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37 1998

INVESTOR COMPENSATION ACT, 1998

PART I

Preliminary and General

Short title and commencement.

1. —(1) This Act may be cited as the Investor Compensation Act, 1998.

(2) This Act shall come into operation on such day or days as the Minister may appoint by order or orders either generally or with reference to any particular purpose or provision and different days may be so appointed for different purposes or different provisions.

Interpretation.

2. —(1) In this Act, unless the context otherwise requires—

Act of 1963” means the Companies Act, 1963 ;

Act of 1989” means the Insurance Act, 1989 ;

Act of 1994” means the Solicitors (Amendment) Act, 1994 ;

Act of 1995” means the Investment Intermediaries Act, 1995 ;

administrator” means, where a liquidator or official assignee has been appointed to an investment firm by the Court, that liquidator or official assignee, or where an administrator has been appointed to an investment firm by the supervisory authority, that administrator;

approved professional body” has the meaning assigned to it by the Act of 1995;

authorised investment business firm” has the meaning assigned to it by subsection (4);

authorised investment firm” means—

(a) an authorised investment business firm, or

(b) an authorised member firm, or

(c) a credit institution the authorisation of which by the Bank under Directive No. 77/780/EEC of 12 December 1977(1) and Directive No. 89/646/EEC of 15 December 1989(2) extends to one or more of the investment services listed in section A of the Annex to the Investment Services Directive, or

(d) an insurance intermediary;

authorised member firm” has the meaning assigned to it by the Stock Exchange Act, 1995 ;

authorised officer” means a person authorised for the purposes of section 9 ;

Bank” means the Central Bank of Ireland;

Board” means the Board of the Company;

branch”, in the case of an investment firm which is subject to the Investment Services Directive, means a place of business which is part of an investment firm, which has no separate legal personality and which provides investment services for which the investment firm has been authorised by the Bank or by a competent authority in another Member State, and all the places of business set up in the same Member State by an investment firm which has its head office in another Member State shall be regarded as a single branch;

certified person” has the meaning assigned to it by section 55 of the Act of 1995;

client” means a person who has entrusted money or investment instruments to an investment firm in connection with the provision of investment business services by the investment firm;

close relative” means a brother, sister, parent or spouse of a client or a child of the client or of the spouse of the client, where “spouse”, in relation to the client, shall not include a spouse who is living separately and apart from the client;

Company” means the Investor Compensation Company Limited;

compensatable loss” has the meaning assigned to it by section 30 (1);

competent authority” means a competent authority for the purposes of the Investor Compensation Directive;

Court” means the High Court;

credit institution” means a credit institution within the meaning of Article 1 of Council Directive No. 77/780/EEC of 12 December 1977(1) as amended by Council Directive No. 89/646/EEC of 15 December 1989(2) but does not include the institutions referred to in Article 2(2) of the first mentioned Directive;

director” includes any person occupying the position of director by whatever name called and any person who effectively directs or has a material influence over the business of an investment firm and includes a shadow director within the meaning of the Companies Act, 1990 ;

ECU” has the same meaning as in Council Regulations (EC) No. 3320/94 of 22 December 1994 on the consolidation of the existing Community legislation on the definition of the ECU following the entry into force of the Treaty on European Union(3) ;

eligible investor” means a person, not being an excluded investor, who is a client of an investment firm and has made an application for payment under section 34 ;

employee” has the same meaning as in the Act of 1995;

excluded investor” means a client of an investment firm which has been the subject of a determination by the supervisory authority under section 31 or a ruling and, in relation to that investment firm, is—

(a) a professional or institutional client, including:

(i) an investment firm;

(ii) an investment firm for the purposes of the Investment Services Directive;

(iii) a credit institution as defined in Article 1 of Council Directive No. 77/780/EEC;

(iv) a financial institution as defined in Article 1(6) of Council Directive No. 89/646/EEC of 15 December 1989(2) ;

(v) an insurance undertaking;

(vi) an undertaking for collective investment; or

(vii) a pension or retirement fund, or

(b) a local authority, or

(c) a director, manager or personally liable member of the investment firm, a holder of at least 5 per cent. of the capital of the investment firm, a person responsible for carrying out the statutory audit of the investment firm or a client with similar status in a group undertaking, or

(d) a close relative or a third party acting on behalf of a client referred to in paragraph (c), or

(e) another firm in a group undertaking, or

(f) a client who has any responsibility for, or has taken advantage of, facts relating to the investment firm which gave rise to the firm's financial difficulties or contributed to the deterioration of its financial situation, or

(g) a company which is of such a size that it is not permitted to draw up abridged balance sheets under Article 11 of the Fourth Council Directive No. 78/660/EEC of 25 July 1978(1) based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies, or

(h) a client specified by the supervisory authority as an excluded investor in accordance with section 35 (8);

functions” includes powers and duties and references to the performance of functions include, as respects powers and duties, references to the exercise of the powers and the carrying out of the duties;

group undertaking”, in relation to an investment firm, means a group undertaking within the meaning of the Companies (Amendment) Act, 1986 , of which the investment firm is a part;

insurance intermediary” has the meaning assigned to it by the Act of 1989 but excludes a solicitor in respect of whom a practising certificate (within the meaning of the Solicitors Acts, 1954 to 1994) is in force where the activities of the solicitor arise only incidentally to the provision of legal services;

insurance undertaking” has the meaning assigned to it by the European Communities (Non-Life Insurance) Framework Regulations, 1994 (S.I. No. 359 of 1994), or under the European Communities (Life Assurance) Framework Regulations, 1994 (S.I. No. 360 of 1994);

investment business firm” has the meaning assigned to it by the Act of 1995;

investment business services” has the meaning assigned to it by the Act of 1995 and includes the activities of an insurance intermediary;

investment firm” means—

(a) an authorised investment business firm or a person (being a person who was an authorised investment business firm) whose authorisation has been revoked,

(b) an authorised member firm or a person (being a person who was an authorised member firm) whose authorisation has been revoked,

(c) a credit institution licensed in the State or a credit institution whose authorisation by the Bank under Council Directive 77/780/EEC of 12 December 1977 as amended by Council Directive 89/646/EEC of 15 December 1989 as amended and extended from time to time extends to one or more of the investment services listed in the Annex to the Investment Services Directive or a credit institution whose authorisation by the Bank under Council Directive 77/780/EEC of 12 December 1977 as amended by Council Directive 89/646/EEC of 15 December 1989 as amended and extended from time to time has been revoked or a credit institution whose authorisation by the Bank under Council Directive 77/780/EEC of 12 December 1977 as amended by Council Directive 89/646/EEC of 15 December 1989 as amended and extended from time to time no longer extends to one or more of the investment services listed in the Annex to the Investment Services Directive, or

(d) an insurance intermediary or a person who was formerly an insurance intermediary;

investment instruments” has the meaning assigned to it by the Act of 1995;

investment product intermediary” has the meaning assigned to it by the Act of 1995;

Investment Services Directive” means Council Directive No. 93/22/EEC of 10 May 1993(1) ;

Investor Compensation Directive” means Directive No. 97/9/EC of the European Parliament and of the Council of 3 March 1997(2) ;

joint investment business” means investment business services provided for the account of two or more persons or over which two or more persons have rights that may be exercised by means of the signature of one or more of those persons;

local authority” means a local authority for the purposes of the Local Government Act, 1941 and where appropriate a provincial, regional, local and municipal authority;

member firm” has the meaning assigned to it by the Stock Exchange Act, 1995 ;

Member State” means a Member State of the European Communities;

Minister” means the Minister for Finance;

prescribed” means prescribed by regulations made by the Minister and cognate words shall be construed accordingly;

product producer” means a product producer for the purposes of the Act of 1995 or an insurance undertaking;

professional investor” means a client of an investment firm who the investment firm can show has sufficient and appropriate expertise in investment instruments to be categorised as a professional investor and who has acknowledged in writing to that investment firm that he or she has been made aware of the consequences of being categorised as a professional investor and is categorised by that investment firm as a professional investor;

restricted activity investment product intermediary” has the meaning assigned to it by the Act of 1995;

ruling” means a decision made by a court in relation to an investment firm for reasons which are directly related to the financial circumstances of the investment firm which has the effect that clients of the investment firm are precluded for the time being from pursuing claims against the investment firm for the return of money owed to or belonging to the client and held on behalf of the client by the investment firm in connection with the provision of investment business services and for the return of investment instruments belonging to the client and held, administered or managed by the investment firm on behalf of the client in connection with the provision of investment business services;

solicitor” has the meaning assigned to it in section 3 (as substituted by the Act of 1994) of the Solicitors Act, 1954 ;

supervisory authority” means the supervisory authority referred to in section 8 (1);

written appointment” means an appointment in writing for the purposes of section 27 of the Act of 1995 or an appointment in writing for the purposes of section 44 or 49 of the Act of 1989.

(2) A word or expression that is used in this Act and is also used in the Investor Compensation Directive has, unless the contrary intention is indicated, the same meaning in this Act as it has in that Directive.

(3) In this Act—

(a) a reference to a section or a Schedule is to a section of or Schedule to this Act, unless it is indicated that reference to some other enactment is intended,

(b) a reference to a subsection, paragraph or subparagraph is a reference to the subsection, paragraph or subparagraph of the provision in which the reference occurs, unless it is indicated that reference to some other provision is intended, and

(c) a reference to any enactment shall be construed as a reference to that enactment as amended, adapted or extended by or under any subsequent enactment including this Act.

(4) In this Act, “authorised investment business firm” has the meaning assigned to it by the Act of 1995 and, where the Minister has not made regulations under section 2(8)(a) of the Act of 1995, this definition excludes a restricted activity investment product intermediary who is a solicitor in respect of whom a practising certificate (within the meaning of the Solicitors Acts, 1954 to 1994) is in force unless that restricted activity investment product intermediary has informed the supervisory authority and the Company that he or she is a restricted activity investment product intermediary.

(5) Notwithstanding subsection (1), an authorised investment business firm—

(a) to which the Minister has given a certificate under section 446 (2) of the Taxes Consolidation Act, 1997 ,

(b) which is not an investment firm within the meaning of the Investor Compensation Directive, and

(c) where any investment business services provided by the firm are part of the trading operations of the investment firm to which the certificate given to it by the Minister under section 446 (2) of the Taxes Consolidation Act, 1997 , refers,

shall not be an authorised investment firm or an investment firm for the purposes of this Act.

(6) References in this Act to books, records or other documents, or to any of them, shall be construed as including any document or information kept in a non-legible form (whether stored electronically or otherwise) which is capable of being reproduced in a legible form and all the electronic or other automatic means, if any, by which such document or information is so capable of being reproduced and to which the person, whose books, records or other documents (as so construed) are inspected for the purposes of this Act, has access.

Service of notices.

3. —(1) Where a notice, direction or other document is authorised or required by or under this Act or regulations made thereunder to be served on a person, it shall, unless otherwise specified in this Act, be addressed to the person by name and shall be served on or given to the person in one of the following ways—

(a) by delivering it to the person, or by leaving it at the address at which the person ordinarily resides or, in a case in which an address for service has been furnished, at that address,

(b) by sending it by ordinary prepaid post addressed to the person at the address at which the person ordinarily resides or, in a case in which an address for service has been furnished, at that address, or

(c) in the case of an officer or employee of an investment firm, by sending it to the person by ordinary pre-paid post addressed to the person at the address of the principal office of that investment firm.

(2) A notice, direction or other document referred to in subsection (1) may—

(a) in the case of an investment firm or any body corporate, be served on the secretary or other employee or officer of that investment firm or body corporate,

(b) in the case of a partnership, be served on any partner, or

(c) in the case of an unincorporated association other than a partnership, be served on any member of its governing body.

Expenses.

4. —(1) The expenses incurred by the Minister in the administration of this Act shall, to such extent as may be sanctioned by the Minister, be paid out of monies provided by the Oireachtas.

(2) The expenses incurred by the Bank in the administration of this Act shall be paid out of the general fund of the Bank except where otherwise provided in this Act or any other enactment.

Power to make regulations.

5. —(1) The Minister may make regulations for enabling this Act to have effect.

(2) Regulations under this Act may contain such incidental, supplementary and consequential provisions as appear to the Minister to be expedient for any purpose of this Act.

(3) The Minister may make regulations for prescribing any matter referred to in this Act as prescribed.

Laying of regulations before Houses of Oireachtas.

6. —Every regulation made under this Act shall be laid before each House of the Oireachtas as soon as may be after it is made and, if a resolution annulling the regulation is passed by either such House within the next 21 days on which that House has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.

Repeals.

7. —The Acts mentioned in column (2) of the First Schedule to this Act are hereby repealed to the extent mentioned in column (3) of that Schedule.

Appointment of supervisory authority and competent authority.

8. —(1) The Bank shall be the supervisory authority for investor compensation under this Act.

(2) The Bank shall be the competent authority in the State for the purposes of the Investor Compensation Directive.

(3) Subject to subsection (4), the supervisory authority shall carry out its functions under this Act in accordance with this Act in order to promote—

(a) the protection of the clients of investment firms,

(b) the maintenance of an effective system of compensation for the clients of investment firms, and

(c) the maintenance of the proper and orderly regulation and supervision of investment firms and financial markets.

(4) The supervisory authority shall carry out its functions under this Act having regard to the Investor Compensation Directive, the text of which is set out for convenience of reference in the Third Schedule .

Authorised officers.

9. —(1) Subsections (2) and (3) shall apply in relation to an investment firm in respect of insurance business carried on by that investment firm as an insurance intermediary.

(2) Where the supervisory authority forms the view that an insurance intermediary may be unable to repay money belonging to a client of that insurance intermediary, the supervisory authority may authorise in writing a person to be an authorised officer to investigate whether the insurance intermediary is unable to repay money to or otherwise discharge its obligations towards clients of the insurance intermediary and to make a report to the supervisory authority in respect of that insurance intermediary.

(3) Sections 64 and 65 of the Act of 1995 shall apply to an authorised officer appointed under subsection (2) as if the person appointed were appointed for the purposes of the Act of 1995 and the powers available to an authorised officer under those sections applied in relation to insurance intermediaries for the purposes of this Act.

(4) The following shall be authorised officers for the purposes of this Act—

(a) in relation to investment firms which are investment business firms—

(i) an authorised officer appointed under section 64 of the Act of 1995, or

(ii) an inspector appointed under section 66 or 73 of the Act of 1995;

(b) in relation to investment firms which are stock exchange member firms—

(i) an authorised officer appointed under section 55 of the Stock Exchange Act, 1995 , or

(ii) an inspector appointed under section 57 or 64 of the Stock Exchange Act, 1995 ;

(c) in relation to investment firms which are credit institutions—

(i) an authorised person appointed under section 41 of the Building Societies Act, 1989 , or

(ii) an inspector appointed under section 45 of the Building Societies Act, 1989 , or

(iii) an authorised officer appointed under section 17 of the Central Bank Act, 1971 (as amended by section 36 of the Central Bank Act, 1989 , and by Regulation 39 of the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992 (S.I. No. 395 of 1992)), or

(iv) an authorised officer for the purposes of section 24 of the Trustee Savings Bank Act, 1989 ,

and the rights and powers of such authorised officers shall, with the necessary modifications, apply in relation to obtaining such information as the supervisory authority may require to enable it to exercise any of its functions under this Act.

(1)O.J. No. L322, 17.12.1977.

(2)O.J. No. L386, 30.12.1989.

(1)O.J. No. L322, 17.12.1977.

(2)O.J. No. L386, 30.12.1989.

(3)O.J. No. L350, 31.12.1994.

(2)O.J. No. L386, 30.12.1989.

(1)O.J. No. L222, 14.08.1978.

(1)O.J. No. L141, 11.06.1993.

(2)O.J. No. L84, 26.03.97.