ICF IMPORTANT POINTS OF DI87-07

On 13 March 2019 CySEC issued Directive DI87-07 (in Greek) regarding the operation of the Investor Compensation Fund (hereinafter “new ICF Directive”), replacing Directive DI144-2007-15. The new ICF Directive applies to, among others, CIFs, UCITS Managers who provide certain MiFID services and AIFM Managers who provide certain MiFID services.

Please find below the most important amendments made:

  • Initial contribution has been set as follows:

For CIFs and other Investment Firms which are members of the ICF:

  1. €2.000 per investment service under Part I of the First Appendix of the Investment Services Law 87(I)/2018;
  2. €35.000 for the ancillary service of safekeeping and administration of financial instruments, including custodianship and related services
  • CySEC has decided to maintain the annual fee to cover the ICF’s operational expenses at €700 annually for members who hold eligible funds and clients’ financial instruments. CySEC decided to set the fee at €100 annually, for members who do not hold eligible funds and clients’ financial instruments, so that these members pay a nominal contribution. In the New ICF Directive, CySEC also added a provision for the contribution of an additional fee to cover operational expenses, where the ICF’s liquid assets to cover operational costs are insufficient
  • The statement of eligible funds and financial instruments must be submitted by the 10th May each year, allowing for the completion of the audit of the annual financial statements. (Previously 31 March). The statement of eligible funds and financial instruments must be accompanied with external auditors’ opinion/confirmation.
  • In addition to the above point, the Association of Certified Public Accountants of Cyprus (“ICPAC”), to ensure that there is uniformity and consistency with regard to the content, the quality and the structure of the auditing reports regarding eligible funds and financial instruments, provided template reports based on the International Auditing Standard No. 805 (ISA 805), relating to an
  • “Unmodified Opinion”,
  • “Modified Opinion – Except for Opinion”,
  • “Modified Opinion – Adverse Opinion” and
  • “Modified Opinion- Disclaimer of Opinion”,

which have been incorporated in the text of the New ICF Directive and form part of the regulatory framework, and can be found in ICF Form 87-07-06.

  • The amount of the annual contribution due shall be notified in writing to the members of the ICF, by no later than 10 June. (Previously 30 April).
  • The regular annual contribution shall be paid by 10 August of each year. (Previously 31 March).
  • The annual contribution is calculated as follows:
  • Five per thousand (5 ο/οο) of the eligible funds and financial instruments of a member’s covered clients, with a discount of 80% when all deadlines are met, the external auditors expressed an “Unmodified Opinion” and, based on the audit they have conducted, there are no misstatements which have not been corrected.
  • Five per thousand (5 ο/οο) on eligible funds and financial instruments of a member’s covered clients, without any discount, when all deadlines are met, the auditors express an “Unmodified Opinion” and, based on the audit they have conducted, there are misstatements which have not been corrected.
  • When the audited statements of eligible funds and financial instruments are not submitted on time, accompanied by their external auditor’s opinion, or where the auditors express a “Modified Opinion – Except for Opinion”, or a “Modified Opinion – Adverse Opinion” or a “Modified Opinion – Disclaimer of Opinion”, the annual contribution shall be the amount of one hundred thousand euro (€130.000), or an amount equal to one percent (1%) of eligible funds and financial instruments of the member’s covered clients, for the last year, for which an audited statement of eligible funds and financial instruments was submitted, accompanied by an “Unmodified Opinion” of the external auditors, whichever amount is the highest.
  • The discount shall be granted when the annual contribution has been paid by July 10 of each year. (Previously 15 May).
  • CySEC, in order to ensure that there will be a minimum limit of liquidity for immediate payment, when the need for imposing an extraordinary contribution arises, CySEC has decided to add a provision, pursuant to which members are required to keep a minimum cash buffer of 3 per thousand of the eligible funds and financial instruments of their clients as at the previous year, in a separate bank account, especially for the case that the need for an extraordinary contribution arises. Members are further obliged to submit a standardised confirmation (Form 87-07-05), from 15-20 May of each year, signed by their internal auditor (or in the absence of an internal audit function due to legislative provisions, signed by their compliance officer), that attests to the fulfilment of the above obligation. This confirmation will be submitted for the first time in 2020. It is provided that the above is a minimum limit of special purpose liquidity, and not a limit of extraordinary contribution. The extraordinary contribution may surpass the above minimum limit, and members will be obliged to pay it.
  • The maximum amount of cover by ICF will be, either the 90% of the cumulative covered claims of the covered investor, or the amount of €20.000, whichever is lower. Therefore coverage = Min (90% Χ claimed amount, €20.000). This means that, if the claim is for €50.000, the coverage will be €20.000, due to the fact that 90% of this claim, equals to €45.000. However, if the claim is for €10.000, the coverage will be €9.000 (Min (€10.000 Χ 90%, €20.000) = €9.000).
  • Funds collected prior to the issuance of the new ICF Directive will continue to be kept in the accounts/shares of members, and any unutilized balance will be returned to the respective member after the member renounces its license and subject to the resolution of any pending complaints against the said member, as per the relevant provisions of Directive DI 144-2007-15. However, the funds collected under the New ICF Directive will not be returned.
  • According to the new ICF Directive, following Article 8(2) of the European Directive 97/9/EC, in the case where claims relating to joint investment business, to which two or more persons are entitled as members of a business partnership, association or grouping of a similar nature which has no legal personality, may, for the purpose of calculating the limits of compensation, be aggregated and treated as if arising from an investment made by a single investor.

Affected members of the ICF need to modify their information to clients (e.g. Investor Compensation Fund document) to reflect the relevant changes of the new ICF Directive, as applicable.