Regulations, 2006

L.N. 36 of 2006

INVESTMENT SERVICES ACT

(CAP. 370)

Investor Compensation Scheme (Amendment)

Regulations, 2006

IN exercise of the powers conferred by article 12 of the

Investment Services Act, the Prime Minister and Minister of Finance,

acting on the advice of the Malta Financial Services Authority, has

made the following regulations: -

The title of these regulations is the Investor Compensation

Scheme (Amendment) Regulations, 2006, and they shall be read and

construed as one with the Investor Compensation Scheme

Regulations, 2003, hereinafter referred to as the “principal

regulations”.

Immediately after regulation 1 of the principal

regulations, there shall be added the following new regulation

1A. The objective of these regulations is to

implement the relevant provisions of Directive 97/9/EC

of the European Parliament and of the Council of 3rd March

1997 on investor-compensation schemes, and these

regulations shall be interpreted and applied accordingly.”.

Regulation 2 of the principal regulations shall be amended

as follows

(a) for the definition “investor”, there shall be substituted

the following new definition

““investor” means any person who has entrusted

money or instruments to a licence holder in connection

with licensed business, to the exclusion of persons listed

in the First Schedule to these regulations;”; and

(b) immediately after the definition “investor”, there shall

be inserted the following new definition

““EEA state” means a State which is a contracting

party to the agreement on the European Economic Area

signed at Oporto on the 2nd May 1992, as amended by the

protocol signed at Brussels on 17th March 1993, and as

amended from time to time;”.

Immediately after sub-regulation (4) of regulation 3 of the Amends regulation

3 of the principal

principal regulations, there shall be inserted the following new sub- regulations.

regulation

“(5) For the purpose of enabling the Scheme and the

competent authority to carry out their respective functions, the

Scheme and the competent authority may share and exchange

information, and shall otherwise consult and collaborate with

one another.” .

For sub-regulation (10) of regulation 5 of the principal Amends regulation

5 of the principal

regulations there shall be substituted the following

regulations.

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

officers to serve as secretary to the Management Committee

with such administrative functions and responsibilities as may

be assigned to him by the Management Committee.”.

Immediately after sub-regulation (6) of regulation 9 of the Amends regulation

9 of the principal

principal regulations, there shall be inserted the following new sub- regulations.

regulation (7)

“(7) Save where otherwise provided in regulation 9(3),

the Management Committee may act notwithstanding any

vacancy in its membership, and any proceeding thereof or

decision taken thereat shall be valid notwithstanding that the

appointment of any person is not made.”.

Sub-regulations (1) and (2) of regulation 11 of the principal Amends regulation

11 of the principal

regulations shall be substituted by the following sub-regulations: regulations.

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

Category 3 licence in terms of the Investment Services Act L.N. 7 of 1995

(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

Provided further that a branch of a licence holder

operating in Malta which is licensed in a non-EEA state shall

participate in and contribute to the Scheme, unless the Scheme

has in force an agreement with the authority responsible for the

management and administration of the scheme in that other state

stipulating, inter alia, that the level or scope of cover provided

for investors in that state is equal or exceeds the level or scope

of cover in Malta

Provided further that a branch of a licence holder

operating in Malta which is licensed in an EEA state may at its

own option, participate in and contribute to the Scheme, only

where the level or scope of the Scheme in Malta exceeds the

level or scope of cover provided in the EEA state in which it is

licensed.

(2) The Scheme may enter into a bilateral agreement with

any authority responsible for the management and administration of

a scheme set up in any other country stipulating, inter alia, the level

or scope of cover as well as the rules and procedures to be followed

for the payment of compensation to investors, and in any such case,

the guiding principles set out in Annex II of the Directive 97/9/EC

of the European Parliament and of the Council of 3rd March 1997

on investor-compensation schemes shall, where appropriate, apply.”.

In sub-regulation (1) of regulation 12 of the principal

regulations, for the words “the Second Schedule to these regulations.”

there shall be substituted the words “the Second Schedule to these

regulations, and such contributions shall not be refundable.”.

Regulation 17 of the principal regulations shall be amended

as follows

(a) the present provision shall be renumbered as sub-

regulation (1) thereof and the proviso thereto shall be deleted;

and

(b) immediately after sub-regulation (1) thereof as

renumbered, there shall be inserted the following new sub-

regulation

“(2) In calculating the amount of compensation to

be paid out in terms of sub-regulation (1), all computations

shall be made in the currency of the investment and all

payments of compensation shall be made in the same

currency as the investment.”.

Regulation 18 of the principal regulations shall be Amends

18 of the principal

amended as follows

regulations.

(a) in sub-regulation (1) thereof, for the words “Only

persons being individuals falling within the definition of

“investor” in regulation 2 of these regulations” there shall be

substituted the words “Only persons falling within the definition

of “investor” in regulation 2”;

(b) sub-regulations (2) and (4) thereof shall be deleted

and sub-regulations (3), (5) and (6) shall be renumbered as sub-

regulations (2), (3), and (4) respectively; and

(c) in sub-regulation (2) thereof as renumbered, for the

words “are also excluded from claiming under the Scheme.”,

there shall be substituted the words “are excluded from claiming

under the Scheme.”.

For the First Schedule to the principal regulations there Amends the First

Schedule to the

shall be substituted the following

principal

regulations.

“First Schedule

Exclusions

(Regulations 2, 18)

The following are excluded from claiming under the

Scheme

1. Persons carrying on investment services within Cap. 370

the meaning of the Investment Services Act, or equivalent

or similar foreign legislation;

2. Credit institutions carrying on the business of Cap. 371

banking within the meaning of the Banking Act, or

equivalent or similar foreign legislation;

3. Financial institutions within the meaning of the Cap. 376

Financial Institutions Act, or equivalent or similar foreign

legislation;

4. Insurance undertakings carrying on the business

of insurance within the meaning of the Insurance Business

Act and the Insurance Brokers and other Intermediaries

Act, or under equivalent or similar foreign legislation;

5. Collective investment schemes;

6. Pension and retirement funds;

7. Companies which are of such a size that they are

not permitted to draw up abridged balance sheets pursuant

to the Companies Act, or under equivalent or similar

foreign legislation;

8. Governments and administrative authorities,

national and international institutions;

9. Local and municipal councils or authorities;

10. Debt securities issued by the same institution

and liabilities arising out of own acceptances and

promissory notes;

11. Persons holding accounts which do not disclose

the investor’s identity;

Companies and commercial partnerships in the

same group as the licence holder;

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;

Close relatives, that is, ascendants, descendants

or the spouse of the persons referred to in paragraph 13;

Investors who have any responsibility for or have

taken advantage of certain facts relating to a licence holder

which gave rise to the licence holder’s financial difficulties

or contributed to the deterioration of its financial situation;

Investors in respect of transactions in connection Cap. 373

with which a criminal conviction has been obtained for

money laundering in terms of the Prevention of Money

Laundering Act, or under equivalent or similar foreign

legislation;

Nominees, trustees or other third parties acting

on behalf or in the interest of the persons referred to in

this Schedule to the extent of the funds held in such

capacity;

Other categories of professional and institutional

investors as may be determined from time to time by the

Management Committee.”.

12. The Second Schedule to the principal regulations shall be Amends the

Second Schedule

amended as follows

to the principal

regulations.

(a) in paragraph (d) of item 2 thereof, for the words “of

a licence under the Act.”, there shall be substituted the words

“of a licence under the Act. In subsequent years, the said

proportion shall no longer apply.”; and

(b) for item 3 thereof, there shall be substituted the

following

“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

B

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.

At the end of every financial year, each

licence holder shall ensure that the current market

value of the investments in which the Variable

Contribution is invested is at least equal to the

higher amount between 0.1% of the total revenue

and the minimum amount established in sub-para

(iv) of this title. If this requirement is not

satisfied, the licence holder shall take immediate

steps to top up as necessary these investments

within one month of the financial year end.

(ii)

Investment with Third Parties

Funds comprising the Investor Compensation

Scheme Reserve may only be invested with a third

party as follows

(a) at least 25 per cent of the total amount

shall be maintained in an interest bearing bank

account denominated in Maltese liri (maximum

maturity 30-day call) or invested in Malta

Treasury Bills denominated in Maltese liri; and

(b) not more than 75 per cent of the total

amount shall be invested as follows

(i) at least 50 per cent (in this case

5 per cent of the total Reserve) shall be

invested in Malta Government Stocks or in

local SICAVs that invest principally in Malta

Government Stock; and

(ii)

the balance may be invested in

B

debt instruments issued by local or

international entities with an investment

grade of not lower than “A” by a reputable

credit rating agency, which are quoted on

an investment exchange and which are in a

dematerialised form.

A licence holder whose capital is

denominated in a currency which is not Maltese

liri may, subject to approval by the Management

Committee, maintain the Variable Contribution

in the currency of that capital.

Deposits made by a licence holder shall not

be placed with itself or with a bank or other

institution which is an associated or parent

company of the licence holder. For the purposes

of this Schedule, an associated company shall

mean any subsidiary of the parent company of

the licence holder or any company over which

the parent company exercises direct or indirect

control or in which the parent company holds

directly or indirectly more than 25 per cent of

the shareholding.

A licence holder may not switch from an

investment which is pledged in favour of the

Scheme into another type of investment, without

the written consent of the Management

Committee.

The above parameters may be changed by

Guidelines issued by the competent authority,

upon consultation with the Management

Committee.

(iii)

Payment on account against a

potential claim on the Investor Compensation

Scheme

(a) The licence holder may deposit

the entire amount of the Variable

Contribution directly with the Scheme, in

which case such deposit shall be on account

of the licence holder’s liabilities under

B

regulation 16, and the provisions of this

Schedule, except for paragraphs 3(b)(i) and

(ii), shall also be applicable to such deposit.

(b) No interest shall be payable by the

Scheme to the licence holder.

(iv)

Minimum held as reserve

(a) 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.

(b) If the Investor Compensation

Scheme Reserve exceeds the Variable

Contribution, no transfer to the Investor

Compensation Scheme Reserve shall be

made.

(c) The minimum amount held on

reserve or deposited with the Scheme shall

never be less than Lm300.

(v) Reporting of the Variable Contribution

by participants

Participants shall be required to insert a

suitable note in their annual financial statements

as to the amount of Variable Contribution held

on reserve or deposited with the Scheme.

For amounts held on reserve, it would be

appropriate to include the nominal and 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 holder ’s financial

resources in its financial return submitted in

terms of its licence conditions.

Mitbug[ fl-Istamperija tal-Gvern — Printed at the Government Printing Press