Regulations, 2003

L.N. 368 of 2003

INVESTMENT SERVICES ACT

(CAP. 370)

Investor Compensation Scheme

Regulations, 2003

IN exercise of the powers conferred by article 12 of the Investment

Services Act, the Minister of Finance and Economic Affairs, acting on

the advice of the Malta Financial Services Authority, as the competent

authority appointed for the purposes of that Act, has made the following Cap.370.

regulations>-

(1) The title of these regulations is the Investor Compensation Citation and date of

commencement.

Scheme Regulations, 2003.

(2) These regulations shall come into force on the 21st

November, 2003.

In these regulations, unless the context otherwise requires –

Interpretation.

“Act” means the Investment Services Act<

“branch” means a place of business which forms a legally

dependent part of a licence holder and from which some or all of

the activities for which the licence holder has been authorised is

conducted< all the places of business set up in any one country by

a licence holder whose head office is in Malta or in another country

shall be regarded as a single branch<

“competent authority” means the competent authority under

the Act<

“Financial Services Tribunal” means the tribunal established

in terms of the Malta Financial Services Authority Act<

“instruments” shall have the meaning assigned to the word in

article 2 of the Act<

“investor” means any individual who otherwise than in the

course or for the purpose of a business, trade or profession entrusts

money or instruments to a licence holder in connection with

licensed business<

“licensed business” means the carrying out of any activity in

regard to which there is a licence under the Act<

“licence holder” means any person who holds a licence to

carry out investment services business in terms of the Act<

“Management Committee” means the Compensation Schemes

Management Committee established under regulations 3 and 5 of

these regulations and referred to in the Depositor Compensation

Scheme Regulations, 2003<

“Scheme” means the Investor Compensation Scheme

established under regulation 3 of these regulations<

“total revenue” means all gross income received or receivable

from the licence holderís business activities which are licensable

under the Act, whether actually licensed or not<

and the words and expressions which are also used in the Act shall have

the same meaning as in the Act.

(1)

There shall be established an Investor Compensation

Establishment of the

Scheme.

(2) The Scheme shall be a body corporate having a distinct

legal personality and shall be capable, subject to the provisions of the

Act and of these regulations, of entering into contracts of borrowing or

otherwise incurring indebtedness for the purposes of its functions, of

acquiring, holding and disposing of any kind of property for the purposes

of its functions, of suing or being sued and of doing all such things and

entering into all such transactions as are incidental or conducive to the

exercise or performance of its functions.

(3) The Scheme shall be managed and administered by and

be under the general control of the Management Committee appointed

in terms of regulation 5 of these regulations.

(4) The legal and judicial representation of the Scheme shall

vest in the chairperson of the Management Committee>

Provided that, and without prejudice to the foregoing, the

Management Committee may vest any one or more of its members or

of the officers or agents of the Scheme with legal or judicial

representation.

(1) Without prejudice to any other power or function Functions

Scheme.

conferred on it by these regulations or by any other law, it shall be the

function of the Scheme –

(a) to maintain a fund or funds out of which payments shall

be made to investors and to meet such other payments or expenses

as may be paid out of the fund or funds in accordance with these

regulations<

(b) to establish and maintain, after consultations with the

competent authority, arrangements for the making of payments to

investors in accordance with these regulations<

(c) to process claims for compensation by investors as

expeditiously as possible and to ensure that compensation is paid

out without undue delay< and

(d) to advise the competent authority on matters relating to

compensation of investors.

(2) The objective of the Scheme is to provide a means of

protection for private investors within the framework of these

regulations. All the members of the Management Committee shall work

in the best interest of the Scheme and shall pursue and promote its

objective.

(1) The Management Committee shall be appointed by the Composition of the

Management

competent authority and shall consist of a chairperson and six other Committee.

members as follows>

(a) an officer, not below managerial grade, performing

duties with the competent authority, possessing the necessary

expertise and experience in financial services<

(b) a person nominated by an association or associations or

other bodies representing persons holding a licence under the Act

which participate in and contribute to the Scheme in terms of these

regulations, and which are recognised for such purpose by the

competent authority<

(c) a person nominated by an association or associations or

other bodies representing credit institutions which participate in

and contribute to the Depositor Compensation Scheme established

under the Depositor Compensation Scheme Regulations, 2003, and L.N. 369 of 2003.

which are recognised for such purpose by the competent authority<

(d) a person nominated jointly by the associations or other

bodies indicated in paragraphs (b) and (c) of this regulation<

(e) an officer, not below managerial grade, performing

duties with the Central Bank< and

(f) a person, who because of his experience, qualifications

or activities is considered as being able to state and represent the

point of view of consumers>

Provided that whenever, for any reason whatsoever, the

associations or other bodies representing licence holders and credit

institutions referred to in (b), (c) and (d) of sub-regulation (1) of

this regulation fail to nominate, within the time given to it by the

competent authority, the person it is required to nominate, the

competent authority shall appoint the persons, or the remaining

person, at its discretion.

(2) The members of the Management Committee shall be

appointed from among persons who, in the view of the competent

authority, have proven experience and are qualified in financial services,

management, or possess any other relevant professional or commercial

knowledge and expertise.

(3) The members of the Management Committee nominated

in terms of paragraphs (b), (c) and (d) of sub-regulation (1) shall not be

eligible for appointment if they have a financial or other interest as is

likely to affect prejudicially the discharge by them of their functions

under these regulations. Such members of the Management Committee

shall serve in their personal capacity and shall not represent or receive

directives or instructions from the person or entity nominating them.

(4) Every member of the Management Committee shall hold

office for such period and upon such terms and conditions as may be

determined by the competent authority and indicated in the letter of

appointment. Such term of office shall be of not less than three years

and not more than five years. Every member of the Management

Committee, including the chairperson, shall be eligible for re-

appointment.

(5) A member of the Management Committee may be

relieved of office by the competent authority on the grounds of inability

to perform the functions of his office, whether due to infirmity of mind

or of body, or of misbehaviour< and for the purposes of this paragraph

repeated and unjustified non-attendance of meetings of the Management

Committee may be deemed to amount to misbehaviour.

(6) A member of the Management Committee may resign

from office by means of a letter addressed to the competent authority.

(7) The competent authority may fill any vacancy occurring

in the Management Committee for any reason whatsoever, having regard

to the provisions of sub-regulation (1) of this regulation.

(8) Notice of the names of the members of the Management

Committee (and any resignation, dismissal and new appointment) shall

be published in the Gazette.

(9) The competent authority shall establish any

remuneration to be paid to the members of the Management Committee.

(10) The competent authority shall appoint one of its officers

to serve as secretary to the Management Committee. Such person shall

be responsible to make the necessary preparations for the meetings of

the Committee and to keep the minutes thereof.

(11) For the purpose of sub-regulations (2), (4), (5), (6), (8)

and (9) of this regulation, “member” shall include the chairperson.

(1) The Management Committee shall have the power to Powers and duties

of the Management

enter into such reasonable administrative and other expenses as may be Committee.

necessary to enable it to fulfil its functions under these regulations.

(2) The Management Committee may place contributions

made by licence holders in terms of regulation 11 of these regulations

and any other funds managed and administered by it on deposit or may

invest such contributions, having regard to the need for prudence.

(3) The Management Committee may take out insurance

policies, borrow or otherwise incur indebtedness on behalf of the Scheme

for the purposes of the Schemeís functions, in any way and under any

terms it may consider appropriate, provided such borrowings do not

exceed 30 per cent of the net asset value of the Scheme.

(4) The Management Committee shall cause proper books

of account to be kept so that the financial position of the Scheme can be

ascertained with reasonable accuracy at any time.

(5) In exercising its powers and duties, the Management

Committee shall be bound to safeguard and take into account the general

interests of investors entitled to claim under these regulations.

Without prejudice to sub-regulation (1) of regulation 6, the

Management Committee shall enter into such investment management

support agreements.

and administrative support agreements as may be approved by the

competent authority.

(1) The Management Committee shall prepare annual

forecast statements of the expected costs and revenues of the Scheme,

and shall make available such forecast statements to all participants

upon request.

(2) The Management Committee shall submit to the

competent authority an annual report on the discharge of its functions

and on the operation of the Scheme within three months from the

financial year end of the Scheme. Such annual report shall include,

inter alia -

(a) a statement showing the payments in and payments out

of the Scheme during its immediate previous financial year< and

(b) annual audited financial statements prepared in

accordance with International Accounting Standards.

(3) The annual report shall be made available on the website

of the competent authority.

(4) The books of accounts shall be kept at such place as the

Management Committee thinks fit.

(1) The meetings of the Management Committee shall be

held as often as may be required but not less than once every three

calendar months.

(2) Meetings of the Management Committee shall be

convened by the chairperson either on his own initiative or at the written

request of any two members of the Management Committee.

(3) The Management Committee shall only conduct

business if at least four members (which shall include the chairperson

or, in his absence, the member nominated by the competent authority)

are present.

(4) For the purpose of decisions of the Management

Committee, each member shall have one vote. Voting shall be by simple

majority of the members present. In the event of an equality of votes,

the chairperson shall have a second or casting vote.

(5) Subject to the foregoing provisions of this regulation,

the Management Committee shall have power to regulate its own

proceedings and may also establish such procedures or make such rules

as it may deem appropriate for the better fulfilment of its purposes.

(6) The Management Committee may invite any person who

in its opinion possesses specialised knowledge or expertise on a

particular subject, to attend any meeting and take part in the discussions.

(1) In terms of regulation 4 of these regulations, the Scheme Source and

application of funds.

shall establish and maintain a fund or a number of funds out of which

payments to investors shall be made in accordance with these regulations.

(2) The sources of funding shall include>

(a) contributions levied from participants of the Scheme

by the Management Committee<

(b) money paid as administrative fees by all participants,

as may be prescribed<

(c) money received as income from the investment of the

assets of the fund<

(d) money borrowed by the Management Committee for

the purposes of the Scheme<

(e) money received by the Management Committee on any

insurance policy it takes out< and

(f) any other money required to be paid in to the fund or

funds, received or recovered by the Management Committee for

the purposes of the Scheme.

(3) There shall be paid out of the fund or funds>

(a) money determined by the Management Committee as

compensation for investors<

(b) money required for the repayment of (or interest on or

charges in connection with) any money borrowed or for the

payment of premia on any insurance policies taken out, for the

purposes of the Scheme<

(c) the costs incurred in administering and managing the

Scheme< and

(d) any other money paid out by the Management

Committee for the purposes of the Scheme.

(4) The Management Committee shall hold, manage and

apply the fund or funds in accordance with these regulations.

(1) Every licence holder in possession of a Category 2 or

Category 3 licence in terms of the Investment Services Act (Licence

and Other Fees) Regulations, 1995 shall participate in and contribute to

the Scheme, including branches of licence holders operating in other

countries>

Provided that licence holders providing investment services solely

and exclusively to persons who do not fall within the definition of

“investor” in terms of regulation 2 of these regulations shall not be

required to participate in and contribute to the Scheme.

(2) In the case of a participant whose head office is situated

in a country outside Malta, as well as branches of a licence holder having

their head office in Malta but operating outside Malta, and where there

is supplementary cover by a corresponding scheme in that other country,

the Management Committee shall enter into a bilateral agreement with

the authority responsible for the management and administration of the

scheme in that other country stipulating, inter alia, the rules and

procedures to be followed for the payment of compensation to claimants.

(3) Participation in the Scheme does not exclude the

possibility that particular licence holders may have to participate also

in another compensation or similar schemes set up under a different

law and governed by another competent authority or other body.

(4) When a licence holder becomes a participant in the

Scheme after the coming into force of these regulations, the Management

Committee shall determine all the relative obligations and conditions

of the new participant in terms of these regulations.

Contributions to the

(1) Participants shall pay such contributions to the Scheme

as prescribed in the Second Schedule to these regulations.

(2) Participants may be requested to pay to the Scheme such

reasonable administrative fees as may from time to time be prescribed

by the Management Committee.

(1) Where>

(a) it appears to the competent authority that a participant

is unable, for the time being, for reasons which are directly related

to its financial circumstances to meet its obligations arising from

claims by its investors and to have no early or foreseeable prospect

of being able to do so, or has otherwise suspended payment< or

(b) in respect of a participant which has its head office in

Malta an order has been made by the Courts in Malta for its

winding-up or liquidation under the laws of Malta<

whichever is the earlier, the competent authority shall, as soon as

practicable, make a determination to that effect.

(2) The competent authority may, by way of Guidelines,

establish those circumstances or criteria which it may consider in arriving

at a decision as to whether it will make a determination in terms of sub-

regulation (1) of this regulation.

(3) As soon as practicable after a determination is made,

the competent authority shall inform the Management Committee in

writing of such determination. The Management Committee may take

additional measures it deems necessary or appropriate within its powers

under these regulations.

(4) The competent authority shall, as soon as possible,

inform any other compensation scheme relating to financial services

activities, as may be established under any other law and regulated by

other competent authority or other body, which it believes may be

effected by such determination.

(5) In making a determination in accordance with sub-

regulation (1) of this regulation, the competent authority shall have

regard to any report of an officer or officers authorised by it on the state

of affairs of the licence holder, and any other information in its

possession.

(1) On being informed by the competent authority that a Application for

Compensation.

determination has been made under regulation (1) of regulation 13, the

Management Committee shall publish a notice in at least two local

newspapers, informing investors of the licence holder concerned of such

determination and of the manner in which claims supported by

documentary evidence are to be submitted.

(2) The right of an investor for compensation shall not be

forfeited if the investor is able to prove that he was unable to assert his

right to compensation within any prescribed time-limits as may be

provided by the Management Committee.

(3) The Management Committee may, following an

application for compensation being made to it by an investor, accept or

refuse to provide compensation in accordance with these regulations.

(4) The Management Committee shall proceed to pay

compensation for verified claims within three months of the date of the

determination given in terms of sub-regulation (1) of regulation 13>

Provided that the Management Committee may, in exceptional

circumstances, apply to the competent authority for an extension of

this period by a further period of up to three months, and up to two

further periods of up to three months each thereafter.

(1) The Management Committee shall make its own

administrative arrangements for verifying claims. These arrangements

shall include>

(a) providing an application form for claimants both in

English and in Maltese<

(b) providing for the exercise of the Management

Committeeís right of subrogation under regulation 22 of these

regulations< and

(c)

requiring claimants to give>

(i) their identity and address<

(ii) the capacity in which they claim<

(iii) evidence of the investments< and

(iv) any other information as may be required by the

Management Committee.

(2) The Management Committee may refuse to make a

payment for compensation until the claimant informs the Management

Committee as to the capacity in which he is the beneficial owner of the

investment and provides satisfactory documentary evidence and

information to allow the Management Committee to determine the

amount of compensation payable.

(3) The Management Committee may decide to delay

payment to a claimant until determination of any criminal charge brought

against the claimant, investor, or any person entitled to or interested in

respect of an investment under the provisions of the Prevention of Money

Laundering Act or a corresponding law of a country outside Malta.

(4) Where in the opinion of the Management Committee

circumstances so warrant, the Management Committee may effect part

payments to claimants eligible for compensation under these regulations.

Whenever it appears to the Management Committee that the When funds appear

to be inadequate.

funds for the time being held by the Scheme are inadequate for the

Management Committee to exercise its functions, the Management

Committee may require a contribution to be made to the Scheme by

licence holders out of, but not exceeding, funds reserved for this purpose

by the licence holder in accordance with the Second Schedule to these

regulations. Such further contributions shall be provided to the Scheme

within 30 calendar days of their being requested.

The total amount of compensation that may be paid out to an Limit of

investor shall be the lesser of ninety per cent (90%) in respect of all compensation.

claims which have been made by such investor, or up to the Maltese liri

equivalent of 20,000 Euros converted on the basis of the official closing

middle rate issued by the Central Bank of Malta prevailing on the date

of settlement of the claim>

Provided that the total compensation paid by the Scheme in any

one year shall not exceed 75 per cent of the net asset value of the Scheme

as shown in the latest audited financial statements and which shall also

include variable contributions held by licence holders in reserves as

required in terms of the Second Schedule to these regulations. In this

proviso, “net asset value” shall include any funds belonging or due to

the Scheme, including the fixed and variable contributions in terms of

the Second Schedule to these regulations>

Provided further that where the funds of the Scheme are insufficient

to satisfy the claims in full, payments to claimants shall be made pro

rata.

(1) Only persons being individuals falling within the Claimants.

definition of “investor” in regulation 2 of these regulations may make a

claim against the Scheme in terms of these regulations. An investor

may only submit one claim in respect of all his investments, taken in

aggregate, with the licence holder concerned.

(2) The following individuals are excluded from claiming

under the Scheme>

(a) directors and managers of the relevant licence holder

and members of the licence holder with personal liability, persons

holding five percent or more of the capital of such licence holder,

the auditors of the licence holder and persons of the same

description with respect to a company forming part of the same

group of companies as the licence holder<

(b) close relatives, that is ascendants, descendants or the

spouse of the persons referred to in paragraph (a) of this sub-

regulation<

(c) investors who, in the view of the Management

Committee, have any responsibility for or have taken advantage

of certain facts relating to a licence holder which gave rise to the

licence holderís financial difficulties or contributed to the

deterioration of its financial situation<

(d) investors in respect of transactions in connection with

which a criminal conviction has been obtained for money

laundering in terms of the Prevention of Money Laundering Act<

and

(e) nominees or other third parties acting on behalf or in

the interest of the persons referred to in paragraphs (a) to (d) of

this regulation.

(3) The categories listed in the First Schedule to these

regulations are also excluded from claiming under the Scheme.

(4) In the event of doubt as to whether an investor is

excluded from submitting a claim to the Scheme the matter shall be

conclusively determined by the Management Committee for all purposes

of these regulations.

(5) An investor may not claim against more than one scheme

in respect of a single claim. Where a claim has been made under two or

more compensation schemes, the Management Committee shall

conclusively determine under which scheme the claimant is eligible for

compensation.

(6) Claims shall be made in such form, and shall be

accompanied by such documentation or information, as the Management

Committee may determine and make public from time to time.

(1) The Scheme shall provide for the payment of Claims.

compensation in respect of claims arising out of a licence holderís

inability to>

(a) repay money owed to or belonging to investors and held

on their behalf in connection with licensed business< or

(b) return to investors any instruments belonging to them

and held, administered or managed on their behalf in connection

with licensed business or, where this is not possible, their monetary

equivalent or value.

(2) The amount of an investorís claim shall be calculated

by the Management Committee after taking into account any or all of

the following factors>

(a)

legal and contractual conditions<

(b) counterclaims<

(c)

market value< and

(d) surrender value.

Where the Management Committee is of the opinion that an Eligibility for

compensation.

investor is not eligible for compensation in whole or in part in terms of

these regulations, the Management Committee shall give notice in

writing to such investor of that opinion and the reasons therefor.

(1) In considering compensation to any investor for any Compensation paid

payment under these regulations, the Management Committee shall take to

compensation

into account any payments made under a policy of professional payable.

indemnity insurance, if any, held by the licence holder or any payments

made under any other law or arrangement in respect of the same losses.

(2) The Management Committee shall deduct such amount

of compensation paid from the amount of compensation that may be

payable to the investor in respect of any or all of the circumstances

arising from this regulation.

(1) Where the scheme has made a payment to a claimant, Subrogation.

the Scheme shall be subrogated to the rights and remedies of that

claimant against the licence holder.

(2) Prior to payment, investors shall confirm in writing to

the Management Committee that>

(a) they have not received any payment from any other

scheme or from the licence holder concerned in respect of the same

loss<

(b) they will provide any assistance the Management

Committee may require to enable the Management Committee to

exercise its rights and remedies against the licence holder< and

(c) their rights in respect of any money or instruments

comprising the claim shall be subrogated in favour of the

Management Committee.

(1) Where two or more persons are jointly entitled to an

Establishment of the

investment account, each of these persons shall be treated as having a

separate account of an amount produced by dividing the amount of the

investment to which such persons are jointly entitled by the number of

persons so entitled, unless there exists specific evidence or special

contractual provisions determining the particular entitlements of such

persons in which case such evidence shall be taken into account in

determining their entitlements.

(2) Where a person is acting as trustee or nominee for one

or more persons under a deed of trust or other similar agreement, the

amount comprising the claim shall be deemed to belong to the beneficial

owners equally, unless there exists specific evidence or special

contractual provisions determining the beneficial interests of such

persons in which case such evidence shall be taken into account in

determining their entitlements, and provided in any event that ownership

is proved to the entire satisfaction of the Management Committee.

The Management Committee shall ensure that the general

public is adequately informed about the operation of the Scheme

arrangements.

(1) Licence holders shall make available to actual and

intending investors adequate and clear information concerning the

applicability of the Scheme together with such other particulars as may

from time to time be specified by the competent authority in a manner

and form specified by the competent authority>

Provided that a licence holder shall not advertise or cause to be

advertised the fact that money or instruments placed with a licence holder

are protected by or through the Scheme except with the prior written

consent of the competent authority.

(2) The competent authority may, from time to time, specify

the information that licence holders are to provide to investors regarding

the Scheme and its operations, as well as the manner and form in which

such information should be provided.

(1) The Management Committee may request participants, Power

Management

either directly or through the competent authority, to provide such Committee to obtain

information which the Management Committee may consider relevant information.

for the proper administration of the Scheme, within a period of time as

may be established by the Management Committee. The request may

be addressed to the participant or to any of its directors or officials who

are in possession of such information.

(2) Without prejudice to any provision of these regulations,

a participant or any director or official thereof, who fails to comply

with the Management Committeeís request for information within the

period of time established by the Management Committee in terms of

sub-regulation (1) of this regulation, or who knowingly or recklessly

furnishes information, or makes a statement which is inaccurate, false

or misleading in any material respect, shall be liable to an administrative

penalty not exceeding Lm1,000 as may be imposed by the competent

authority by means of a notice in writing and without recourse to a

court hearing.

(3) Where an administrative penalty has been imposed by

the competent authority in terms of sub-regulation (2) of this regulation,

an appeal shall lie to the Financial Services Tribunal in accordance

with articles 6 and 19 of the Act.

(1) Members of the Management Committee and persons Respect

confidentiality.

appointed under sub-regulation (1) of regulation 6 shall be subject to

the provisions of the Professional Secrecy Act and shall keep confidential Cap. 377.

any information obtained by them in the course of performing their

duties under these regulations, and shall not reveal any information to

any person, credit institution, association or entity except as may be

allowed by these regulations or any other law or by Court order.

(2) The duty of confidentiality shall not be contravened in

the case of>

(a) exchange of information between the Management

Committee and competent authorities in other countries, or the

competent authorities for the management and administration of

corresponding schemes in other countries, provided that the relevant

information is necessary for the discharge of their duties under

these regulations< and

(b) any use or disclosure as may be required to enable the

Management Committee and its officers or agents to perform their

duties and carry out their functions under these regulations.

(1) Where a licence holder fails to comply with its obligations

under these regulations, the Management Committee shall notify and

consult with the competent authority and shall agree on the appropriate

measures to be taken by the competent authority, including the

imposition of penalties, to ensure that the licence holder complies with

such obligations.

(2) If these measures fail to secure compliance on the part

of the licence holder, the Management Committee shall report the matter

to the competent authority for any further measure to be taken at law,

including the possible restriction or withdrawal of the licence holderís

licence.

(3) After the restriction or withdrawal of a licence, cover

shall continue to be provided in respect of licensed business up to the

date of restriction or withdrawal of the licence.

The Scheme shall establish and maintain adequate internal

procedures to investigate complaints against it by licence holders and

by investors.

(1) The competent authority may issue Guidelines to licence

holders for the purposes of these regulations.

(2) Such Guidelines may contain such incidental,

supplementary and consequential provisions as appear to the competent

authority to be expedient for the purpose of these regulations.

The Management Committee and officers and agents of the

Scheme shall not be liable in damages for anything done or omitted in

the discharge of functions under these regulations unless it is shown

that the act or omission was in bad faith.

The financial year end of the Scheme shall be an accounting

period of twelve months ending on the thirty-first day of December of

each year.

The accounts of the Scheme shall be audited in accordance

with International Standards on Auditing by auditors appointed by the

Management Committee from among persons who are qualified to be

appointed as auditors of a company under the law for the time being in

force in Malta.

The competent authority and the Management Committee Cooperation

other authorities.

shall consult the relevant competent authorities and the persons

responsible for compensation schemes in other countries outside Malta

and seek to reach agreement with those authorities and persons about>-

(a)

the procedures to be followed if a participant defaults<

(b) the amounts of compensation payable, after deductions

if any, under each scheme< and

(c) any other aspect which is deemed appropriate for the

proper management and administration of the schemes.

(1) The Management Committee established under Transitory

provision.

regulation 3 of the Depositor Compensation Scheme Regulations, 2003 L.N. 369 of 2003.

and the Management Committee referred to in these regulations are

one and the same. The Management Committee established under

regulation 3 of these regulations shall continue in the personality of the

Management Committee established immediately before the coming

into force of these regulations and accordingly shall succeed to all its

rights and obligations.

(2) All appointments, decisions, contributions, claims, payments

or other acts made or taken under the Investor Compensation Scheme

Regulations, 2003 before the coming into force of these regulations L.N.6 of 2003.

shall continue in force and shall be deemed to have been made or taken

under these regulations, and any reference in any law to the Management

Committee shall be deemed to be a reference to the Management

Committee established under regulation 3 of these regulations.

The Compensation Fund established by Bye-laws in terms Compensation

of the Schedule to the Financial Markets Act shall become absorbed as Fund.

an integral part of the Scheme in accordance with the provisions of the

Third Schedule to these regulations.

The Investor Compensation Scheme Regulations, 2003 Repeals.

published on 3rd January, 2003, are hereby repealed.

L.N. 6 of 2003.

First Schedule

Exclusions

(Regulation 18)

For the avoidance of doubt, the following are excluded from claiming under the

Scheme and shall not be deemed to be investors for the purpose of these regulations>

(1) Sole traders, companies and other commercial partnerships<

(2) Professional and institutional investors, including>

(a) Persons holding an investment services licence under article 6 of

the Act<

(b) Credit institutions carrying on the business of banking under the

Banking Act<

(c) Financial Institutions as defined in article 2 of the Financial

Institutions Act<

(d) Companies authorised to carry on the business of insurance under

the Insurance Business Act<

(e)

Collective investment schemes as defined in article 2 of the Act<

(f) Retirement funds as defined in the Special Funds (Regulation) Act<

and

(g) Other categories of local and#or foreign professional and

institutional investors, whether resident or non-resident in Malta, as may be

determined by the competent authority from time to time<

(3) National and international institutions, governments and administrative

(4) Local and municipal councils or authorities< and

(5) Debt securities issued by the same licence holder and liabilities arising out

of own acceptances and promissory notes.

Second Schedule

Contributions

in terms of regulation 12

1. Contributions

(a) Licence holders shall, every year, be obliged to contribute to the Scheme a

Fixed Contribution and a Variable Contribution.

(b) The Fixed Contribution shall be paid to the Scheme annually, in every

calendar year.

2. Fixed Contribution

(a) Every licence holder which participates in the Scheme shall pay a Fixed

Contribution as follows>

(i) Lm 1,250 in the case of Category 2 Investment Services Licence Holders<

and

(ii) Lm 7,500 in the case of Category 3 Investment Services Licence

Holders.

(b) The first contribution for calendar year 2003 due by licence holders who

held a licence in terms of the Act at the time of the coming into force of the Investor

Compensation Scheme Regulations, 2003 shall be due before the end of November

2003. (c) In subsequent years, payment of the Fixed Contribution to the Scheme shall

be made by the 30th April of each year.

(d) In the event that a new participant joins the Scheme between 1st January

and 31st December, 2003, such participant shall only be obliged to pay a proportion of

the Fixed Contribution covering the period in calendar year 2003 in respect of which

the participant has been in possession of a licence under the Act.

3. Variable Contribution

(a) The Variable Contribution is calculated by applying a percentage rate to the

total revenue of the licence holder on an annual basis. The percentage rate for the

Variable Contribution is set at 0.1 per centum.

(b) The Variable Contribution shall be accounted for in the financial year when

the Fixed Contribution is paid.

(i) Investor Compensation Scheme Reserve

The Variable Contribution shall be held by the licence holder in a reserve so that

the funds will be made available within 30 calendar days from the time when the

Scheme makes a call on such funds in terms of regulation 16.

Funds in this reserve, which shall be called the “Investor Compensation Scheme

Reserve” in all accounts and documents, shall be invested by the licence holder with a

third party approved in writing by the Management Committee. Such third party shall

hold the funds on pledge in favour of the Scheme and shall specifically acknowledge

the rights of the Scheme as pledgee, and shall notify the Scheme in writing accordingly.

If the Investor Compensation Scheme Reserve is more than the Variable

Contribution, no transfer to the Investor Compensation Scheme Reserve shall be made.

This implies that when a Variable Contribution is higher than the Investor Compensation

Scheme Reserve, the licence holder shall be required to make a Variable Contribution

for the difference to ensure that the higher amount is always on reserve.

The Investor Compensation Scheme Reserve shall never be less than Lm300.

(ii) Investments of funds on reserve by the licence holder

Funds comprising the Investor Compensation Scheme Reserve can only be invested

in listed bonds (debt instruments) and#or placed in an interest bearing bank account

subject to the following>

• Minimum 25 per cent of the total amount has to be maintained in an Lm-

denominated interest bearing bank account (maximum 60 day call).

• Maximum 75 per cent invested in listed debt instruments of which>

– minimum 50 per cent (in this case 37.5 per cent of the total Reserve) has

to be invested in Malta Government Stocks<

– the balance (37.5 per cent of the total Reserve) may be invested in debt

instruments issued by local or international entities, with an investment grade of

not lower than A (Moodyís or Standard & Poorís), where applicable.

[For the sake of clarity, should a licence holder choose to hold 40% of the Reserve

in a bank account, the remaining 60% may be invested in listed debt instruments, of

which a minimum of 50% (in this case 30% of the total Reserve), to be invested in

Malta Government Stocks, and the balance in other listed bonds as indicated above.]

The above parameters are only indicative and may be changed by Guidelines

issued by the competent authority, upon consultation with the Management Committee

and licence holders.

(iii) Financial reporting of the reserve

The licence holders shall be required to insert a suitable note in the annual financial

statements as to the market value of the instruments in which the reserve has invested,

together with a maturity schedule according to the type of instrument.

The amount on reserve will be deducted in full as an illiquid adjustment for the

purposes of calculating the licence holderís financial resources in its financial return

submitted in terms of its licence conditions.

4. Maximum limit of payment

Licence holders will be required to contribute to their Investor Compensation

Scheme Reserve each year until such time that aggregate fixed contributions paid to

the Scheme and accumulated reserves held by licence holders by way of the Variable

Contribution amount to Lm1,000,000.

Third Schedule

(Regulation 36)

The Compensation Fund and the Select Committee established by Bye-laws in

terms of the Schedule to the Financial Markets Act shall cease to be in effect as from

the date of the coming into force of these regulations and the Compensation Fund shall

as from such date become absorbed as an integral part of the Scheme subject to the

following provisions of this paragraph>

(1) The Bye-laws as in force immediately before the coming into force of these

regulations, shall mutatis mutandis continue to regulate any claim made by an investor

in terms of Bye-law 7.03 with reference to events occurring prior to 3rd January, 2003

and any reference to the Council shall be deemed to be a reference to the Management

Committee established under these regulations.

(2) (a) The portion of the Compensation Fund comprising the payments made

by the Malta Stock Exchange in terms of Bye-law 7.12(b) shall be transferred back to

the Malta Stock Exchange>

Provided that the Malta Stock Exchange shall keep such portion of the

Compensation Fund separate and distinct from any other funds or assets<

(b) The Malta Stock Exchange shall provide an indemnity in favour of the

Scheme, up to the amount of funds kept separate and distinct in accordance with the

proviso to the immediately preceding sub-regulation and in proportion to the percentage

of the funds constituting the Compensation Fund that have been transferred back to it,

and it shall remain responsible in accordance with the provisions of the first proviso to

paragraph (b) of sub-regulation (3) of this regulation, up till 3rd January, 2008, for any

claims that may arise with reference to events occurring prior to 3rd January, 2003.

(3) (a) The portion of the Compensation Fund that had been paid by the

members of the Malta Stock Exchange in terms of Bye-law 7.12 (a) and any other

remaining funds pertaining to the Compensation Fund shall be transferred to the Scheme

and shall become an integral part thereof>

Provided that a moratorium shall be allowed in favour of members of the Malta

Stock Exchange who had paid such portion to the Compensation Fund as in force

immediately before the coming into force of these regulations, so that their respective

contributions to the Compensation Fund shall be set off against contributions now due

by them to the Scheme<

(b) The Scheme shall be responsible for claims made against the

Compensation Fund by investors in terms of Bye-law 7.03 and arising out of or with

reference to events occurring prior to 3rd January, 2003>

Provided that claims accepted for settlement by the Management Committee shall

be settled out of funds transferred from the Compensation Fund to the Scheme and the

Malta Stock Exchange pro rata>

Provided further that the liability of the Scheme shall not exceed the amount of

funds transferred in accordance with the provisions of paragraph (a) of sub-regulation

3 of these regulations, and the responsibility of the Scheme shall expire on 3rd January,

2008. (4) Any reference in any law to the Compensation Fund established by Bye-

laws in terms of the Schedule to the Financial Markets Act, shall henceforth be deemed

to be a reference to the Scheme.