When does the ICF pay compensation, to whom, and how much?

Members must tell clients, at least in Greek or English, what the Fund covers, which clients are covered, the maximum compensation, and the conditions and formalities for payment. They do this through leaflets at their offices and on their website, with more detail on request. The information forms part of the pre-contract information a firm gives in good time before the client is bound by any agreement; see What information must clients receive, and when is an appropriateness test needed?.

The compensation process starts in one of two ways. Either CySEC determines that a member appears unable, for reasons directly linked to its financial circumstances, to meet claims from covered clients and has no early prospect of being able to do so. Or a Cyprus court, for such reasons, makes a ruling that suspends covered clients' ability to pursue claims against the member. CySEC issues and publishes its decision to activate the process.

The Fund covers claims that arise because a member cannot repay money owed to covered clients or held for them, or cannot return financial instruments belonging to them that it held, administered or managed for them, in connection with investment business. A claim is valued under the applicable legal and contractual terms, including set-off and counterclaims, as at the activation date, at market value where possible.

As soon as possible after activation, the Fund publishes a call for claims in at least two newspapers with wide circulation throughout Cyprus. It explains how to apply, what to include and the deadline, which must be at least 5 and at most 9 months. CySEC posts the notice on its website and may approve an extension of up to 3 months. Claims are assessed, and the Fund issues a decision listing the clients entitled, with their amounts, and those rejected. A client may object to CySEC within one month, and CySEC decides within 45 days.

Payment requires that the process has been activated, that the client has a valid claim against the member arising from investment business, and that an application has been made. It is barred where a criminal conviction for money laundering relates to the transactions behind the claim, while money-laundering proceedings against the client are pending, or where the claim is time-barred. The offences themselves are covered in What are the money laundering offences under the AML/CFT Law, and what defences exist?.

All of a covered client's verified claims against the member are added together, whatever the number of accounts, the currency or the place in the EU where the service was provided. The Fund pays the lower of 90% of that total or €20,000, once per client per member. Joint accounts are divided by each holder's share, equally unless agreed otherwise. Payment is in euro and is due within 3 months of notifying the client of the decision; CySEC may approve an extension of at most 3 more months. The Fund then takes over the client's rights against the member up to the amount it paid.

Some investors are never covered. They are professional and institutional investors, such as investment firms, banks, cooperative credit institutions, insurers, UCITS and their management companies, social-security funds and clients the member treats as professional on request; states and supranational organisations; central, provincial, regional and local authorities; firms closely linked to the member; the member's managers and administrators, shareholders with at least 5% of its capital, personally liable partners and statutory auditors, and people in equivalent positions in group companies; the spouses and relatives up to the second degree of those insiders, and third parties acting for them; clients who caused or profited from the member's difficulties; other group companies; and companies too large to file an abridged balance sheet. More distant relatives, from the third degree on, are covered. Client categories are explained in How are clients categorised as retail, professional or eligible counterparties?.