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24 February 2021 Supervision

Supervision

In summary, the purpose of the investor compensation scheme (ICS) is to compensate individuals and 'small' companies who, as part of an investment service have entrusted money or financial instruments (e.g. securities or options) to an authorised bank, investment firm or financial institution where the institution concerned is unable to comply with its obligations ensuing from claims relating to that investment service.

Who can appeal to the investor compensation scheme?

In short, individual investors and small companies (i.e. companies that may publish an abridged balance sheet), who as part of an investment service as defined in Section 1:1 of the Financial Supervision Act (Wet Financieel Toezicht - Wft), or a service as stated in Annex 1, part B, item 1 of the European Mifid Directive 2004/39/EU, entrusted money or financial instruments to a bank, an investment firm, or a financial institution. The ICS is not open to directors, managers, joint and severally liable managing directors, and individuals holding a participating interest of 5% or more in the capital of the relevant institution. Professional market parties and professional investors such as banks, insurance companies, pension funds and public bodies are not entitled to apply to the ICS. For a full overview see the Decree on Special Prudential Measures, Investor Compensation and Deposit Guarantees Wft and its Annexes.

Maximum coverage under the ICS

The ICS guarantees a maximum amount of 20,000 euros per person per institution.

Which claims are covered by the ICS?

Eligible for compensation under the ICS are claims related to the provision of the investment services as defined in Section 1:1 of the Wft. These claims concern money and/or financial instruments that an investor has entrusted with a financial institution as part of investment services, and that cannot be returned to the investor in case of insolvency of the financial institution. Claims ensuing from investment losses suffered on financial instruments themselves are not eligible for compensation.

Which financial institutions participate in the ICS?

The following financial institutions participate in the ICS.

  • Banks authorised by DNB and allowed to provide investment services.
  • Investment firms authorised by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten - AFM) for provision of investment services.
  • UCITS managers licensed by the AFM, in as far as related to the management of individual wealth, and managers licensed by the AFM for the management of investment firms, in as far as they are authorised to provide the investment services referred to in Section 2:67a(2) of the Wft, including portfolio management.
  • Financial institutions in possession of a certificate of supervised status and authorised to provide investment services.
  • Other financial institutions, such as certain Dutch institutions with branch offices in other EU member states, and in as far as applicable, branch offices in the Netherlands of banks and investment firms (see below).

The ICS of the country of origin applies to branch offices in the Netherlands of banks and investment firms having their registered offices in the European Economic Area - EEA (the EU plus Norway, Iceland, and Liechtenstein). Pursuant to the EU Directive on investor compensation schemes, the minimum amount guaranteed under the ICS must be EUR 20,000.

Branch offices in the Netherlands of banks and investment firms having their registered offices in the EEA may opt for additional coverage under the Dutch ICS if their national ICS offers more limited coverage. Branch offices in the Netherlands of banks or investment firms not having their registered offices in the EEA may also opt for coverage or additional coverage under the Dutch ICS. This may be done if no ICS applies to these branches that offers coverage on a par with the minimum rules applying in the EEA. Branch offices in the Netherlands of foreign banks or investment firms seeking additional coverage under the Dutch ICS are required to meet specific conditions.

The ICS does not apply to financial institutions providing investment activities only (proprietary trading, operating multilateral trading facilities) and/or providing investment services only (advisory services on financial instruments).

Operation of the ICS

DNB is responsible for operating the Dutch ICS. This means that DNB activates the system if has found that a financial institution governed by the ICS is in a state of insolvency. DNB publishes such news on its website and in newspaper advertisements, informing investors how to submit their claims for compensation under the ICS. DNB determines the level of the claim and is responsible for payments under the ICS, which will be made from the investor compensation scheme as much as possible. The Investor Compensation Scheme Foundation is responsible for the management and maintenance of the investor compensation scheme.

Who funds the ICS?

The ICS is funded in two ways, depending on the type of financial institution in default.

  1. In case of insolvency of a bank that also offers investment services, the amount of money to be paid out under the ICS is divided among the banks according to a procedure that is comparable to the distribution under the deposit guarantee scheme.
  2. In case of insolvency of a financial institution that is not a bank, such as an investment firm, the ICS is financed through an investor compensation scheme designated to refund to DNB the amounts paid out under the ICS. The institutions participating in the ICS are obliged to pay an annual contribution to the compensation scheme. This contribution breaks down into a fixed and a variable charge, the latter being dependent on the number of non-professional customers of the investment firm. The annual charge only applies if the target amount of EUR 11.3 million in the investor compensation scheme has not been reached. New financial institutions joining the ICS are required to pay an entrance fee. If the scheme shows a shortfall, DNB divides this among the members of the scheme, according to the size of their business. The Investor Compensation Fund Foundation takes care of the management and maintenance of the investor compensation scheme.