Investor Compensation Act 1998

(III) a manager of a collective investment undertaking authorised to market units in collective investments to the public,

which is situate in the State or the relevant branch of which is situate in the State,

and shall be required to be authorised as an authorised investment business firm pursuant to the provisions of the Act of 1995.

(b) A solicitor, in respect of whom a practising certificate (within the meaning of the Solicitors Acts, 1954 to 1994) is in force, who is an insurance intermediary or who holds himself out to be an insurance intermediary shall be an investment firm for the purposes of this Act and shall inform the supervisory authority and the Company that he or she is an investment firm for the purposes of this Act.

(2) (a) Section 26 of the Act of 1994 and sections 21 and 22 (as substituted by the Act of 1994) of the Act of 1960 (or regulations made by the Society relating thereto) shall not apply to a solicitor in respect of whom a practising certificate (within the meaning of the Solicitors Acts, 1954 to 1994) is in force in relation to the provision by the solicitor of investment business services (whether or not including the activities of an insurance intermediary) as an authorised investment business firm, or in relation to a solicitor who is an insurance intermediary and who has informed the supervisory authority and the Company pursuant to subsection (1)(b) that he or she is an investment firm.

(b) No client of a solicitor in respect of whom a practising certificate (within the meaning of the Solicitors Acts, 1954 to 1994) is in force and who is an authorised investment business firm, or who is an insurance intermediary and has informed the supervisory authority and the Company pursuant to subsection (1)(b) that he or she is an investment firm, shall, in respect of any loss suffered in consequence of the default, howsoever arising, of the solicitor, or any employee, agent or independent contractor of the solicitor in relation to the provision of investment business services as an authorised investment business firm or in relation to the solicitor acting as an insurance intermediary, be entitled to make a claim against the Compensation Fund (within the meaning of the Act of 1994) or against the indemnity cover maintained pursuant to section 26 of the Act of 1994 and regulations made thereunder.

(c) Nothing in this section shall otherwise affect the obligations of a solicitor in respect of whom a practising certificate (within the meaning of the Solicitors Acts, 1954 to 1994) is in force or the rights of a client, arising under section 26 of the Act of 1994 or sections 21 and 22 (as substituted by the Act of 1994) of the Solicitors (Amendment) Act, 1960 (or regulations made by the Society relating thereto), in respect of the provision by the solicitor of legal services.

PART V Miscellaneous Amendments

48 Amendment of section 16 of Central Bank Act, 1989.

48.—The Central Bank Act, 1989, is hereby amended in section 16(2) by the insertion of the following paragraph after paragraph (t):

“(tt) made to the Investor Compensation Company Limited or to a subsidiary established by the Bank for the purposes of providing administrative services to the Investor Compensation Company Limited,”.

49 Amendment of section 44 of Act of 1989.

49.—Section 44 of the Act of 1989 is hereby amended by the insertion after subsection (2) of the following subsection:

“(3) A person shall not act as or hold himself out to be an insurance broker unless he complies with the provisions of the Investor Compensation Act, 1998.”.

50 Amendment of section 46 of Act of 1989.

50.—Section 46 of the Act of 1989 is hereby amended in subsection (1) by the substitution for paragraph (b) of the following:

“(b) a person who complies with the requirements of this Act but is not a member of a recognised representative body,

and the person is in compliance with the Investor Compensation Act, 1998.”.

51 Amendment of section 49 of Act of 1989.

51.—Section 49 of the Act of 1989 is hereby amended in subsection (1) by the insertion after paragraph (a) of the following paragraph:

“(aa) he complies with the Investor Compensation Act, 1998,”.

52 Amendment of section 2 of Act of 1995.

52.—Section 2 of the Act of 1995 is hereby amended—

(a) in subsection (1)—

(i) in the definition of “investment advice” by the insertion in paragraph (d) after “and the purchase” of “or sale” and the paragraph as so amended is set out in the Table to this paragraph.

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(d) advice to undertakings on capital structure, industrial strategy and related matters and advice relating to mergers and the purchase or sale of undertakings,

(ii) in the definition of “investment advice” in paragraph (e) by the substitution for “is a necessary part of” of “arises from” and the paragraph as so amended is set out in the Table to this subparagraph.

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(e) advice given by persons in the course of the carrying on of any profession or business not otherwise constituting the business of an investment business firm, where the giving of such advice arises from other advice or services given in the course of carrying on that profession or business, and where the giving of investment advice is not remunerated or rewarded separately from such other advice or services;

(iii) in the definition of “investment business firm” by the insertion after “credit institution” of “or member firm (within the meaning of the Stock Exchange Act, 1995)” in each place it occurs and the definition as so amended is set out in the Table to this subparagraph.

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“investment business firm” means any person, other than a member firm within the meaning of the Stock Exchange Act, 1995, who provides one or more investment business services or investment advice to third parties on a professional basis and for this purpose where an individual provides an investment business service and where that service is carried on solely for the account of and under the full and unconditional responsibility of an investment business firm or an insurance undertaking or a credit institution or member firm (within the meaning of the Stock Exchange Act, 1995) that activity shall be regarded as the activity of the investment business firm, insurance undertaking or credit institution or member firm (within the meaning of the Stock Exchange Act, 1995) itself;

(iv) in the definition of “investment instruments”—

(I) in paragraph (a) by the insertion after “certificates representing securities,” of “or money market instruments,”,

(II) in paragraph (g) by the substitution for “financial instruments” of “investment instruments”,

(III) by the insertion after paragraph (j) of the following paragraph:

“(jj) a rolling spot foreign exchange contract,”,

(IV) by the insertion after paragraph (k) of the following paragraph:

“(kk) a tracker bond or similar instrument,”,

and

(V) by the insertion after subparagraph (III) of “and the Minister may, by regulation, having consulted the supervisory authority, amend this definition from time to time by adding to the list of instruments in this definition any other instruments which, in the opinion of the Minister, have characteristics similar to the instruments listed in this definition.”,

and the definition as so amended is set out in the Table to this subparagraph.

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“investment instruments” includes—

(a) transferable securities including shares, warrants, debentures including debenture stock, loan stock, bonds, certificates of deposits and other instruments creating or acknowledging indebtedness issued by or on behalf of any body corporate or mutual body, government and public securities, including loan stock, bonds and other instruments creating or acknowledging indebtedness issued by or on behalf of a government, local authority or public authority, bonds or other instruments creating or acknowledging indebtedness, certificates representing securities, money market instruments,

(b) non-transferable securities creating or acknowledging indebtedness issued by or on behalf of a government, local authority or public authority,

(c) units or shares in undertakings for collective investments in transferable securities within the meaning of European Communities (Undertakings for Collective Investments in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989), and any subsequent amendments thereto, units in a unit trust, shares in an investment company, capital contributions to an investment limited partnership,

(d) financial futures contracts, including currency futures, interest rate futures, bond futures, share index futures and comparable contracts,

(e) commodity futures contracts,

(f) forward interest rate agreements,

(g) agreements to exchange payments based on movements in interest rates, currency exchange rates, commodities, share indices and other investment instruments,

(h) sale and repurchase and reverse repurchase agreements involving transferable securities,

(i) agreements for the borrowing and lending of transferable securities,

(j) certificates or other instruments which confer all or any of the following rights, namely—

(i) property rights in respect of any investment instrument referred to in paragraph (a) of this definition; or

(ii) any right to acquire, dispose of, underwrite or convert an investment instrument, being a right to which the holder would be entitled if he held any such investment to which the certificate or instrument relates; or

(iii) a contractual right (other than an option) to acquire any such investment instrument otherwise than by subscription,

(jj) a rolling spot foreign exchange contract,

(k) options including—

(i) options in any instrument in paragraphs (a) to (jj) of this definition, or

(ii) currency, interest rate, commodity and stock options including index option contracts,

(kk) a tracker bond or similar instrument,

(l) hybrid instruments involving two or more investment instruments,

and includes any investment instrument in dematerialised form,

but this definition shall not be construed as applying to—

(I) any instrument acknowledging or creating indebtedness for, or for money borrowed to defray, the consideration payable under a contract for the supply of goods or services; or

(II) a cheque or other similar bill of exchange, a banker's draft or a letter of credit; or

(III) a banknote, a statement showing a balance in a current, deposit or savings account or (by reason of any financial obligation contained in it) to a lease or other disposition of property, or an insurance policy;

and the Minister, may by regulation, having consulted the supervisory authority, amend this definition from time to time by adding to the list of instruments in this definition any other instruments which, in the opinion of the Minister, have characteristics similar to the instruments listed in this definition;

(b) in subsection (6)—

(i) in paragraph (a) by the insertion after “provides investment business services” of “or investment advice”,

(ii) in paragraph (e) by the substitution for “64/25” of “64/225”,

(iii) by the substitution for paragraph (f) of the following paragraph—

“(f) collective investment undertakings and the depositaries and managers of such undertakings, insofar as the activities of the collective investment undertaking or the depositaries or the managers are subject to regulation by the Bank, or”, and

(iv) by the substitution for paragraph (h) of the following paragraphs:

“(h) credit institutions which provide investment business services or investment advice and which, in so doing, do not exceed the terms of authorisations under Directive No. 77/780/EEC of 12 December 1977[^(1)] as amended by Council Directive 89/646/EEC of 15 December 1989[^(2)] as amended and extended from time to time, or

(i) an investment business firm which the supervisory authority has determined does not require an authorisation because the provision of investment business services is only carried out because it is necessary to the main activities of the investment business firm, and, for these purposes, the determination of the supervisory authority shall be for a fixed period only and shall be subject to whatever reporting requirements the supervisory authority deems appropriate, or

(j) the personal representative of a deceased person in respect of his actions as a personal representative or a trustee in respect of his actions as a trustee of a trust, where ‘personal representative’ has the same meaning as it has in the Succession Act, 1965, and ‘trustee’ has the same meaning that it has in the Trustee Act, 1893, provided that this paragraph shall not apply where the principal objective of the trust is to provide investment services to members of the public, or

(k) notwithstanding the obligations imposed on liquidators and receivers under this Act, a person appointed as a liquidator or receiver of a company in respect of any activities relating to the liquidation or receivership, or

(l) any collective investment undertaking including its manager which is not established in the State but which:

(i) has received approval from the Bank, under the powers granted to it under other enactments, to market units of the undertaking in the State; or

(ii) has been authorised by the competent authority of another Member State under Council Directive 85/611/EEC[^(1)], or

(m) a practising member of an approved professional body, not being a certified person, who holds at his principal place of business, on behalf of clients, share certificates in private limited companies owned by those clients where the member holds the share certificates only in order to facilitate the orderly management of the private limited company's statutory records, where the holding of the share certificates arises from the provision of professional services by the member to the client.”.

53 Amendment of section 9 of Act of 1995.

53.—Section 9 of the Act of 1995 is hereby amended by the insertion after subsection (2) of the following subsection:

“(3)(a) The supervisory authority may arrange for the publication of notices in any of the newspapers circulating in the State or elsewhere or in the Iris Oifigiúil where the supervisory authority reasonably believes that a company registered in the State or any other person operating in the State is acting as an investment business firm or claiming or holding itself out to be an investment business firm without an authorisation as required in paragraph (a) or (b) of subsection (1) of this section.

(b) The supervisory authority shall endeavour to provide the investment business firm with seven days notice of its intention to publish in accordance with paragraph (a) of this subsection.”.

54 Amendment of section 10 of Act of 1995.

54.—Section 10 of the Act of 1995 is hereby amended—

(a) in subsection (3)—

(i) by the substitution for “Whenever a supervisory authority refuses” of “Whenever a supervisory authority decides to refuse”,

(ii) by the substitution for “intention” of “decision”,

(iii) by the designation of that subsection as paragraph (a) and the insertion after paragraph (a) of the following paragraphs:

“(b) If the proposed investment business firm does not make an appeal within the period specified in paragraph (a) of this subsection, the supervisory authority shall issue to the proposed investment business firm notice of its decision to refuse to authorise it.

(c) The supervisory authority shall publish notice of the refusal of authorisation to a proposed investment business firm in the Iris Oifigiúil and in one or more newspapers circulating in the State within 28 days of the decision to refuse the authorisation.”,

and the subsection as so amended is set out in the Table to this paragraph.

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(3) (a) Whenever a supervisory authority decides to refuse to grant authorisation to a proposed investment business firm under this section it shall serve notice on the proposed investment business firm of its decision to refuse to authorise it and stating the reasons therefore and the proposed investment business firm may within 21 days of receipt of such notice appeal to the Court against the decision.

(b) If the proposed investment business firm does not make an appeal within the period specified in paragraph (a) of this subsection, the supervisory authority shall issue to the proposed investment business firm notice of its decision to refuse to authorise it.

(c) The supervisory authority shall publish notice of the refusal of authorisation to a proposed investment business firm in the Iris Oifigiúil and in one or more newspapers circulating in the State within 28 days of the decision to refuse the authorisation.

(b) in subsection (5) by the insertion in paragraph (a) after “does not already exist,” of “or is an industrial or provident society,” and the paragraph as so amended is set out in the Table to this paragraph.

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(a) it is a company incorporated by statute or under the Companies Acts, or is incorporated outside the State or is a company made under Royal Charter or it draws up a partnership agreement, where it is constituted as an unincorporated body of persons, if such an agreement does not already exist, or is an industrial or provident society, or is a sole trader and the proposed investment business firm has made arrangements to ensure that its activities will be carried out in such a manner that the requirements of Article 3 (3) of Council Directive No. 93/22/EEC of 10 May 1993[^(1)], are complied with.

55 Amendment of section 14 of Act of 1995.

55.—Section 14 of the Act of 1995 is hereby amended in subsection (1) by the substitution for “Without prejudice to section 10 of this Act, where the supervisory authority grants an authorisation under that section, it may” of “The supervisory authority may, in respect of an authorised investment business firm, including an investment business firm which is deemed to be authorised under section 26 of this Act,” and the subsection as so amended is set out in the Table to this section.

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(1) The supervisory authority may, in respect of an authorised investment business firm, including an investment business firm which is deemed to be authorised under section 26 of this Act, do all or any of the following, namely:

(a) make its authorisation subject to such conditions or requirements, or both, as it considers fit, relating to the proper and orderly regulation and supervision of an authorised investment business firm,

(b) impose conditions or requirements or both which relate to matters in an associated undertaking or a related undertaking,

(c) at any time impose conditions or requirements or both on an authorised investment business firm and either amend or revoke any condition or requirement imposed under this paragraph or under paragraph (a) or (b) of this subsection:

Provided the said conditions or requirements do not contravene any guidelines in that behalf which may be issued by the Minister to the supervisory authority from time to time in the interests of the proper and orderly regulation of investment business firms or the protection of investors or both and that the guidelines are published in the Iris Oifigiúil.

56 Amendment of section 16 of Act of 1995.

56.—Section 16 of the Act of 1995 is hereby amended in subsection (8) by the insertion after “Iris Oifigiúil” of “and in one or more newspapers circulating in the State” and the subsection as so amended is set out in the Table to this section.

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(8) The supervisory authority shall publish notice of revocation of an authorisation of an authorised investment business firm in the Iris Oifigiúil and in one or more newspapers circulating in the State within 28 days of such revocation.

57 Amendment of section 17 of Act of 1995.

57.—Section 17 of the Act of 1995 is hereby amended by the insertion after subsection (3) of the following subsection:

“(4) The supervisory authority shall maintain a register or registers of investment business firms of which it has been informed by a competent authority in another Member State under Articles 17 and 18 of the Council Directive No. 93/22/EEC of 10 May, 1993 on investment services in the securities field[^(1)].”.

58 Amendment of section 21 of Act of 1995.

58.—Section 21 of the Act of 1995 is hereby amended in subsection (1)—

(a) in paragraph (e) by the insertion after “authorised investment business firms” of “, former authorised investment business firms, proposed investment business firms or investment business firms” and the paragraph as so amended is set out in the Table to this paragraph.

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(e) directors and those responsible for the management of authorised investment business firms, former authorised investment business firms, proposed investment business firms or investment business firms,

(b) in paragraph (f) by the insertion after “acting as” of “or on behalf of” and the paragraph as so amended is set out in the Table to this paragraph.

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(f) any person purporting to act or whom the supervisory authority reasonably believes is acting as or on behalf of an investment business firm,

(c) by the insertion after paragraph (f) of the following paragraph:

“(g) directors of that investment business firm or those responsible for the management of that investment business firm who have failed to co-operate with an authorised officer appointed under section 64 of this Act as amended by section 48 of the Central Bank Act, 1997, or an inspector appointed under sections 66, 67 or 73 of this Act,”,

and

(d) in subsection (5) by the substitution for “which said direction shall have immediate effect,” of “the direction shall have effect from the date specified by the supervisory authority, and”.

59 Amendment of section 26 of Act of 1995.

59.—Section 26 (as amended by the Central Bank Act, 1997) of the Act of 1995 is hereby amended—

(a) in subsection (1)—

(i) by the substitution for “or engaging in all or any of these services and, in the course of engaging in any of these services transmits orders only to all or any of the following, namely—” of “or engaging in all or any of these services or providing investment advice in relation to these services and, in the course of engaging in any of these services transmits orders only to all or any of the following product producers, namely—” and

(ii) in subparagraph (i) by the substitution for “not being a restricted activity investment product intermediary, or a certified person,” of “not being a restricted activity investment product intermediary or a certified person,”,

and the subsection as so amended is set out in the Table to this paragraph.

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(1) In this Act “restricted activity investment product intermediary” means a person whose only investment business service is receiving and transmitting orders in units or shares in undertakings for collective investments in transferable securities within the meaning of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989), and any subsequent amendments thereto, units in a unit trust, other collective scheme instruments, or receiving and transmitting—

(a) orders in shares in a company which are listed on a stock exchange or bonds so listed, or

(b) orders in prize bonds, or

(c) acting as a deposit agent or as a deposit broker,

or engaging in all or any of these services or providing investment advice in relation to these services and, in the course of engaging in any of these services transmits orders only to all or any of the following product producers, namely—

(i) investment firms authorised in accordance with Directive 93/22/EEC of 10 May, 1993[^(1)] by a competent authority of another Member State, or to an authorised investment business firm, not being a restricted activity investment product intermediary or a certified person, or to a member firm, within the meaning of the Stock Exchange Act, 1995, in the State;

(ii) credit institutions authorised in accordance with Directives 77/780/EEC of 12 December, 1977[^(2)] and 89/646/EEC of 15 December, 1989[^(3)];

(iii) to such other branches of investment business firms or credit institutions authorised in a third country as the supervisory authority may approve from time to time;

(iv) collective investment undertakings authorised under the law of a Member State of the European Union to market units in collective investments to the public, and to the managers of such undertakings;

(v) investment companies with fixed capital as defined in Article 15(4) of Council Directive 77/91/EEC of 13 December, 1976[^(4)] the securities of which are listed or dealt in on a regulated market in a Member State;

(vi) the Prize Bond Company Ltd. or any successor to it as operator of the Prize Bond scheme,

and which does not hold clients' funds or securities, so that in its dealings with clients it does not become a debtor to its clients, but this shall not prevent it from—

(I) taking non-negotiable cheques or similar instruments made out to one of the undertakings mentioned at subparagraphs (i) to (vi) of this subsection, for the purposes of the receipt and transmission of orders, or

(II) when acting as a deposit agent, taking cash from a client for the client's account with a credit institution.

(b) in subsection (2) by the substitution for “A restricted activity investment product intermediary shall, while it remains a restricted activity investment product intermediary, and notwithstanding section 10 of this Act, be deemed to be an authorised investment business firm for the purposes of this Act,” of “A person who is a restricted activity investment product intermediary on a day specified by the Minister shall, while it remains a restricted activity investment product intermediary, and notwithstanding section 10 of this Act, be deemed to be an authorised investment business firm for the purposes of this Act,”, and the subsection as so amended is set out in the Table to this paragraph.

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(2) A person who is a restricted activity investment product intermediary on a day specified by the Minister shall, while it remains a restricted activity investment product intermediary, and notwithstanding section 10 of this Act, be deemed to be an authorised investment business firm for the purposes of this Act, provided that the restricted activity investment product intermediary has not had its authorisation revoked under section 16(2) of this Act and not re-instated and that no director, officer or manager of the restricted activity investment produce intermediary has been such a director, officer or manager of an investment business firm which has had its authorisation under section 16(2) of this Act revoked and not re-instated.

60 Amendment of section 28 of Act of 1995.

60.—Section 28 (as amended by the Central Bank Act, 1997) of the Act of 1995 is hereby amended by the insertion after subsection (4) of the following subsection—

“(5) It shall be an offence for a product producer to accept any orders transmitted by an investment business firm on behalf of a client or any moneys belonging to the client unless the investment business firm is an investment business firm—

(a) which has been authorised under section 10 of this Act or is deemed to be authorised under section 26 or 63 of this Act, and

(b) to whom the product producer has given an appointment in writing pursuant to Part IV of this Act and the product producer has not withdrawn, cancelled or revoked the said appointment in writing.”.

61 Amendment of section 31 of Act of 1995.

61.—Section 31 of the Act of 1995 is hereby amended by the insertion after subsection (5) of the following subsection:

“(6) (a) Where the appointment in writing of an investment product intermediary is discontinued, the investment product intermediary shall ensure the publication of a notice to be known as a ‘notice of discontinuance’, being a notice that the appointment in writing has been discontinued, in one or more of the newspapers circulating in the State within fourteen days of being informed by the product producer of the discontinuance of the appointment in writing.

(b) Where an investment product intermediary the appointment in writing of whom has been discontinued does not publish a notice of discontinuance in accordance with the requirements of paragraph (a), the product producer who discontinued the appointment in writing shall ensure the publication of a notice of discontinuance in one or more of the newspapers circulating in the State.”.

62 Amendment of section 33 of Act of 1995.

62.—Section 33 of the Act of 1995 is hereby amended—

(a) by the substitution for subsection (2) of the following subsection:

“(2) (a) A supervisory authority may set out requirements in respect of the accounts and audit of an authorised investment business firm which is constituted as an unincorporated body of persons or as a sole trader including requirements which are analogous to those set out in the Companies Acts and may impose duties or obligations on the auditor or on the authorised investment business firm concerned.

(b) The auditor of an authorised investment business firm shall inform the supervisory authority as soon as possible after an audit has been finalised whether, in the course of an audit of the authorised investment business firm, he identified any breaches of this Act.”;

and

(b) by the insertion after subsection (15) of the following subsection:

“(16) The supervisory authority may require the auditor of a proposed investment business firm to furnish any information that is required to be furnished by the auditor of an authorised investment business firm under sections 32 and 35 and this section of this Act.”.

63 Amendment of section 38 of Act of 1995.

63.—Section 38 of the Act of 1995 is hereby amended in subsection (2) by the insertion in paragraph (a) before “exceed” of “reach or” and the subsection as so amended is set out in the Table to this section.

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(2) In this Part “acquiring transaction”means any direct or indirect acquisition by a person or more than one person acting in concert of shares or other interest in an authorised investment business firm:

Provided that after the proposed acquisition—

(a) the proportion of voting rights or capital held by the person or persons making the acquiring transaction would reach or exceed a qualifying holding, or

(b) the proportion of voting rights or capital held by the person or persons making the acquiring transaction would reach or exceed 20 per cent., 33 per cent. or 50 per cent., or

(c) an authorised investment business firm would become a subsidiary of the acquirer.

64 Amendment of section 52 of Act of 1995.

64.—Section 52 of the Act of 1995 is hereby amended by the substitution for subsection (7) of the following subsection:

“(7) (a) No liquidator, receiver, administrator, examiner, official assignee or creditor of an investment business firm shall have or obtain any recourse or right against client money or client investment instruments or documents of title relating to such investment instruments received, held, controlled or paid on behalf of a client by an investment business firm, until all proper claims of clients or of their heirs, successors or assigns against client money and client investment instruments or documents of title relating to such investment instruments have been satisfied in full.

(b) Notwithstanding paragraph (a) of this subsection, a liquidator, receiver, administrator, examiner or official assignee may have recourse or right against client money or client investment instruments or documents of title relating to such investment instruments received, held, controlled or paid on behalf of a client by an investment business firm in respect of such reasonable expenses as are incurred in the carrying out of their functions under this Act or under the Investor Compensation Act, 1998, or incurred in the distribution of client money and investment instruments to clients of the investment business firm where the assets of the investment business firm have been exhausted.

(c) A liquidator, receiver, administrator, examiner or official assignee shall apply to the Court before seeking recourse or right against client money or client investment instruments or documents of title relating to such investment instruments received, held, controlled or paid on behalf of a client by an investment business firm under paragraph (b) of this subsection and the Court shall determine the matter and make such order as it sees fit.”.

65 Amendment of section 54 of Act of 1995.

65.—Section 54 of the Act of 1995 is hereby amended—

(a) by the deletion of “authorised” before “investment business firm” wherever it occurs, and

(b) by the substitution for “officers or former officers or both” of “officers or beneficial owners or former officers or former beneficial owners or any of these” wherever it occurs,

and the section as so amended is set out in the Table to this section.

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54.—(1) If—

(a) an investment business firm is being wound up and is unable to pay all of its debts and has contravened section 19, 52(3), 52(5) or 52(6) of this Act, and

(b) the Court considers that such contravention has contributed to the inability of an investment business firm to pay all of its debts or has resulted in substantial uncertainty as to the amount, location, ownership or otherwise of the assets and liabilities of an investment business firm or of the money or investment instruments of clients of the said investment business firm or has substantially impeded its orderly winding-up,

the Court, on the application of the liquidator or receiver or a supervisory authority or any creditor or client or investor, may, if it thinks it proper to do so, declare that any one or more of the officers or beneficial owners or former officers or former beneficial owners or any of these of the said investment business firm who is or are in default shall be personally liable, without any limitation of liability, for all, or such part as may be specified by the Court, of the debts and other liabilities of the said investment business firm.

(2) (a) Where the Court makes a declaration under subsection (1) of this section, it may give such directions as it thinks proper for the purpose of giving effect to the declaration and in particular may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from an investment business firm to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of an investment business firm held by or vested in him or any company or other person on his behalf, or any person claiming as assignee from or through the person liable under the declaration or any company or person acting on his behalf, and may, from time to time, make such further order as may be necessary for the purpose of enforcing any charge imposed under this subsection.

(b) In paragraph (a) of this subsection “assignee” includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation or mortgage was created, issued or transferred or the interest created but does not include an assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the grounds of which the declaration is made.

(3) The Court shall not make a declaration under subsection (1) of this section in respect of a person if it considers that—

(a) he took all reasonable steps to secure compliance by an investment business firm with section 19, 52(3), 52(5) or 52(6) of this Act, or

(b) he had reasonable grounds for believing and did believe that a competent and reliable person, acting under the supervision or control of a director who has been formally allocated such responsibility, was charged with the duty of ensuring that section 19, 52(3), 52(5) or 52(6) of this Act was complied with and was in a position to discharge that duty.

(4) This section shall have effect notwithstanding that the person concerned may be liable to be prosecuted for a criminal offence in respect of the matters on the ground of which the declaration is to be made or that such person has been convicted of such an offence.

(5) In this section “officer”, in relation to an investment business firm, includes a person who has been convicted of an offence under section 34 or 79(7) of this Act or section 194 of the Companies Act, 1990 in relation to a statement concerning the keeping of proper accounting records by an investment business firm concerned.

(6) A person who, being a director of an investment business firm, fails to take all reasonable steps to secure compliance by an investment business firm with the requirements of section 19, 52(3), 52(5) or 52(6) of this Act, or has by his own wilful act been the cause of any default by an investment business firm thereunder, shall be guilty of an offence:

Provided, however, that—

(a) in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by an investment business firm with the requirements of this section, it shall be a defence to prove that he had reasonable grounds for believing and did believe that a competent and reliable person was charged with the duty of ensuring that those requirements were complied with and was in a position to discharge that duty, and

(b) a person shall not be sentenced to imprisonment for such an offence unless, in the opinion of the Court, the offence was committed wilfully.

66 Amendment of section 65 of Act of 1995.

66.—Section 65 of the Act of 1995 is hereby amended in subsection (2) by the insertion after paragraph (h) of the following paragraph:

“(hh) may communicate with any client of an investment business firm for the purpose of confirming the investment business services which were provided to the client;”.

67 Amendment of section 74 of Act of 1995.

67.—Section 74 of the Act of 1995 is hereby amended—

(a) in subsection (7) by the substitution for “may dismiss the application or may make a determination that” of “may make a determination as to whether” and the subsection as so amended is set out in the Table to this paragraph.

TABLE

(7) Following an inquiry by a Committee appointed under subsection (5) of this section, that Committee may make a determination as to whether there has been a breach of a condition or requirement, and may do all or any of the following:

(a) issue a reprimand to an investment business firm or professional body,

(b) direct that an investment business firm or professional body shall pay the supervisory authority a specified sum, not to exceed £500,000, in respect of any breach of a condition or requirement,

(c) arrange for the publication of such details as it deems proper concerning a determination made under this subsection in the Iris Oifigiúil and in one or more newspapers circulating in the State,

(d) make such order as to costs as it thinks fit.

(b) in subsection (8) by the insertion before “and the Court may vary” of “within two months of the date of the determination of the Committee or such further period as the Court thinks fit” and the subsection as so amended is set out in the Table to this paragraph.

TABLE

(8) An investment business firm or professional body may appeal to the Court against a determination of the Committee issued under subsection (7) of this section within two months of the date of the determination of the Committee or such further period as the Court thinks fit and the Court may vary or annual the determination of the Committee.

68 Amendment of section 75 of Act of 1995.

68.—Section 75 of the Act of 1995 is hereby amended by the substitution for subsection (2) of the following subsection:

“(2) Any books or documents of which possession is taken under this section may be retained for a period of six months or—

(i) if within that period there are commenced any such criminal proceedings as are mentioned in subsection (1)(a) of section 78 of this Act (being proceedings to which the books or documents are relevant), until the conclusion of those proceedings, or

(ii) if within that period there is commenced an investigation by An Garda Síochána into matters relating to subsection (1)(a) of section 78 of this Act (and the books or documents are relevant to the investigation), until the conclusion of the investigation.”.

69 Amendment of section 79 of Act of 1995.

69.—Section 79 of the Act of 1995 is hereby amended—

(a) in subsection (1) by the insertion of “28(5),” before “30”, and

(b) by the deletion of subsection (7) and the substitution of the following subsection:

“(7) A person who, in purported compliance with any provision of this Act or any regulation made thereunder—

(a) provides an answer or explanation, makes a statement or produces, lodges or delivers any return, report, certificate, balance sheet or other document false in a material particular, knowing it to be false, or

(b) recklessly provides an answer or explanation, makes a statement or produces, lodges or delivers any return, report, certificate, balance sheet or other document false in a material particular, or

(c) knowingly withholds or omits information,

shall be guilty of an offence.”.

70 Amendment of section 8 of Stock Exchange Act, 1995.

70.—Section 8 of the Stock Exchange Act, 1995, is hereby amended by the insertion after subsection (4) of the following subsection:

“(5) (a) The Bank may arrange for the publication of notices in any of the newspapers circulating in the State or elsewhere or in the Iris Oifigiúil where the Bank reasonably believes that a company registered in the State or any other person operating in the State is acting as a stock exchange or claiming or holding itself out to be a stock exchange without an approval as required in section 8(2) of this Act.

(b) The Bank shall endeavour to provide the stock exchange with seven days notice of its intention to publish in accordance with paragraph (a) of this subsection.”.

71 Amendment of section 14 of Stock Exchange Act, 1995.

71.—Section 14 of the Stock Exchange Act, 1995, is hereby amended by the substitution for subsection (7) of the following subsection:

“(7) The Bank shall publish notice of the revocation of an approval of an existing stock exchange in the Iris Oifigiúil and in one or more newspapers circulating in the State within 28 days of the revocation of the approval.”.

72 Amendment of section 17 of Stock Exchange Act, 1995.

72.—Section 17 of the Stock Exchange Act, 1995, is hereby amended by the insertion after subsection (2) of the following subsection—

“(3) (a) The Bank may arrange for the publication of notices in any of the newspapers circulating in the State or elsewhere or in the Iris Oifigiúil where the Bank reasonably believes that a company registered in the State or any other person operating in the State is acting as a member firm or claiming or holding itself out to be a member firm without an authorisation as required in section 17(2) of this Act.

(b) The Bank shall endeavour to provide the member firm with seven days notice of its intention to publish in accordance with paragraph (a) of this subsection.”.

73 Amendment of section 18 of Stock Exchange Act, 1995.

73.—Section 18 of the Stock Exchange Act, 1995, is hereby amended by the substitution for subsection (3) of the following subsection—

“(3) (a) Whenever the Bank decides to refuse to grant authorisation to a proposed member firm under this section, it shall serve notice on the proposed member firm of its decision to refuse to authorise it and stating the reasons therefor and the proposed member firm may within 21 days of receipt of such notice appeal to the Court against the decision.

(b) If the proposed member firm does not make an appeal within the period specified in paragraph (a) of this subsection, the Bank shall issue to the proposed member firm notice of its decision to refuse to authorise it.

(c) The Bank shall publish notice of the refusal of authorisation to a proposed member firm in the Iris Oifigiúil and in one or more newspapers circulating in the State within 28 days of the decision to refuse authorisation.”.

74 Amendment of section 24 of Stock Exchange Act, 1995.

74.—Section 24 of the Stock Exchange Act, 1995, is hereby amended by the substitution for subsection (8) of the following subsection—

“(8) The Bank shall publish notice of the revocation of the authorisation of an authorised member firm in the Iris Oifigiúil and in one or more newspapers circulating in the State within 28 days of the revocation of the authorisation.”.

75 Amendment of section 29 of Stock Exchange Act, 1995.

75.—Section 29 of the Stock Exchange Act, 1995, is hereby amended—

(a) in subsection (1)—

(i) by the substitution for paragraph (i) of the following paragraph:

“(i) directors and those responsible for the management of approved stock exchanges, formerly approved stock exchanges, proposed stock exchanges or stock exchanges and authorised member firms, formerly authorised member firms, proposed member firms or member firms;”,

(ii) by the insertion after paragraph (i) of the following paragraphs:

“(j) any person purporting to act or whom the Bank reasonably believes is acting as or on behalf of a stock exchange or member firm;

(k) directors of a stock exchange or member firm or those responsible for the management of that stock exchange or member firm who have failed to co-operate with an authorised officer appointed under section 55 of this Act, or an inspector appointed under section 57, 58 or 64 of this Act,”,

(b) in subsection (5) by the substitution for “which said direction shall have immediate effect” of “which said direction shall have effect from a date specified by the Bank”.

76 Amendment of section 34 of Stock Exchange Act, 1995.

76.—Section 34 of the Stock Exchange Act, 1995, is hereby amended—

(a) by the designation of subsection (2) as paragraph (a) and the insertion after paragraph (a) of the following paragraph:

“(b) The auditor of an approved stock exchange or authorised member firm shall inform the Bank as soon as possible after an audit has been finalised whether, in the course of the audit of the approved stock exchange or authorised member firm, he identified any breaches of the Act.”,

(b) by the insertion after subsection (15) of the following subsection:

“(16) The Bank may require the auditor of a proposed stock exchange or member firm to furnish any information that is required to be furnished by the auditor of an approved stock exchange or authorised member firm in sections 34 and 36 of this Act.”.

77 Amendment of section 39 of Stock Exchange Act, 1995.

77.—Section 39 of the Stock Exchange Act, 1995, is hereby amended in subsection (2) by the insertion in paragraph (a) before “exceed” of “reach or” and the subsection as so amended is set out in the Table to this section.

TABLE

(2) In this Part “acquiring transaction” means any direct or indirect acquisition by a person or more than one person acting in concert of shares or other interest in an approved stock exchange or authorised member firm, provided that, after the proposed acquisition—

(a) the proportion of voting rights or capital held by the person or persons making the acquiring transaction would reach or exceed a qualifying holding, or

(b) the proportion of voting rights or capital held by the person or persons making the acquiring transaction would reach or exceed 20 per cent., 33 per cent. or 50 per cent., or

(c) the approved stock exchange or authorised member firm would become a subsidiary of the acquirer.

78 Amendment of section 52 of Stock Exchange Act, 1995.

78.—Section 52 of the Stock Exchange Act, 1995, is hereby amended by the substitution for subsection (5) of the following subsection:

“(5) (a) No liquidator, receiver, administrator, examiner or creditor of a member firm shall have or obtain any recourse or right against a client's money or a client's investment instruments or a client's documents of title relating to such investment instruments received, held, controlled or paid on behalf of the client until all proper claims of the client or of the client's heirs, successors or assigns against the client's money or the client's investment instruments or documents of title have been satisfied in full.

(b) Notwithstanding paragraph (a) of section 52(5) of this Act, a liquidator, receiver, administrator, examiner or creditor may have recourse or right against a client's money or a client's investment instruments or a client's documents of title relating to such investment instruments received, held, controlled or paid on behalf of a client by a member firm in respect of such reasonable expenses as are incurred in the carrying out of their functions under this Act or under the Investor Compensation Act, 1998 or incurred in the distribution of client money and investment instruments to clients of the member firm where the assets of the member firm have been exhausted.

(c) A liquidator, receiver, administrator, examiner or official assignee shall apply to the Court before seeking recourse or right against client money or client investment instruments or documents of title relating to such investment instruments received, held, controlled or paid on behalf of a client by a member firm under paragraph (b) of this subsection and the Court shall determine the matter and make such order as it sees fit.”.

79 Amendment of section 54 of Stock Exchange Act, 1995.

79.—Section 54 of the Stock Exchange Act, 1995, is hereby amended—

(a) by the deletion of “approved” before “stock exchange” wherever it occurs,

(b) by the deletion of “authorised” before “member firm” wherever it occurs, and

(c) by the substitution for “officers or former officers or both” of “officers or beneficial owners or former officers or former beneficial owners or any of these” wherever it occurs,

and the section as so amended is set out in the Table to this section.

TABLE

54.—(1) If—

(a) a stock exchange or member firm is being wound up and is unable to pay all of its debts and has contravened section 15, 27 or 52(3) of this Act, and

(b) the Court considers that such contravention has contributed to the inability of the stock exchange or member firm to pay all of its debts or has resulted in substantial uncertainty as to the amount, location, ownership or otherwise of the assets and liabilities of the stock exchange or member firm or of the money or investment instruments of clients of the said stock exchange or member firm or has substantially impeded its orderly winding-up,

the Court, on the application of the liquidator or receiver or the Bank or any creditor or client or investor, may, if it thinks it proper to do so, declare that any one or more of the officers or beneficial owners or former officers or former beneficial owners or any of these of the said stock exchange or member firm who is or are in default shall be personally liable, without any limitation of liability, for all, or such part as may be specified by the Court, of the debts and other liabilities of the said stock exchange or member firm.

(2) (a) Where the Court makes a declaration under subsection (1) of this section, it may give such directions as it thinks proper for the purpose of giving effect to the declaration and in particular may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the stock exchange or member firm to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the stock exchange or member firm held by or vested in him or any company or other person on his behalf, or any person claiming as assignee from or through the person liable under the declaration or any company or person acting on his behalf, and may from time to time make such further order as may be necessary for the purpose of enforcing any charge imposed under this subsection.

(b) In paragraph (a) of this subsection “assignee” includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation or mortgage was created, issued or transferred or the interest created but does not include an assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the grounds of which the declaration is made.

(3) The Court shall not make a declaration under subsection (1) of this section in respect of a person if it considers that—

(a) he took all reasonable steps to secure compliance by the stock exchange or member firm with section 15, 27 or 52(3) of this Act, or

(b) he had reasonable grounds for believing and did believe that a competent and reliable person, acting under the supervision or control of a director who has been formally allocated such responsibility, was charged with the duty of ensuring that section 15, 27 or 52(3) of this Act was complied with and was in a position to discharge that duty.

(4) This section shall have effect notwithstanding that the person concerned may be liable to be prosecuted for a criminal offence in respect of the matters on the ground of which the declaration is to be made or that such person has been convicted of such an offence.

(5) In this section “officer”, in relation to a stock exchange or member firm, includes a person who has been convicted of an offence under section 194 of the Companies Act, 1990 or section 35 or 70(7) of this Act, in relation to a statement concerning the keeping of proper accounting records by the stock exchange or member firm concerned.

(6) A person who, being a director of a stock exchange or member firm, fails to take all reasonable steps to secure compliance by the stock exchange or member firm with the requirements of section 15, 27 or 52(3) of this Act or has by his own wilful act been the cause of any default by the stock exchange or member firm thereunder, shall be guilty of an offence:

Provided, however, that—

(a) in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the stock exchange or member firm with the requirements of this section, it shall be a defence to prove that he had reasonable grounds for believing and did believe that a competent and reliable person was charged with the duty of ensuring that those requirements were complied with and was in a position to discharge that duty, and

(b) a person shall not be sentenced to imprisonment for such an offence unless, in the opinion of the Court, the offence was committed wilfully.

80 Amendment of section 56 of Stock Exchange Act, 1995.

80.—Section 56 of the Stock Exchange Act, 1995, is hereby amended in subsection (2)—

(a) by the insertion after paragraph (a) of the following paragraph:

“(aa) secure for later inspection any premises or any part of a premises in which books, records or other documents are kept or there are reasonable grounds for believing that such books or records or other documents are kept,”,

(b) by the insertion after paragraph (b) of the following paragraph:

“(bb) subject to a warrant being issued for that purpose by a judge of the District Court, remove for a reasonable period for further examination any books, records or other documents which the officer finds in the course of his inspection,”,

(c) by the insertion after paragraph (c) of the following paragraphs:

“(cc) require any person by or on whose behalf data equipment is or has been used or any person having charge of, or otherwise concerned with the operation of, the data equipment or any associated apparatus or material, to afford the authorised officer reasonable assistance in relation thereto,

(ccc) summon, at any reasonable time, any other person employed in connection with the investment business service or investment advice to give to the authorised officer any information which the officer may reasonably require in regard to such activity and to produce to the authorised officer any books, records or other documents which are in that person's power or control,”,

and

(d) by the insertion after paragraph (d) of the following paragraph:

“(dd) may communicate with any client of a stock exchange or member firm for the purpose of confirming the investment services which were provided to the client.”.

81 Amendment of section 65 of Stock Exchange Act, 1995.

81.—Section 65 of the Stock Exchange Act, 1995, is hereby amended—

(a) in subsection (7) by the substitution for “may dismiss the application or may make a determination that” of “may make a determination as to whether”, and

(b) in subsection (8) by the insertion after “section” of “within two months of the date of that determination or such further period as the Court thinks fit and the Court may vary or annual the determination of the Committee”,

and those subsections as so amended are set out in the Table to this section.

TABLE

(7) Following an inquiry by a Committee appointed under subsection (5) of this section, that Committee may make a determination as to whether there has been a breach of a condition or requirement and may do all or any of the following—

(a) issue a reprimand to an approved stock exchange or a member firm,

(b) direct that an approved stock exchange or member firm shall pay the Bank a specified sum, not to exceed £500,000, in respect of any breach of a condition or requirement,

(c) publish such details as it deems proper concerning a determination made under this subsection in the Iris Oifigiúil and in one or more newspapers circulating in the State,

(d) make such order as to costs as it thinks fit.

(8) An approved stock exchange or a member firm may appeal to the Court against a determination of the Committee issued under subsection (7) of this section within two months of the date of that determination or such further period as the Court thinks fit and the Court may vary or annual the determination of the Committee.

82 Amendment of section 66 of Stock Exchange Act, 1995.

82.—Section 66 of the Stock Exchange Act, 1995, is hereby amended by the substitution for subsection (2) of the following subsection:

“(2) Any books or documents of which possession is taken under this section may be retained for a period of six months or—

(i) if within that period there are commenced any such criminal proceedings as are mentioned in subsection (1)(a) of section 69 of this Act (being proceedings to which the books or documents are relevant), until the conclusion of those proceedings, or

(ii) if within that period there is commenced an investigation by An Garda Síochána into matters relating to subsection (1)(a) of section 69 of this Act (and the books or documents are relevant to the investigation), until the conclusion of the investigation.”.

83 Amendment of section 70 of Stock Exchange Act, 1995.

83.—Section 70 of the Stock Exchange Act, 1995, is hereby amended by the deletion of subsection (7) and the substitution of the following subsection:

“(7) A person who, in purported compliance with any provision of this Act or any regulation made thereunder—

(a) provides an answer or explanation, makes a statement or produces, lodges or delivers any return, report, certificate, balance sheet or other document false in a material particular, knowing it to be false, or

(b) recklessly provides an answer or explanation, makes a statement or produces, lodges or delivers any return, report, certificate, balance sheet or other document false in a material particular, or

(c) knowingly withholds or omits information,

shall be guilty of an offence.”.

FIRST SCHEDULE Repeals

Number and Year	Short Title	Extent of Repeal
No. 3 of 1989	Insurance Act, 1989	s.47 (in so far as it imposes an obligation to hold a bond)
No. 9 of 1995	Stock Exchange Act, 1995	s.51
No. 11 of 1995	Investment Intermediaries Act, 1995	s.28(4), 50, 51 (in so far as it imposes an obligation to hold a bond)

SECOND SCHEDULE Supplementary Provision in Relation to a Direction by a Supervisory Authority under Section 27

(a) at the end of the period of operation specified by the Court,

(b) on the making by the Court of an order for termination on the application of the supervisory authority,

(c) on the making of a winding-up order in respect of the investment firm or, where an investment firm is constituted as an unincorporated body of persons, a dissolution order, or where an investment firm is a sole trader, an adjudication of bankruptcy,

(d) on the making by the Court of an order for termination where the Court considers that the circumstances that gave rise to the direction have ceased to exist and that it would be unjust and inequitable not to make the order,

whichever first occurs.

(a) the investment firm to which the direction has been given shall take all necessary steps to secure that its assets or client or investor assets, wherever held, are not depleted without the prior authorisation of the supervisory authority, and

(b) the supervisory authority may direct a credit institution or any institution exempt under section 7 of the Central Bank Act, 1971, or any other financial institution which holds an account of any description of the investment firm including holdings of investment instruments of the investment firm to which the direction has been given, to suspend the making of payments or other transaction from the account without the prior authorisation of the supervisory authority.

THIRD SCHEDULE DIRECTIVE 97/9/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 3 March 1997 on investor-compensation schemes

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 57 (2) thereof,

Having regard to the proposal from the Commission[^(1)],

Having regard to the opinion of the Economic and Social Committee[^(2)],

Having regard to the opinion of the European Monetary Institute[^(3)],

Acting in accordance with the procedure laid down in Article 189b of the Treaty[^(4)] in the light of the joint text approved by the Conciliation Committee on 18 December 1996,

(1) Whereas on 10 May 1993 the Council adopted Directive 93/22/EEC on investment services in the securities field[^(5)]; whereas that Directive is an essential instrument for the achievement of the internal market for investment firms;

(2) Whereas Directive 93/22/EEC lays down prudential rules which investment firms must observe at all times, including rules the purpose of which is to protect as far as possible investor's rights in respect of money or instruments belonging to them;

(3) Whereas, however, no system of supervision can provide complete protection, particularly where acts of fraud are committed;

(4) Whereas the protection of investors and the maintenance of confidence in the financial system are an important aspect of the completion and proper functioning of the internal market in this area; whereas to that end it is therefore essential that each Member State should have an investor-compensation scheme that guarantees a harmonized minimum level of protection at least for the small investor in the event of an investment firm being unable to meet its obligations to its investor clients;

(5) Whereas small investors will therefore be able to purchase investment services from branches of Community investment firms or on the basis of the cross-border provision of services as confidently as from domestic investment firms, in the knowledge that a harmonized minimum level of protection would be available to them in the event of an investment firm being unable to meet its obligations to its investor clients;

(6) Whereas, in the absence of such minimum harmonization, a host Member State might consider itself justified, by considerations of investor protection, in requiring membership of its compensation scheme when a Community investment firm operating through a branch or under the freedom to provide services either belonged to no investor-compensation scheme in its home Member State or belonged to a scheme which was not regarded as offering equivalent protection; whereas such a requirement might prejudice the operation of the internal market;

(7) Whereas although most Member States currently have some investor-compensation arrangements those arrangements do not in general cover all investment firms that hold the single authorization provided for in Directive 93/22/EEC;

(8) Whereas, therefore, every Member State should be required to have an investor-compensation scheme or schemes to which every such investment firm would belong; whereas each scheme must cover money and instruments held by an investment firm in connection with an investor's investment operations which, where an investment firm is unable to meet its obligations to its investor clients, cannot be returned to the investor; whereas this is entirely without prejudice to the rules and procedures applicable in each Member State as regards the decisions to be taken in the event of the insolvency or winding-up of an investment firm;

(9) Whereas the definition of investment firm includes credit institutions which are authorized to provide investment services; whereas every such credit institution must also be required to belong to an investor-compensation scheme to cover its investment business; whereas, however, it is not necessary to require such a credit institution to belong to two separate schemes where a single scheme meets the requirements both of this Directive and of Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes[^(1)]; whereas, however, in the case of investment firms which are credit institutions it may in certain cases be difficult to distinguish between deposits covered by Directive 94/19/EC and money held in connection with investment business; whereas Member States should be allowed to determine which Directive shall apply to such claims;

(10) Whereas Directive 94/19/EC allows a Member State to exempt a credit institution from the obligation to belong to a deposit-guarantee scheme where that credit institution belongs to a system which protects the credit institution itself and, in particular, ensures its solvency; whereas, where a credit institution belonging to such a system is also an investment firm, a Member State should also be allowed, subject to certain conditions, to exempt it from the obligation to belong to an investor-compensation scheme;

(11) Whereas a harmonized minimum level of compensation of ECU 20 000 for each investor should be sufficient to protect the interests of the small investor where an investment firm is unable to meet its obligations to its investor clients; whereas it would therefore appear reasonable to set the harmonized minimum level of compensation at ECU 20 000; whereas, as in Directive 94/19/EC, limited transitional provisions might be required to enable compensation schemes to comply with that figure since this applies equally to Member States which, when this Directive is adopted, do not have any such scheme;

(12) Whereas the same figure was adopted in Directive 94/19/EC;

(13) Whereas in order to encourage investors to take due care in their choice of investment firms it is reasonable to allow Member States to require investors to bear a proportion of any loss; whereas, however, an investor must be covered for at least 90% of any loss as long as the compensation paid is less than the Community minimum;

(14) Whereas certain Member States' schemes offer levels of cover higher than the harmonized minimum level of protection under this Directive; whereas, however, it does not seem desirable to require any change in those schemes in that respect;

(15) Whereas the retention in the Community of schemes providing levels of cover higher than the harmonized minimum may, within the same territory, lead to disparities in compensation and unequal conditions of competition between national investment firms and branches of firms from other Member States; whereas, in order to counteract those disadvantages, branches should be authorized to join their host countries' schemes so that they may offer their investors the same cover as is provided by the schemes of the countries in which they are located; whereas it is appropriate that, in its report on the application of this Directive, the Commission should indicate the extent to which branches have exercised that option and any difficulties which they or the investor-compensation schemes may have encountered in implementing those provisions; whereas the possibility that home Member States' schemes should themselves offer such supplementary cover, subject to the conditions such schemes may lay down, is not ruled out;

(16) Whereas market disturbances could be caused by branches of investment firms established in Member States other than their Member States of origin which offer levels of cover higher than those offered by investment firms authorized in their host Member States; whereas it is not appropriate that the level or scope of cover offered by compensation schemes should become an instrument of competition; whereas it is therefore necessary, at least during an initial period, to stipulate that neither the level nor the scope of cover offered by a home Member State's scheme to investors at branches located in another Member State should exceed the maximum level or scope offered by the corresponding scheme in the host Member State; whereas any market disturbances should be reviewed at an early date, on the basis of the experience acquired and in the light of developments in the financial sector;

(17) Whereas a Member State must be able to exclude certain categories of specifically listed investments or investors, if it does not consider that they need special protection, from the cover afforded by investor-compensation schemes;

(18) Whereas some Member States have investor-compensation schemes under the responsibility of professional organizations; whereas in other Member States there are schemes that have been set up and are regulated on a statutory basis; whereas that diversity of status poses a problem only with regard to compulsory membership of and exclusion from schemes; whereas it is therefore necessary to take steps to limit the powers of schemes in that area;

(19) Whereas the investor must be compensated without excessive delay once the validity of his claim has been established; whereas the compensation scheme itself must be able to fix a reasonable period for the presentation of claims; whereas, however, the fact that such a period has expired may not be invoked against an investor who for good reason has not been able to present his claim within the time allowed;

(20) Whereas informing investors of compensation arrangements is an essential element of investor protection; whereas Article 12 of Directive 93/22/EEC required investment firms to inform investors, before doing business with them, of the possible application of a compensation scheme; whereas, therefore, this Directive should lay down rules on informing such intending investors regarding the compensation schemes covering their investment business;

(21) Whereas, however, the unregulated use in advertising of references to the amount and scope of a compensation scheme could affect the stability of the financial system or investor confidence; whereas Member States should therefore lay down rules to limit such references;

(22) Whereas in principle this Directive requires every investment firm to join an investor-compensation scheme; whereas the Directives governing the admission of any investment firm the head office of which is in a non-member country, and in particular Directive 93/22/EEC, allow Member States to decide whether and subject to what conditions to permit branches of such investment firms to operate within their territories; whereas such branches will not enjoy the freedom to provide services under the second paragraph of Article 59 of the Treaty, or the right of establishment in Member States other than those in which they are established; whereas, accordingly, a Member State admitting such branches must decide how to apply the principles of this Directive to such branches in accordance with Article 5 of Directive 93/22/EEC and with the need to protect investors and maintain the integrity of the financial system; whereas it is essential that investors at such branches should be fully aware of the compensation arrangements applicable to them;

(23) Whereas it is not indispensable in this Directive to harmonize the ways in which investor-compensation schemes are to be financed given, on the one hand, that the cost of financing such schemes must, in principle, be borne by investment firms themselves and, on the other hand, that the financing capacities of such schemes must be in proportion to their liabilities; whereas that must not, however, jeopardize the stability of the financial system of the Member State concerned;

(24) Whereas this Directive may not result in the Member States or their competent authorities being made liable in respect of investors if they have ensured that one or more schemes for the compensation or protection of investors under the conditions prescribed in this Directive have been introduced and officially recognized;

(25) Whereas, in conclusion, a minimum degree of harmonization of investor-compensation arrangements is necessary for the completion of the internal market for investment firms since it will make it possible for investors to do business with such firms with greater confidence, especially firms from other Member States, and make it possible to avoid any difficulties caused by host Member States applying national investor-protection rules that are not coordinated at Community level; whereas a binding Community Directive is the only appropriate instrument for the achievement of the desired objective in the general absence of investor-compensation arrangements corresponding to the coverage of Directive 93/22/EEC; whereas this Directive effects only the minimum harmonization required, allows Member States to prescribe wider or higher coverage if they desire and give Member States the necessary latitude as regards the organization and financing of investor-compensation schemes,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

For the purpose of this Directive:

— authorized in accordance with Article 3 of Directive 93/22/EEC,

or

— authorized as a credit institution in accordance with Council Directive 77/780/EEC [^(1)] and Council Directive 89/646/EEC [^(2)], the authorization of which covers one or more of the investment services listed in Section A of the Annex to Directive 93/22/EEC;

Article 2

A Member State may, however, exempt a credit institution to which this Directive applies from the obligation to belong to an investor-compensation scheme where that credit institution is already exempt under Article 3 (1) of Directive 94/19/EC from the obligation to belong to a deposit-guarantee scheme, provided that the protection and information given to depositors are also given to investors on the same terms and investors thus enjoy protection at least equivalent to that afforded by an investor-compensation scheme.

Any Member State that avails itself of that option shall inform the Commission accordingly; it shall, in particular, disclose the characteristics of the protective systems in question and the credit institutions covered by them for the purposes of this Directive, as well as any subsequent changes to the information supplied. The Commission shall inform the Council thereof.

— the competent authorities have determined that in their view an instrument firm appears, for the time being, for reasons directly related to its financial circumstances, to be unable to meet its obligations arising out of investors' claims and has no early prospect of being able to do so,

or

— a judicial authority has made a ruling, for reasons directly related to an investment firm's financial circumstances, which has the effect of suspending investors' ability to make claims against it,

whichever is the earlier.

Cover shall be provided for claims arising out of an investment firm's inability to:

— repay money owed to or belonging to investors and held on their behalf in connection with investment business,

or

— return to investors any instruments belonging to them and held, administered or managed on their behalf in connection with investment business,

in accordance with the legal and contractual conditions applicable.

Article 3

Claims arising out of transactions in connection with which a criminal conviction has been obtained for money laundering, as defined in Article 1 of the Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering[^(1)], shall be excluded from any compensation under investor-compensation schemes.

Article 4

Until 31 December 1999 Member States in which, when this Directive is adopted, cover is less than ECU 20 000 may retain that lower level of cover, provided it is not less than ECU 15 000. That option shall also be available to Member States to which the transitional provisions of the second subparagraph of Article 7 (1) of Directive 94/19/EC apply.

Article 5

Article 6

After the withdrawal of an investment firm's authorization, cover under the second subparagraph of Article 2 (2) shall continue to be provided in respect of investment business transacted up to the time of that withdrawal.

Article 7

Until 31 December 1999, neither the level nor the scope, including the percentage, of the cover provided for may exceed the maximum level or scope of the cover offered by the corresponding compensation scheme within the territory of the host Member State. Before that date the Commission shall draw up a report on the basis of the experience acquired in applying this subparagraph and Article 4 (1) of Directive 94/19/EC referred to above and shall consider the need to continue those provisions. If appropriate, the Commission shall submit a proposal for a Directive to the European Parliament and the Council, with a view to the extension of their validity.

Where the level or scope, including the percentage, of the cover offered by the host Member State's investor-compensation scheme exceeds the level or scope of the cover provided in the Member State in which an investment firm is authorized, the host Member State shall ensure that there is an officially recognized scheme within its territory which a branch may join voluntarily in order to supplement the cover which its investors already enjoy by virtue of its membership of its home Member State's scheme.

If a branch joins such a scheme, that scheme shall be one that covers the category of institution to which the branch belongs or most closely corresponds in its host Member State.

Member States shall ensure that objective and generally applied conditions are established concerning branches' membership of all investor-compensation schemes. Admission shall be conditional on a branch meeting the relevant membership obligations, including in particular the payment of all contributions and other charges. Member States shall follow the guiding principles set out in Annex II in implementing this paragraph.

If those measures fail to ensure that the branch meets the obligations referred to in this Article, after an appropriate period of notice of not less than 12 months the compensation scheme may, with the consent of the competent authorities which issued the authorization, exclude the branch. Investment business transacted before the date of exclusion shall continue to be covered after that date by the compensation scheme of which the branch was a voluntary member. Investors shall be informed of the withdrawal of the supplementary cover and of the date on which it takes effect.

Article 8

Member States may, however, provide that funds in currencies other than those of the Member States and the ecu shall be excluded from cover or be subject to lower cover. This option shall not apply to instruments.

In the absence of special provisions, claims shall be divided equally amongst investors.

Member States may provide that 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 provided for in Article 4 (1), (3) and (4), be aggregated and treated as if arising from an investment made by a single investor.