The Cyprus Securities and Exchange Commission (CySEC) today published a new list of financial services providers that were disbarred from its lifeboat scheme. However, the clients of these brokers are still entitled to benefit from the Investor Compensation Fund (ICF), which serves to protect the claims of covered clients and provide them with compensation in case a member could not meet its financial obligations.
The list includes two retail brokers, WhoTrades Ltd and MGTM Financial Services Ltd. The now-defunct firms renounced their Cyprus Investment Firm (CIF) License earlier this year.
Cysec further explains to the public that “It should be noted that losing membership of the fund does not mean a loss covered clients’ rights to compensation for investing that took place until the loss of membership. Any outstanding debts owed by members to the fund, continue to exist until they are paid, irrespective of their deletion.”
Earlier today, the Cypriot watchdog told licensed CIFs that they will need to provide information on cross border activity during the period spanning from 1st January to 31st December 2019
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The regulator often kickstarts the compensation payment procedure after it revokes the authorization of a company that is not expected to pay back its obligations in the near future.
The next step, if any, will see the ICF inviting covered clients to make their claims against the company, designating the procedure for filing compensation applications and the deadline for their submission. Next, the fund publishes the details in at least two local newspapers, including the address at which investors may be informed about the progress of their applications.
The amount of the compensation payable to each client is calculated in accordance with the contractual terms governing his relationship with the faltering broker, but in general, the maximum amount does not exceed €20.000.
Earlier in 2019, CySEC changed maximum compensation for valid claims to be either 90 percent of the cumulative covered claims or €20.000, whichever is lower. Therefore coverage = Min (90 percent Χ claimed amount, €20.000). This means that an investor who holds €50.000 with a CIF, which runs into trouble and is unable to pay, will get €20.000 from the ICF. However, if the claim is for €10.000, the coverage will be only 90 percent or €9.000, not 100 percent, as previously calculated.