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37 1998

INVESTOR COMPENSATION ACT, 1998

PART II

Administration of Investor Compensation

Formation of Company.

10. —(1) As soon as may be after the commencement of this section, the Minister shall take such steps as appear to him or her to be necessary or desirable to procure that a limited company to be known as “The Investor Compensation Company Limited” and in this Act referred to as “the Company” and satisfying the conditions laid down by this Act shall be formed and registered by the Bank under the Companies Acts, 1963 to 1990.

(2) The following conditions shall be satisfied by the Company—

(a) the Company shall be a company limited by guarantee,

(b) the name of the Company shall be “The Investor Compensation Company Limited”, and

(c) the memorandum of association and articles of association of the Company shall be in a form consistent with this Act.

Alteration of memorandum of association and articles of association of Company.

11. —(1) Notwithstanding anything contained in the Companies Acts, 1963 to 1990, no alteration in the memorandum of association or articles of association of the Company which has been made shall be valid unless made with the prior approval of the supervisory authority.

(2) The supervisory authority shall have power to require changes to be made to the memorandum of association and the articles of association of the Company.

Objects and powers of Company.

12. —(1) The principal objects of the Company shall be stated in its memorandum of association to be—

(a) to establish and maintain, having consulted the supervisory authority, arrangements for the making of payments to clients of investment firms in accordance with this Act,

(b) to maintain a fund or funds out of which payments shall be made in accordance with this Act and, where appropriate, the Investor Compensation Directive, and to meet such other payments or expenses as may be paid out of the fund or funds in accordance with this Act,

(c) to advise the supervisory authority on matters relating to compensation for clients of investment firms, and

(d) to process claims for compensation by clients of investment firms as expeditiously as possible and to ensure that compensation is paid without undue delay.

(2) Nothing in this section shall prevent or restrict the inclusion among the objects of the Company as stated in its memorandum of association of all such objects and powers as are reasonably necessary or proper for or incidental or ancillary to the attainment of the principal objects referred to in subsection (1) and are not inconsistent with this Act or with any conditions or requirements imposed on the Company by the supervisory authority.

(3) The Company shall have power to do anything which appears to it to be requisite, advantageous or incidental to, or which appears to it to facilitate, either directly or indirectly, the performance by it of its functions as specified in this Act or in its memorandum of association.

Powers of Company.

13. —(1) The Company shall have power to borrow or raise money, subject to the approval of the supervisory authority.

(2) Subject to the approval of the supervisory authority, the Company may place monies paid into the fund or funds maintained by the Company in accordance with section 19 on deposit or may invest such monies in securities in which trustees are authorised by law to invest trust funds.

Accounts of Company and audits.

14. —(1) The Company shall keep all proper and usual accounts of all monies paid into the fund or funds maintained by the Company in accordance with section 19 and of all disbursements from such fund or funds including an income and expenditure account and a balance sheet.

(2) The supervisory authority shall have power to request an audit or audits of the accounts of the Company from time to time.

Performance of functions.

15. —The Company may, if it reasonably considers it is appropriate to do so, having regard to its duties generally under this Act, perform any of its functions through or by any of its officers or employees or any other person duly authorised by the Company.

Non-application of section 182 (Removal of directors) of Act of 1963.

16. —Section 182 (Removal of directors) of the Act of 1963 shall not apply to the Company.

Members of Company.

17. —The Minister may, with the consent of the Minister for Enterprise, Trade and Employment, prescribe bodies or persons to be members of the Company, or, where a body is an unincorporated body of persons, to nominate an individual or body corporate to be a member of the Company.

Directors of Company.

18. —(1) The articles of association of the Company shall provide that the appointment of directors shall be subject to this Act.

(2) The number of directors of the Company, including the chairperson and deputy chairperson, shall be such number as shall be prescribed from time to time by the Minister, with the agreement of the Minister for Enterprise, Trade and Employment.

(3) The Minister, with the agreement of the Minister for Enterprise, Trade and Employment, may from time to time prescribe bodies which appear to the Minister to represent the financial services industry and each such body may nominate a director to be appointed by the Company.

(4) The Minister for Enterprise, Trade and Employment, with the agreement of the Minister, may from time to time prescribe bodies or individuals which appear to the Minister for Enterprise, Trade and Employment to represent the interests of the clients of investment firms and,

(a) in the case of bodies so prescribed, each such body may nominate a director to be appointed by the Company, and

(b) in the case of individuals so prescribed, the Company shall appoint each such individual to be a director of the Company.

(5) The Governor of the Bank shall nominate and appoint the chairperson and deputy chairperson of the Board.

(6) The Minister may, with the agreement of the Minister for Enterprise, Trade and Employment, prescribe that a body (or its successors) prescribed in accordance with subsection (3) or (4) may nominate and appoint more than one director where it appears to the Minister to be in the interests of ensuring the equal representation of the financial services industry and of investors, provided that the number of directors to be nominated by bodies representing the financial services industry shall be equal to the number representing the interests of investors.

(7) The Governor of the Bank and each body or person referred to in subsection (3) may nominate and appoint one or more persons to be each an alternate director to the director or directors of the Company appointed by him or her.

(8) The directors of the Company may act notwithstanding one or more vacancies in their number.

Establishment of fund.

19. —(1) The Company shall establish and maintain a fund or funds out of which payments shall be made in accordance with this Act to clients of investment firms and may establish and maintain in respect of specified classes or categories of investment firms particular funds in accordance with this Act.

(2) A fund shall not be established by the Company unless it has been approved of by the supervisory authority.

(3) The supervisory authority shall not approve of the establishment of a fund unless it is satisfied that the approval is not liable to prejudice the operation of any other funds maintained by the Company or by an investor compensation scheme approved of under section 25 .

(4) The supervisory authority may, following consultation with the Company, revoke the approval of the establishment of a fund or funds under subsection (2) where the supervisory authority considers that conditions have materially changed since the granting of the approval such that, if approval for the establishment of the fund were sought at that time, a different decision would be taken in relation to the approval.

(5) The supervisory authority may, when approving of a fund under subsection (2) or subsequently, impose conditions or requirements on the Company.

(6) Conditions or requirements imposed under subsection (5) may relate inter alia to the fund or funds maintained by the Company or to such other matters as the supervisory authority may consider appropriate.

(7) Where funds are credited by the Company to a fund established in respect of a particular class or category of investment firm, those funds shall be used exclusively for making payments to clients in accordance with section 34 in respect of those investment firms and no other.

(8) Notwithstanding subsection (7), where the Company, having consulted the supervisory authority, considers it appropriate to do so, the Company may make payments from a fund maintained to make payments in respect of a class or category of investment firm in order to meet its obligations under this Act in respect of other investment firms, subject to such payments being repaid from the assets of the fund or funds maintained by the Company to make payments under section 34 in respect of such other investment firms, together with payment of interest on the amount of such payments at a rate of interest to be determined by the Company.

Administrative services for Company.

20. —(1) The Bank may provide administrative services to the Company or may establish a subsidiary in accordance with section 23 of the Central Bank Act, 1997 , which may, among other things, provide those services.

(2) The expenses of the Bank or of a subsidiary of the Bank in providing administrative services to the Company, including the expenses of an administrator appointed in accordance with section 33 , shall be met from the resources of the company.

Contributions of investment firms.

21. —(1) This section applies to investment firms but does not apply to certified persons in respect of whom an investor compensation scheme has been approved of under section 25 .

(2) An authorised investment firm shall pay to the Company such contribution to the fund or funds maintained by the Company as the Company may specify from time to time.

(3) (a) The Company may specify different rates or amounts of contributions or different bases for the calculation of contributions for different classes or categories of investment firm.

(b) Notwithstanding the generality of paragraph (a), the Company, when specifying rates or amounts of contributions or bases for the calculation of contributions for investment firms which are investment firms for the purposes of the Investment Services Directive, may take account of any money or investment instruments entrusted to such a firm, before or after the commencement of this Act, where such money or investment instruments were entrusted by the client in connection with the provision of investment business services which are investment business for the purposes of the Investor Compensation Directive.

(4) Where an investment firm does not comply with its obligations under this section, the investment firm shall, in addition to the payment of a sum to discharge its obligations under subsection (2), be liable to pay interest to the Company on all or any part of a contribution which has not been paid by the date or dates specified by the Company at a rate of 1.25 per cent. per month (or part of a month), on and from the date on which the contribution becomes due or such other amount of interest as may be prescribed by the Minister under this section.

(5) Any sums due under this section shall be recoverable as a simple contract debt in any court of competent jurisdiction.

(6) (a) The supervisory authority may impose conditions or requirements on authorised investment firms in relation to its functions under this Act.

(b) Without prejudice to the generality of paragraph (a), the supervisory authority may impose conditions or requirements in relation to the provision of information which the supervisory authority requires to exercise its functions under this Act.

(c) An authorised investment firm may appeal to the Court against the imposition of any condition or requirement imposed under paragraph (a) and, on hearing an appeal under this section, the Court may confirm, vary or rescind any condition or requirement imposed on an authorised investment firm under this section.

Maintenance of funds.

22. —(1) Where the Company has specified that amounts standing to the credit of a fund maintained by the Company in accordance with section 19 shall be used to make payments in accordance with this Act solely to clients of a class or classes or category or categories of investment firm specified by the Company, the contributions paid by such investment firms under section 21 (2) shall stand to the credit of that fund.

(2) Subject to subsection (3), the Company shall, having consulted the supervisory authority, decide—

(a) the contributions to be paid by authorised investment firms to the fund or funds maintained by the Company in accordance with section 19 (1), and

(b) the amount of the balance to be maintained by the Company in a fund or funds maintained by the Company under section 19 (1).

(3) In making a decision under subsection (2), the Company—

(a) shall endeavour to ensure that—

(i) the Company is in a position to meet any reasonably foreseeable obligation under this Act,

(ii) the Company maintains a sufficient balance in all funds maintained by it which will enable it to meet such obligations, and

(b) shall have regard to—

(i) the amount standing to the credit of the fund or funds maintained by the Company,

(ii) the funding capacity of those authorised investment firms which are obliged to make contributions to those funds in accordance with this section, and

(iii) any other matter which the Company, or the Company on the advice of the supervisory authority, considers relevant.

Costs of administration.

23. —Notwithstanding section 19 , the costs of administration and management of the Board and of the Company shall be defrayed from the resources of the Company, including contributions paid by investment firms in accordance with section 21 (2) to the fund or funds maintained by the Company.

Procedures to investigate complaints.

24. —The Board shall establish and maintain procedures to investigate complaints against it by investment firms and by investors.

Approval of investor compensation schemes.

25. —(1) The supervisory authority may, following an application being made to it by an approved professional body and following consultation with the Company, approve of or refuse to approve of a proposal for the establishment of a compensation scheme to provide compensation in accordance with this Act for a specified category or categories of certified person.

(2) An approved professional body which has applied under subsection (1) shall be informed—

(a) whether or not the approval has been granted, within six months of the date of receipt of the application for approval, or

(b) where additional information in relation to the application for approval has been sought by the supervisory authority, within a period of six months after the receipt by the supervisory authority of the additional information, or the period of twelve months after the receipt of the application for approval, whichever is the sooner.

(3) The supervisory authority may impose conditions or requirements in relation to a compensation scheme for which approval has been sought under subsection (1) or which has been approved of under that subsection.

(4) Conditions or requirements imposed under subsection (3) may relate among other things to—

(a) the terms and conditions under which investment firms may participate in an investor compensation scheme,

(b) the amount of the contributions to be made by members of the compensation scheme, and

(c) procedures for the enforcement of compliance by members of the compensation scheme with the obligations to which they are subject by virtue of being members of the compensation scheme.

(5) An application for approval under subsection (1) shall be in such form and contain such particulars as the supervisory authority shall specify from time to time.

(6) A proposed investor compensation scheme shall not be approved of by the supervisory authority unless the approved professional body applying to establish the scheme satisfies the supervisory authority—

(a) that it will enable compensation to be paid to clients of investment firms in accordance with this Act,

(b) that the rules of the proposed scheme contain sufficient provisions so as to enable it to operate in accordance with this Act and in accordance with any conditions or requirements, or both, as the supervisory authority may impose,

(c) as to the probity and competence of each of the directors and managers or other responsible persons of the proposed scheme,

(d) that the funding arrangements to be put in place and the manner in which the proposed scheme is to be constituted are such that the scheme shall have reasonable provisions in place to provide for compensation for investors, and

(e) that the operation of the scheme is not likely to prejudice the operation of any other investor compensation scheme approved by the supervisory authority or of the investor compensation arrangements established by the Company.

(7) Whenever the supervisory authority refuses to approve of a compensation scheme in accordance with this section, it shall serve notice on the persons proposing the compensation scheme stating that it refuses to approve of the compensation scheme and setting out the reasons for that refusal in the notice and the persons proposing the compensation scheme may, within 21 days of receipt of such notice, appeal to the Court against the decision.

(8) The supervisory authority may, at any time prior to the grant or refusal of approval, request further information from the approved professional body or may instruct an authorised officer to make such inquiries or carry out such investigation as may be necessary for the purpose of evaluating an application under this section.

(9) Any proposed amendment of or addition to, as appropriate, the memorandum of association or articles of association or rules of a company operating an investor compensation scheme approved under this section or of the rules of such a compensation scheme shall not be made without the consent in writing of the supervisory authority, and the supervisory authority may approve of, or refuse to approve of, such amendment or addition as it thinks fit.

(10) The supervisory authority may require changes to be made to the memorandum of association or articles of association of a company operating an investor compensation scheme under this section or to the rules under which such a compensation scheme operates.

Revocation of approval of compensation scheme.

26. —The supervisory authority may, following consultation with the Company, apply to the Court in a summary manner for an order revoking the approval of a compensation scheme under section 25 where—

(a) the supervisory authority considers that the compensation scheme has not complied with conditions or requirements imposed by the supervisory authority under section 25 ,

or

(b) conditions have materially changed since the granting of the approval such that, if an application for approval were made at the time of the application to the Court, a different decision would be taken in relation to the application for approval.

Failure by investment firms to comply with obligations.

27. —(1) The Company shall notify the supervisory authority where an investment firm which is not a member of a compensation scheme approved of by the supervisory authority under section 25 fails to comply with the obligations imposed on it by and under this Act.

(2) An approved professional body which has established a compensation scheme approved of by the supervisory authority under section 25 shall notify the supervisory authority where it has failed to ensure compliance by an investment firm which is a member of the scheme with the obligations to which it is subject by virtue of its membership of that scheme.

(3) Where the supervisory authority has been informed in accordance with subsection (1) or (2) that an investment firm has failed to comply with obligations or where an investment firm has failed to comply with conditions or requirements imposed under section 21 , the supervisory authority may give a direction in writing to the investment firm and to the directors and those responsible for the management of that investment firm requiring the investment firm to do either or both of the following:

(a) to comply with such obligations, or with those conditions or requirements imposed under section 21 including the payment of any outstanding sums owed by it to the Company or to the compensation scheme approved of under section 25 by a date specified by the supervisory authority, or

(b) to suspend for such period (not exceeding twelve months) as shall be specified in the direction any or all of the following:

(i) the carrying on of the business of an investment firm;

(ii) the making of payments to which paragraph (a) does not relate;

(iii) the acquisition or disposal of any assets or liabilities;

(iv) entering into transactions of any kind specified by the supervisory authority or entering into them except in specified circumstances or to a specified extent;

(v) soliciting business from persons of a kind specified by the supervisory authority or otherwise than from such persons;

(vi) carrying on business in a manner specified by the supervisory authority or otherwise than in such a manner.

(4) A direction under subsection (3) shall have effect from the date specified by the supervisory authority.

(5) The Second Schedule shall apply as respects a direction by the supervisory authority under this section.

Application to Court for confirmation of direction.

28. —(1) Where the supervisory authority gives a direction under section 27 , and, following a reasonable period, is satisfied that the said direction is not being complied with, it may apply to the Court in a summary manner for an order confirming the direction.

(2) The Court may, on an application being made under subsection (1), hear evidence from creditors and the Court may make such interim or interlocutory order, if any, as it considers fit, in any application under this section.

(3) While a direction made under section 27 is in force, no winding-up proceedings in relation to the investment firm or, in the case of an investment firm which is constituted as an unincorporated body of persons, no proceedings for an order of dissolution, or, in the case of an investment firm which is constituted as a sole trader, no bankruptcy proceedings, may be commenced or resolution for winding-up passed in relation to the investment firm, and no receiver shall be appointed over the assets or over any part of the assets of the investment firm and such assets shall not be attached, sequestered or otherwise distrained except with the prior sanction of the Court.

(4) The Court may hear proceedings or part of proceedings under this section otherwise than in public.

(5) A creditor who is affected by a direction under section 27 (3) may apply to the Court to vary or set aside that direction where it affects the interests of the creditor to a material degree.

(6) Subject to subsection (7), where an investment firm fails to comply with a direction given under section 27 , the supervisory authority shall—

(a) in the case of an investment firm which is an authorised investment business firm for the purposes of the Act of 1995, apply to the Court for an order revoking the authorisation of the investment firm in accordance with section 16(2) of the Act of 1995 and, for these purposes, the failure of the investment firm to comply with its obligations under this Act shall constitute circumstances in which the supervisory authority may apply to the Court in summary manner for an order revoking the authorisation of the investment business firm in accordance with section 16(2) of the Act of 1995,

(b) in the case of an investment firm which is an authorised member firm for the purposes of the Stock Exchange Act, 1995 , apply to the Court for an order revoking the authorisation of the investment firm in accordance with section 24 of that Act and, for these purposes, the failure of the investment firm to comply with its obligations under this Act shall constitute circumstances in which the Bank may apply to the Court in summary manner for an order revoking the authorisation of the authorised member firm in accordance with section 24 (2) of the Stock Exchange Act, 1995 ;

(c) in the case of an investment firm which is a credit institution, the Bank shall amend the authorisation of the credit institution under Council Directive No. 77/780/EEC of 12 December 1977 and Council Directive No. 89/646/EEC of 15 December 1989 so that the authorisation of the credit institution no longer permits the provision of investment services listed in the Annex to the Investment Services Directive and shall so inform the credit institution immediately, or

(d) in the case of an investment firm which is an insurance intermediary, inform the Company and the investment firm that the investment firm has failed to comply with its obligations under this Act.

(7) In the case of an investment firm which is subject to the Investor Compensation Directive, the supervisory authority shall give not less than twelve months notice to the investment firm of its intention to take action against the investment firm in accordance with paragraph (a), (b) or (c) of subsection (6) as appropriate.

Product producers.

29. —(1) Notwithstanding section 16 of the Central Bank Act, 1989 , where the supervisory authority has revoked the authorisation of an investment business firm or, in the case of an investment firm which is an insurance intermediary, informed the Company that the investment firm has failed to comply with its obligations under this Act, the supervisory authority shall inform those product producers from whom the investment firm held a valid written appointment at that time that the investment firm has failed to comply with its obligations under this Act.

(2) Product producers who have been informed by the supervisory authority in accordance with subsection (1) that an investment firm has failed to comply with its obligations under this Act shall, on being so informed, cancel the written appointments of the investment firm.

(3) It shall be an offence for a product producer who has been informed by the supervisory authority in accordance with subsection (1) that an investment firm has failed to comply with its obligations under this Act to accept any orders transmitted by the investment firm on behalf of a client or any moneys belonging to a client after it has been so informed except with the approval in writing of the supervisory authority.

(4) A product producer shall not give a written appointment to an investment firm unless, to the best of its knowledge and belief, having caused reasonable inquiry to be made, the investment firm is not an investment business firm the authorisation of which has been revoked under section 16 of the Act of 1995 without being subsequently re-instated.

(5) A product producer shall not give a written appointment to an investment firm which is an insurance intermediary, except with the approval in writing of the supervisory authority, unless, to the best of its knowledge and belief, having caused reasonable inquiry to be made, the investment firm is not an investment firm to which section 28 (6)(d) applies, and notwithstanding section 16 of the Central Bank Act, 1989 , the supervisory authority may give such approval in writing.