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37 1998

INVESTOR COMPENSATION ACT, 1998

PART III

Payment of Compensation to Investors

Interpretation for Part III .

30. —(1) In this Part—

compensatable loss” means 90 per cent. of the amount of an investor's net loss or 20,000 ECUs whichever is the lesser;

net loss”, in relation to every client of an investment firm, means the amount of the liability of the investment firm in respect of—

(a) 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 by the investment firm, and

(b) investment instruments, the value of the investment instruments being determined, where possible, by reference to their market value, belonging to the client and held, administered or managed on behalf of the client by the investment firm in connection with the provision of investment business services by the investment firm,

on the day of a determination made under section 31 (3) or a ruling, as appropriate, which the investment firm is unable to discharge in accordance with the legal and contractual conditions applicable but shall not include—

(i) any amount to which subsection (2) relates,

(ii) any monies or investment instruments held or maintained by an investment firm on behalf of an excluded investor,

(iii) money or investment instruments arising out of transactions in respect of which an offence has been committed under Part IV or section 57 or 58 of the Criminal Justice Act, 1994 , or in respect of which there has been a criminal conviction for money laundering as defined in Article 1 of Council Directive No. 91/308/EEC of 10 June 1991(1) on prevention of the use of the financial system for the purpose of money laundering.

(2) In calculating the amount of a client's net loss—

(a) there shall be deducted from the total liability of the investment firm to the client of the investment firm the amount of any liability of any person to that investment firm in respect of which a right of set-off against that net loss existed immediately before the determination by the supervisory authority under section 31 (3) or ruling or in respect of which such a right would have existed had—

(i) the money or investment instruments been repayable on demand, and

(ii) such liability fallen due,

immediately before such determination or ruling;

(b) no account shall be taken of any debt of the investment firm unless it has been proved;

(c) no account shall be taken of—

(i) money owed to or belonging to a client and held on behalf of the client by an investment firm in connection with the provision of investment services by the investment firm to the client and

(ii) investment instruments belonging to a client and held, administered or managed on behalf of the client by the investment firm in connection with the provision of investment services to the client,

where the money or investment instruments were entrusted by the client to the investment firm at any time when the investment firm was not an authorised investment firm, unless the supervisory authority is satisfied that, at the time the money or investment instruments were so entrusted, the client did not know and could not reasonably be expected to have known that the investment firm was not an authorised investment firm;

(d) account shall be taken, in the case of an insurance intermediary, of the amount of an insurance policy premium paid by the client to the insurance intermediary but not remitted to an insurance undertaking or, where a client of an insurance intermediary has suffered financial loss arising from the failure of the insurance intermediary to place on behalf of the client insurance of a class specified in Annex 1 to the European Communities (Life Assurance) Framework Regulations, 1994 or Annex 1 to the European Communities (Non-Life Insurance) Framework Regulations, 1994, the amount of that financial loss.

(3) Without prejudice to subsection (2),

(a) “net loss” includes money or investment instruments entrusted by a client to an investment firm, being an investment firm for the purposes of the Investor Compensation Directive, 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;

(b) “net loss” includes, in the case of an investment firm which is not an investment firm for the purposes of the Investor Compensation Directive, money or investment instruments entrusted by a client to the investment firm after the commencement of this Act.

(4) Proof of debt for the purposes of subsection (2)(b) may be furnished by way of detailed statement of account, affidavit of debt or any prescribed means.

Determination that an investment firm cannot meet its obligations.

31. —(1) Where it appears to the supervisory authority that an investment firm is unable for the time being, for reasons which are directly related to its financial circumstances, to meet its obligations arising from claims by clients and to have no reasonably foreseeable opportunity of being able to do so, the supervisory authority shall serve notice on the investment firm that it proposes to make a determination to that effect.

(2) An investment firm which has been informed by the supervisory authority that the supervisory authority proposes to make a determination in accordance with subsection (1) may, within three weeks, appeal to the Court against the proposal of the supervisory authority and the Court may allow or disallow the appeal.

(3) Where there has been no appeal or the Court has disallowed the appeal under subsection (2), the supervisory authority may make a determination within the meaning of subsection (1).

(4) In making a determination in accordance with subsection (3), the supervisory authority shall have regard to—

(a) any report of an authorised officer,

(b) any report of an authorised officer which indicates that a director, manager or shareholder of the investment firm has been unable, having been given reasonable notice to do so, to produce evidence of the existence of the assets and liabilities of the investment firm, or

(c) any other information in the possession of the supervisory authority.

Applications for compensation.

32. —(1) On being informed by the supervisory authority that—

(a) a determination has been made under section 31 (3), or

(b) a court has made a ruling,

the Company or, where applicable in the case of an investment firm which is or was a member of a compensation scheme approved of under section 25 , the person responsible for administering that compensation scheme, shall—

(i) where possible, inform clients of the investment firm concerned by ordinary pre-paid post of the determination or ruling and invite applications for payments under section 34 , by a date which shall not be less than five months from the date of the determination or ruling, and

(ii) publish notices in any of the newspapers circulating in the State or elsewhere or in the Iris Oifigiúil giving notice of the determination or ruling and inviting applications for payments under section 34 , by a date which shall not be less than five months from the date of the determination or ruling.

(2) Where the supervisory authority is satisfied that an investor was unable for good reason to make an application for a payment under section 34 within the period of time stipulated by the Company or compensation scheme, the supervisory authority shall direct the Company or compensation scheme to treat the application as if it were made within the period of time stipulated.

(3) The Company and a compensation scheme approved of under section 25 shall not be liable to make a payment under section 34 where an application for payment is not made within the period of time stipulated by the Company or compensation scheme, where the supervisory authority has not directed the Company or compensation scheme to treat the application as if it were made within the period of time stipulated in accordance with the provisions of subsection (2).

(4) Nothing in this section shall prohibit an individual from applying for payment under section 34 .

Appointment of an administrator.

33. —(1) The supervisory authority may appoint an administrator to an investment firm in respect of which a determination has been made in accordance with section 31 (3) or in respect of which a court has made a ruling.

(2) An administrator appointed by the supervisory authority to an investment firm under subsection (1) shall have the powers of an authorised officer under the Act of 1995 in relation to the investment firm and the powers available to an authorised officer under that Act shall apply in relation to investment firms accordingly.

(3) The administrator shall deliver to the Company or to the compensation scheme approved of under section 25 , of which the investment firm is or was a member, as appropriate, and to the supervisory authority, as soon as practicable, the names of eligible investors and a statement of the net loss of each such investor and a statement of the compensatable loss of each such investor.

(4) An administrator may apply to the Court to determine any question arising in relation to his or her functions under this Act.

Payment of compensation.

34. —(1) In the case of an investment firm in respect of which the supervisory authority has made a determination under section 31 or a court has made a ruling, where the investment firm was not a member of a compensation scheme approved of under section 25 at the time of the determination or ruling, the Company shall pay to each eligible investor an amount equal to the compensatable loss of that eligible investor.

(2) In the case of an investment firm in respect of which the supervisory authority has made a determination under section 31 or a court has made a ruling, where the investment firm was a member of a compensation scheme approved of under section 25 at the time of the determination or ruling, that compensation scheme shall pay to each eligible investor an amount equal to the compensatable loss of that eligible investor.

(3) Until the 31st day of December, 1999, where—

(a) compensatable loss arises from the provision of investment business services by an authorised investment firm in another Member State, and

(b) the investment business services provided are investment business for the purposes of the Investor Compensation Directive,

the Company shall pay to the eligible investor an amount which is equal to the lesser of—

(i) that compensatable loss, or

(ii) the amount to which the eligible investor would be entitled in accordance with Article 7 of the Investor Compensation Directive if the investment firm was an investment firm authorised in accordance with the Investment Services Directive in that other Member State or a credit institution authorised in accordance with Council Directive 77/780/EEC as amended by Council Directive 89/646/EEC in that other Member State.

(4) Where the Company has made a payment under subsection (1) and all or part of such payment relates to net losses of a client arising from investment business services provided by the investment firm while it was a member of a compensation scheme approved of under section 25 , the relevant compensation scheme shall pay to the Company an amount which bears to the compensatable loss of the client the same proportion as the client's net loss arising while the investment firm was a member of the compensation scheme bears to the client's net loss.

(5) Where a compensation scheme approved of under section 25 has made a payment under subsection (2) and all or part of such payment relates to net losses of a client arising from investment business services provided by the investment firm while it was not a member of a compensation scheme approved of under section 25 , the Company shall pay to the relevant compensation scheme an amount which bears to the compensatable loss of the client the same proportion as the client's net loss arising while the investment firm was not a member of the compensation scheme approved of under section 25 bears to the client's net loss.

(6) Where an investment firm has paid contributions to different funds maintained by the Company by virtue of a change in the class or category of investment firm to which the investment firm belonged, and net losses of clients of the investment firm arose while the investment firm belonged to such different classes or categories, the Company shall endeavour to ensure that payments made under this section shall be made from the fund maintained in respect of the appropriate class or category of investment firm.

(7) Where a dispute or difference arises in respect of payments under subsection (4), (5) or (6), that dispute or difference shall be resolved under regulations made by the Minister on the advice of the supervisory authority.

Further provisions relating to payment of compensation.

35. —(1) Subject to subsections (2) and (3), the Company or a compensation scheme approved of under section 25 shall make payments under section 34 in respect of compensatable losses of which it has been informed by the administrator under section 33 (3) as soon as practicable and at the latest within three months of the date on which the administrator advises the Company or compensation scheme of the amount of an eligible investor's compensatable loss.

(2) (a) Subject to the approval of the supervisory authority and to such conditions or requirements as may be specified by the supervisory authority, the Company or a compensation scheme approved of under section 25 may, in exceptional circumstances, postpone the making of a payment under section 34 .

(b) The supervisory authority, when giving approval or prescribing conditions or requirements for the purposes of paragraph (a), shall have regard to the requirements of Article 9 of the Investor Compensation Directive.

(3) Notwithstanding the time limits provided for in subsections (1) and (2), where an eligible investor has been charged with an offence under Part IV or section 57 or 58 of the Criminal Justice Act, 1994 , or otherwise arising out of or in relation to money laundering as defined in Article 1 of Council Directive No. 91/308/EEC of 10 June 1991, the supervisory authority may direct the Company or a compensation scheme approved under section 25 , as appropriate, to suspend any payment to the eligible investor pending the judgment of the court concerned in respect of the charge or charges.

(4) Where the Company or a compensation scheme approved of under section 25 has made a payment under section 34 to an eligible investor, proof of those payments shall be given to the Company or the investor compensation scheme by the person to whom the monies were so paid.

(5) Where the Company or an investor compensation scheme approved of under section 25 has made a payment under section 34 to an eligible investor, the Company or compensation scheme shall be subrogated to the rights of that eligible investor in liquidation proceedings against the investment firm for an amount equal to the amount paid by the Company or the compensation scheme under section 34 to that eligible investor.

(6) Where the Company or an investor compensation scheme approved of under section 25 has made a payment under section 34 to an eligible investor, the Company or compensation scheme shall be subrogated to the rights of that eligible investor in respect of any payments made under a bond held by the investment firm in accordance with section 51 of the Act of 1995 or section 47 of the Act of 1989 and in respect of any payments made under a policy of professional indemnity insurance held by the investment firm in respect of the eligible investor's net loss.

(7) A client of an investment firm may appeal to the Court against any refusal to make a payment under section 34 or against the amount of any payment made under that section.

(8) Where a claim for payment under section 34 arises in respect of monies belonging to an investor and held by an investment firm which is a credit institution in connection with investment business such that a claim for payment could also be made under the European Communities (Deposit Guarantee Schemes) Regulations, 1995 (S.I. No. 168 of 1995), in respect of those monies, the supervisory authority shall specify that the client is either—

(a) an excluded depositor for the purposes of the European Communities (Deposit Guarantee Schemes) Regulations, 1995, or

(b) an excluded investor for the purposes of this Act.

Provisions relating to restricted intermediaries.

36. —(1) In this section—

receipted monies” means the value of client money or investment instruments forming part of the net loss of an eligible investor which were entrusted by the eligible investor to a restricted intermediary for transmission to an identifiable product producer from which the restricted intermediary held a valid written appointment at the time the money or investment instruments were so entrusted;

restricted intermediary” means an investment firm which is or was—

(a) a restricted activity investment product intermediary, or

(b) an insurance intermediary which is not an authorised investment business firm (unless the investment firm is a restricted activity investment product intermediary),

or both and is not a member of a compensation scheme approved of under section 25 .

(2) A product producer from which a restricted intermediary held a valid written appointment shall pay to the Company, in respect of each eligible investor to whom the Company is liable to make a payment under section 34 in respect of that restricted intermediary, an amount which bears to the compensatable loss of each such eligible investor the same proportion as the receipted monies of the eligible investor intended for transmission to that product producer bear to the net loss of the eligible investor.

(3) Product producers shall be subrogated to the Company in respect of any claim of the Company against an investment firm in respect of monies paid to the Company by product producers under this section.

(4) Nothing in any contract shall limit or vary the liability of a product producer under this section.

(1)O.J. No. L166, 28.06.1991.