Financial Services Authority, has made the following regulations: -

Citation.

L.N. 368 of 2003

.

Adds new regulation 1A to the principal regulations.

2. Immediately after regulation 1 of the principal regulations, there shall be added the following new regulation:

“Scope.

1A. The objective of these regulations is to implement the relevant provisions of Directive 97/9/EC of the European Parliament and of the Council of 3rd March
1997 on investor-compensation schemes, and these
regulations shall be interpreted and applied accordingly.”.

Amends regulation

2 of the principal regulations.

(a) for the definition “investor”, there shall be substituted the following new definition:
““investor” means any person who has entrusted money or instruments to a licence holder in connection with licensed business, to the exclusion of persons listed in the First Schedule to these regulations;”; and
(b) immediately after the definition “investor”, there shall be inserted the following new definition:
““EEA state” means a State which is a contracting party to the agreement on the European Economic Area signed at Oporto on the 2nd May 1992, as amended by the protocol signed at Brussels on 17th March 1993, and as amended from time to time;”.

“(5) For the purpose of enabling the Scheme and the competent authority to carry out their respective functions, the Scheme and the competent authority may share and exchange information, and shall otherwise consult and collaborate with one another.” .

“(10) The competent authority shall appoint one of its officers to serve as secretary to the Management Committee with such administrative functions and responsibilities as may be assigned to him by the Management Committee.”.

“(7) Save where otherwise provided in regulation 9(3), the Management Committee may act notwithstanding any vacancy in its membership, and any proceeding thereof or decision taken thereat shall be valid notwithstanding that the appointment of any person is not made.”.

“(1) Every licence holder in possession of a Category 2 or Category 3 licence in terms of the Investment Services Act (Licence and Other Fees) Regulations, 1995 shall participate in and contribute to the Scheme, including branches of licence holders operating in other countries:
Provided that licence holders providing investment services solely and exclusively to persons who do not fall within the definition of “investor” in terms of regulation 2 of these
B 733

Amends regulation

3 of the principal regulations.

Amends regulation

5 of the principal regulations.

Amends regulation

9 of the principal regulations.

Amends regulation

11 of the principal regulations.

L.N. 7 of 1995

B 734

Amends regulation

12 of the principal regulations.

Amends regulation

17 of the principal regulations.

regulations shall not be required to participate in and contribute to the Scheme:
Provided further that a branch of a licence holder operating in Malta which is licensed in a non-EEA state shall participate in and contribute to the Scheme, unless the Scheme has in force an agreement with the authority responsible for the management and administration of the scheme in that other state stipulating, inter alia, that the level or scope of cover provided for investors in that state is equal or exceeds the level or scope of cover in Malta:
Provided further that a branch of a licence holder operating in Malta which is licensed in an EEA state may at its own option, participate in and contribute to the Scheme, only where the level or scope of the Scheme in Malta exceeds the level or scope of cover provided in the EEA state in which it is licensed.
(2) The Scheme may enter into a bilateral agreement with any authority responsible for the management and administration of a scheme set up in any other country stipulating, inter alia, the level or scope of cover as well as the rules and procedures to be followed for the payment of compensation to investors, and in any such case, the guiding principles set out in Annex II of the Directive 97/9/EC of the European Parliament and of the Council of 3rd March 1997 on investor-compensation schemes shall, where appropriate, apply.”.

(a) the present provision shall be renumbered as sub- regulation (1) thereof and the proviso thereto shall be deleted; and
(b) immediately after sub-regulation (1) thereof as renumbered, there shall be inserted the following new sub- regulation:
“(2) In calculating the amount of compensation to be paid out in terms of sub-regulation (1), all computations
shall be made in the currency of the investment and all payments of compensation shall be made in the same currency as the investment.”.

(a) in sub-regulation (1) thereof, for the words “Only persons being individuals falling within the definition of “investor” in regulation 2 of these regulations” there shall be substituted the words “Only persons falling within the definition of “investor” in regulation 2”;
(b) sub-regulations (2) and (4) thereof shall be deleted and sub-regulations (3), (5) and (6) shall be renumbered as sub- regulations (2), (3), and (4) respectively; and
(c) in sub-regulation (2) thereof as renumbered, for the words “are also excluded from claiming under the Scheme.”, there shall be substituted the words “are excluded from claiming under the Scheme.”.

Exclusions
(Regulations 2, 18)
The following are excluded from claiming under the
Scheme:
1. Persons carrying on investment services within the meaning of the Investment Services Act, or equivalent or similar foreign legislation;
2. Credit institutions carrying on the business of banking within the meaning of the Banking Act, or equivalent or similar foreign legislation;
3. Financial institutions within the meaning of the Financial Institutions Act, or equivalent or similar foreign legislation;
B 735

Amends regulation

18 of the principal regulations.

Amends the First Schedule to the principal regulations.

Cap. 370

Cap. 371

Cap. 376

B 736

Cap. 403 and

Cap. 404

Cap. 386

4. Insurance undertakings carrying on the business of insurance within the meaning of the Insurance Business Act and the Insurance Brokers and other Intermediaries Act, or under equivalent or similar foreign legislation;
5. Collective investment schemes;
6. Pension and retirement funds;
7. Companies which are of such a size that they are not permitted to draw up abridged balance sheets pursuant to the Companies Act, or under equivalent or similar foreign legislation;
8. Governments and administrative authorities, national and international institutions;
9. Local and municipal councils or authorities;
10. Debt securities issued by the same institution and liabilities arising out of own acceptances and promissory notes;
11. Persons holding accounts which do not disclose the investor’s identity;
12. Companies and commercial partnerships in the same group as the licence holder;
13. Directors and managers of the relevant licence holder and members of the licence holder with personal liability, persons holding five percent or more of the capital of such licence holder, the auditors of the licence holder and persons of the same description with respect to a company forming part of the same group of companies as the licence holder;
14. Close relatives, that is, ascendants, descendants or the spouse of the persons referred to in paragraph 13;
15. Investors who have any responsibility for or have taken advantage of certain facts relating to a licence holder which gave rise to the licence holder’s financial difficulties or contributed to the deterioration of its financial situation;
16. Investors in respect of transactions in connection with which a criminal conviction has been obtained for money laundering in terms of the Prevention of Money Laundering Act, or under equivalent or similar foreign legislation;
17. Nominees, trustees or other third parties acting on behalf or in the interest of the persons referred to in this Schedule to the extent of the funds held in such capacity;
18. Other categories of professional and institutional investors as may be determined from time to time by the Management Committee.”.

(a) in paragraph (d) of item 2 thereof, for the words “of a licence under the Act.”, there shall be substituted the words “of a licence under the Act. In subsequent years, the said proportion shall no longer apply.”; and
(b) for item 3 thereof, there shall be substituted the following:
“3. Variable Contribution
(a) The Variable Contribution is calculated by applying a percentage rate to the total revenue of the licence holder on an annual basis. The percentage rate for the Variable Contribution is set at 0.1 per centum.
(b) The Variable Contribution shall be accounted for in the financial year when the Fixed Contribution is paid.
(i) Investor Compensation Scheme
Reserve
The Variable Contribution shall be held by the licence holder in a reserve so that the funds will be made available within 30 calendar days from the time when the Scheme makes a call on
B 737

Cap. 373

Amends the Second Schedule to the principal regulations.

B 738
such funds in terms of regulation 16.
Funds in this reserve, which shall be called the “Investor Compensation Scheme Reserve” in all accounts and documents, shall be invested by the licence holder with a third party approved in writing by the Management Committee. Such third party shall hold the funds on pledge in favour of the Scheme and shall specifically acknowledge the rights of the Scheme as pledgee, and shall notify the Scheme in writing accordingly.
At the end of every financial year, each licence holder shall ensure that the current market value of the investments in which the Variable Contribution is invested is at least equal to the higher amount between 0.1% of the total revenue and the minimum amount established in sub-para (iv) of this title. If this requirement is not satisfied, the licence holder shall take immediate steps to top up as necessary these investments within one month of the financial year end.
(ii) Investment with Third Parties
Funds comprising the Investor Compensation Scheme Reserve may only be invested with a third party as follows:
(a) at least 25 per cent of the total amount shall be maintained in an interest bearing bank account denominated in Maltese liri (maximum maturity 30-day call) or invested in Malta Treasury Bills denominated in Maltese liri; and
(b) not more than 75 per cent of the total amount shall be invested as follows:
(i) at least 50 per cent (in this case
37.5 per cent of the total Reserve) shall be invested in Malta Government Stocks or in local SICAVs that invest principally in Malta Government Stock; and
(ii) the balance may be invested in
debt instruments issued by local or international entities with an investment grade of not lower than “A” by a reputable credit rating agency, which are quoted on an investment exchange and which are in a dematerialised form.
A licence holder whose capital is denominated in a currency which is not Maltese liri may, subject to approval by the Management Committee, maintain the Variable Contribution in the currency of that capital.
Deposits made by a licence holder shall not be placed with itself or with a bank or other institution which is an associated or parent company of the licence holder. For the purposes of this Schedule, an associated company shall mean any subsidiary of the parent company of the licence holder or any company over which the parent company exercises direct or indirect control or in which the parent company holds directly or indirectly more than 25 per cent of the shareholding.
A licence holder may not switch from an investment which is pledged in favour of the Scheme into another type of investment, without the written consent of the Management Committee.
The above parameters may be changed by Guidelines issued by the competent authority, upon consultation with the Management Committee.
(iii) Payment on account against a potential claim on the Investor Compensation Scheme
(a) The licence holder may deposit the entire amount of the Variable Contribution directly with the Scheme, in which case such deposit shall be on account of the licence holder ’s liabilities under
B 739
B 740
regulation 16, and the provisions of this Schedule, except for paragraphs 3(b)(i) and (ii), shall also be applicable to such deposit.
(b) No interest shall be payable by the
Scheme to the licence holder. (iv) Minimum held as reserve
(a) When a Variable Contribution is higher than the Investor Compensation Scheme Reserve, the licence holder shall be required to make a Variable Contribution for the difference to ensure that the higher amount is always on reserve.
(b) If the Investor Compensation Scheme Reserve exceeds the Variable Contribution, no transfer to the Investor Compensation Scheme Reserve shall be made.
(c) The minimum amount held on reserve or deposited with the Scheme shall never be less than Lm300.
(v) Reporting of the Variable Contribution by participants
Participants shall be required to insert a suitable note in their annual financial statements as to the amount of Variable Contribution held on reserve or deposited with the Scheme.
For amounts held on reserve, it would be appropriate to include the nominal and market value of the instruments in which the reserve has invested, together with a maturity schedule according to the type of instrument.
The amount on reserve will be deducted in full as an illiquid adjustment for the purposes of calculating the licence holder ’s financial resources in its financial return submitted in terms of its licence conditions.

Ippubblikat mid-Dipartiment ta’ l-Informazzjoni (doi.gov.mt) — Valletta — Published by the Department of Information (doi.gov.mt) — Valletta

Mitbug[ fl-Istamperija tal-Gvern — Printed at the Government Printing Press

Prezz 36ç – Price 36c