Investor compensation scheme
Contents
- Who can invoke the investor compensation scheme?
- Up to what amount?
- What claims are guaranteed?
- What banks or investment firms?
- Who pays for the investor compensation scheme?
The investor compensation scheme protects private individuals and 'small' businesses that have entrusted money or financial instruments (such as securities or options) to a licensed bank or investment firm in the course of an investment service.
Although banks and investment firms in the Netherlands are under the supervision of De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten / AFM), the possibility that a bank or investment firm may get into financial difficulties cannot be excluded. In such a case, the investor compensation scheme guarantees a minimum level of protection where the bank or investment firm is unable to fulfil its obligations resulting from investment services performed for its clients.
Who can invoke the investor compensation scheme?
In brief, the investor compensation scheme may be invoked by private individuals and 'small' businesses (i.e. businesses which may publish an abridged balance sheet). Exceptions include private individuals who are management board members of the defaulting bank or shareholders who have an interest of five percent or more in the defaulting bank or investment firm (or a group company of the defaulting bank or investment firm), or their immediate family members. Professional market participants and professional investors such as banks, insurers, pension funds, other undertakings and government bodies cannot invoke the investor compensation scheme. They must decide for themselves whether they have their investment transactions executed by a solid bank or investment firm.
Up to what amount?
The investor compensation scheme guarantees an amount not exceeding EUR 20,000 per person per institution.
What claims are guaranteed?
In brief, claims (in money or securities) which are connected with the performance of certain investment services are eligible for compensation. This involves money or securities of an investor which are held in connection with the investment services and cannot be returned to the investor because the bank or investment firm concerned is unable to perform its obligations to its investor clients. Damage as a consequence of investment losses suffered on financial instruments is not itself eligible for compensation.
What banks or investment firms?
All Dutch banks and investment firms that operate under a licence from DNB or AFM are covered by the Dutch investor compensation scheme.
Claims of Dutch branches of banks or investment firms having their registered offices in the European Economic Area or EEA (the EU and Norway, Iceland and Liechtenstein) fall under the investor compensation scheme applicable in the country of origin. Within the EEA, a directive is in force providing that an amount of at least EUR 20,000 is guaranteed. Dutch branches of EEA-based banks or investment firms may opt for additional participation in the investor compensation scheme if their own investor compensation arrangement has more limited cover. Dutch branches of foreign banks or investment firms not having their registered offices in the EEA may opt for (additional) participation in the Dutch investor compensation scheme. They may do so if they do not fall under an investor compensation scheme that provides for a cover equal to the minimum compensation prevailing in the EEA. Branches of foreign banks or investment firms which opt for additional participation have to comply with specific requirements.
If you wish to find out whether a Dutch branch of a non-EEA-based bank or investment firm participates in the investor compensation scheme, you should consult the Wft register.
Who pays for the investor compensation scheme?
For investment firms there is an investor compensation fund from which compensation is initially paid. DNB determines and arranges the payments under the investor compensation scheme, which are as much as possible disbursed from the investor compensation fund. If the fund does not suffice, DNB charges the excess amount paid on to the participants in the scheme, in proportion to the size of their business. Investment firms are obliged to pay an annual contribution to the compensation fund. The yearly contribution consists of a fixed and a variable fee; the latter depends on the number of non-professional clients of the investment firm. New investment firms entering the investor compensation scheme have to pay an entrance fee.
