Proposal for a Directive of the European Parliament and of the Council amending Directive 97/9/EC of the European Parliament and of the Council on investor-compensation schemes {SEC(2010) 845} {SEC(2010) 846}
Date: 2010-07-12
Institutions: European Commission
Subjects: banking, branch, credit guarantee, investment aid, investment loan, investment protection

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EUROPEAN COMMISSION 

Brussels, 12.7.2010 
COM(2010) 371 final 

2010/0199 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 97/9/EC of the European Parliament and of the Council on investor-
compensation schemes  

{SEC(2010) 845} 
{SEC(2010) 846} 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL  

Directive 97/9/EC on Investor-Compensation Schemes (ICSD1) was adopted in 1997 
to complement the Investment Services Directive2 (ISD), the directive regulating, at 
that  time,  the  provision  of  investment  services  in  the  EU.  The  ISD  has  since  been 
replaced  by  the  Markets  in  Financial  Instruments  Directive3  (MiFID).  The  ICSD 
provides for  clients  receiving investment  services from investment firms (including 
credit  institutions)  to  be  compensated  in  specific  circumstances  where  the  firm  is 
unable to return money or financial instruments that it holds on the client's behalf. 

Ten  years  after  the  ICSD  entered  into  force,  and  immediately  after  the  financial 
crisis, it is the right time to review the functioning of the ICSD. There is no concrete 
evidence to suggest that the financial crisis contributed to more compensation claims 
from  schemes  under  the  ICSD.  However,  in  recent  years,  the  Commission  has 
received  numerous  investor  complaints  about  the  application  of  the  ICSD  in  a 
number  of  important  cases  involving  large  investor  losses.  The  complaints  are 
principally  related  to  the  coverage  and  funding  of  schemes  and  delays  in  obtaining 
compensation.  The  review  of  the  ICSD  is  also  an  important  element,  together  with 
the  review  of  the  Deposit  Guarantee  Schemes  Directive4  and  the  examination  of 
protection for insurance policy holders, of the Commission's policy to strengthen the 
EU regulatory framework for financial services as set out in the Communication on 
"Driving  European  recovery"5.  It  also  considers  the  objective  set  at  G-20  level  of 
addressing any loopholes in the regulatory and supervisory system and the objective 
of restoring investor confidence in the financial system.  

This initiative is part of a broader package on compensation and guarantee schemes 
that  will  comprise  two  proposals  for  amendment  of  the  Directives  on  Investor 
Compensation  Schemes  and  on  Deposit  Guarantee  Schemes  and  a  White  Paper  on 
the insurance schemes. 

2. 

CONSULTATION OF INTERESTED PARTIES  

The initiative is the result of an extensive and continuous dialogue and consultation 
with  all  major  stakeholders,  including  securities  regulators,  market  participants, 
national  investor  compensation-schemes  and  consumers.  A  call  for  evidence  was 

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Directive  97/9/EC  of  the  European  Parliament  and  of  the  Council  of  3  March  1997  on  investor-
compensation schemes (OJ L 84, 26.3.1997, p. 22). 
Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (OJ L 141, 
11.6.1993, p. 27–46). 
Directive 2004/39/EC (OJ L 145, 30.4.2004, p. 1–44). 
Directive  94/19/EC  of  the  European  Parliament  and  of  the  Council  of  30  May  1994  on  deposit 
guarantee schemes (OJ L 135, 31.5.1994, p. 5). 
Commission  Communication  for  the  Spring  European  Council  "Driving  European  recovery"  - 
COM(2009) 114, 4.3.2009. 

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submitted  to  public  consultation  from  9  February  to  8  April  20096.  Questionnaires 
were  sent  to  national  investor  compensation  schemes  and  a  meeting  was  held  with 
them  on  9  February  20107.  A  targeted  meeting  was  held  on  3  September  2009  to 
gather views from industry and investor associations. This work is also built upon the 
observations  and  contributions  from  the  European  Markets  Expert  Group  (ESME)8 
and  the  European  Securities  Committee  (ESC)9.  In  addition  it  makes  use  of  the 
findings  of  a  study  by  OXERA,  titled  "Description  and  assessment  of  the  national 
investor compensation schemes established in accordance with Directive 1997/9/EC" 
(February 2005)10. 

3. 

IMPACT ASSESSMENT  

In  line  with  its  "Better  Regulation"  policy,  the  Commission  conducted  an  impact 
assessment of policy alternatives. Policy options were mainly related to the funding 
of the schemes, the payout delays, the coverage of the compensation and the level of 
compensation. 

Each  policy  option  was  assessed  against  the  following  criteria:  investor  protection 
and  confidence,  level  playing  field  in  the  protection  provided  for  different  types  of 
investments or services in the EU and cost-effectiveness, that is the extent to which 
the  option  achieves  the  sought  objectives  and  facilitates  the  operation  of  securities 
markets in a cost effective and efficient way11.  

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The  Commission  services  received  70  contributions.  The  non-confidential  contributions  can  be 
consulted in the Commission website: 
http://ec.europa.eu/internal_market/consultations/2009/investor_compensation_en.htm  
Two questionnaires relating to the operations of the national investor compensation schemes were sent 
in June 2009 and November 2009. 
ESME  was  an  advisory  body  to  the  Commission,  composed  of  securities  markets  practitioners  and 
experts. It was established by the Commission in April 2006 and operated until end 2009 on the basis of 
the  Commission  Decision  2006/288/EC  of  30  March  2006  setting  up  a  European  Securities  Markets 
Expert Group to provide legal and economic advice on the application of the EU Securities Directives 
(OJ L 106, 19.4.2006, p. 14-17). 
The  European Securities  Committee  (ESC)  set  up  by  Commission  Decision 2001/528/EC  (OJ  L  191, 
13.7.2001, p. 45) fulfils both comitology (Comitology Council Decision 1999/468/EC of 28 June 1999 
(OJ  L  184,  17.7.1999,  p.  23)  laying  down  the  procedures  for  the  exercise  of  implementing  powers 
conferred on the Commission as amended by Decision 2006/51/EC (OJ L 200, 22.7.2006, p. 11) and 
policy  advisor  functions  in  the  securities  field.  It  is  composed  of  high  level  representatives  from  the 
Member  States  and  is  chaired  by  a  representative  of  the  Commission.  Discussions  were  held  at 
meetings of the ESC on 14 November 2008, 11 February 2009 and 15 July 2009. 
The  study  is  available  at  http://ec.europa.eu/dgs/internal_market/docs/evaluation/national-investor-
rep2005.pdf .  
The opinions expressed in the Study by OXERA do not necessarily reflect the position of the European 
Commission. OXERA is a private firm that was contracted by the European Commission to undertake 
the  study.  The  statements  and  opinions  expressed  in  the  study  are  the  responsibility  of  the  firm.  The 
European Commission does not endorse the OXERA report, but uses it as a source of information for 
the review of the Investor-compensation schemes Directive.  
Commission  Staff  Working  Document  accompanying  the  Proposal  for  a  Directive  of  the  European 
Parliament and of the Council amending Directive 1997/9/EC on investor-compensation schemes - SEC 
(2010) 845. 

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4. 

LEGAL ELEMENTS OF THE PROPOSAL  

4.1. 

Legal basis  

The proposal is based on Article 53(1) of the TFEU.  

4.2. 

Subsidiarity and proportionality  

The  objectives  of  the  proposal  cannot  be  sufficiently  fulfilled  by  the  Member  States.  The 
current EU framework only provides for some minimum harmonisation principles leaving it 
up to Member States to develop it further. However, problems encountered in some Member 
States  demonstrate  that  additional  and  notably  more  extensive  harmonisation  at  EU  level  is 
necessary in order to ensure that the objectives of the Directive are fulfilled within the EU.  

Indeed,  the  main  problems  with  the  application  of  the  Directive  are  the  large  margin  for 
discretion it grants to Member States. The proposal aims at improving the proper functioning 
of  a  single  market  for  investment  services,  increasing  investor  protection  and  investor 
confidence  in  the  EU.  In  particular,  it  aims  at  improving  the  practical  functioning  of  the 
ICSD, at clarifying the scope of the ICSD taking into account the financial crisis and recent 
changes  in  the  EU  regulatory  landscape,  at  reducing  gaps  in  the  regulatory  system  and 
disparities between the protection of clients of investment firms and of banking depositors. In 
the  light  of  the  existing  differences  in  the  functioning  of  the  schemes  at  national  level,  the 
proposal introduces common rules to ensure a degree of harmonisation in the funding of the 
schemes and in the day-to-day practice; this is also the basis for the provision of a borrowing 
mechanism among national schemes as a last resort tool to compensate any temporary needs 
from  schemes,  subject  to  a  rigorous  assessment  carried  out  by  the  European  Securities  and 
Markets Authority and to the obligation to repay any loan within the maximum period of five 
years. 

Moreover, there are issues such as the current non-compensation of investors which due to the 
default of a depositary or third party cannot recover their assets or suffer a loss in the value of 
their units or shares in a UCITS, that need to be addressed at EU level, since other solutions 
could  fragment  the  protection  of  investors  in  the  EU  markets.  Taking  into  account  that  the 
provision of investment services is a cross border activity, investment firms should be treated 
in the same way in different Member States when they fail to return clients assets; investors 
across  Member  States  should  benefit  from  the  same  level  of  protection.  This  consistent 
approach is necessary in order to avoid level playing field problems between investment firms 
of different Member States and competition distortion between banks and investment firms.  

An  additional  element  relates  to  the  fact  that  through  the  amendment  of  the  Directive  on 
Deposit Guarantee Schemes (Directive 94/19/EC12 - DGSD), the level of protection for bank 
depositors  was  increased.  Moreover,  the  functioning  of  the  Deposit  Guarantee  Schemes  is 
being  modified  in  order  to  harmonise  the  scope  of  coverage,  the  modalities  and  timing  of 
payout,  the  financing  mechanisms  and  the  provision  of  mutual  solidarity  between  schemes. 
Investment  firms  should  not  be  undermined  due  to  the  increase  of  protection  in  the  bank 
deposits sector. Therefore it is necessary to assess the level of protection of investors at EU 
level, to take into account the situation of the markets in the EU and any regulatory change at 
EU level that might have consequences in the field of investments.  

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OJ L 135, 31.5.1994, p. 5-14. 

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In the meantime, the proposal takes into account the different underlying objectives between 
the two directives. The DGSD has a prevailing banking stability objective because banks are 
susceptible to the risk of a run if depositors believe that their deposits are not safe and try to 
withdraw  them  at  the  same  time.  The  ICSD  protects  investors  against  the  risk  of  frauds  or 
administrative malpractices or operational errors making the investment firm unable to return 
assets to clients. The proposal preserves the specificities of the sectoral legislation.  

The  proposal  respects  the  principle  of  proportionality  as  all  solutions  have  been  assessed 
against  its  cost-efficiency  and  they  respect  the  particularities  of  markets  in  Member  States. 
The  proposal  does  not  go  beyond  what  it  is  necessary  to  achieve  the  objectives  pursued,  in 
particular,  it  keeps  minimum  harmonisation  principles  where  pertinent,  for  instance 
concerning the modalities according to which the members of the compensation schemes have 
to  contribute  to  the  scheme.  The  introduction  of  a  borrowing  system  between  the  national 
schemes is consistent with the proportionality principle in that it does not impinge any fiscal 
responsibility of Member States, it is a last resort measure subject to the previous use of other 
funding mechanisms (ordinary and additional contributions from members), it only introduces 
a lending possibility subject to the payment of interests and to a repayment obligation from 
the borrowing scheme and it is limited in time and size.  

4.3. 

Detailed explanation of the proposal  

4.3.1.  Alignment with MiFID – Services covered and classification of clients – Article 1 (2) 

and Annex I 

The scope of the ICSD is currently defined by cross-reference to investment services 
as  defined  under  the  Investment  Services  Directive13.  The  ICSD  protects  investors 
when  a  firm  is  unable  to  return  financial  instruments  or  money  held  on  a  client's 
behalf in connection with investment services.  

MiFID has repealed the ISD and broadened the scope of services covered under the 
sectoral  legislation  (for  example  the  operation  of  Multilateral  Trading  Facilities  or 
MTF is currently included in the scope of MiFID). A number of technical issues have 
also  arisen,  such  as  the  coverage  of  firms  depending  on  the  scope  of  their 
authorisation (i.e. whether the firm is authorised to hold client assets or not).  

The proposed amendment clarifies that all investment services and activities covered 
under  MiFID  should  be  subject  to  the  ICSD  and  that  if  firms  de  facto  hold  client 
assets  (irrespective  of  restrictions  on  their  authorisation  or  the  nature  of  their 
investment service) then clients should be entitled to compensation under the ICSD. 
This  would  be  irrespective  of  whether  the firm  is  doing  so  in  contravention  of  any 
limitation  on  its  authorisation  (e.g.  preventing  it  from  holding  client  assets  or  from 
dealing with retail clients) and irrespective of the nature of the investment service it 
provides (e.g. if it is operating an MTF). This measure will enable retail investors to 
assume that they are covered by the ICSD without checking detailed conditions on a 
firm's authorisation. It will also result in more consistency across Member States in 
the application of the ICSD which will assist the proper functioning of the ICSD. 

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Article 1, n. 2 refers to investment services as defined in Article 1(1) of Directive 93/22/EEC (ISD) and 
the service referred to in point 1 of Section C of the Annex to that Directive.  

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Another  amendment  deriving  from  MiFID  provisions  concerns  the  classification  of 
clients.  Indeed,  the  ICSD  is  potentially  applicable  to  all  categories  of  investors. 
However,  more  sophisticated  clients  are  normally  able  to  select  and  monitor  the 
activity of intermediaries to which they entrust their assets. In addition, the limitation 
of  compensation  to  a  certain  amount  (currently  €20  000)  makes  the  directive  as 
typically  targeted  to  "small  investors"14.  For  this  reason,  national  legislation  in  the 
Member  States  may  currently  provide  that  professional  and  institutional  investors15 
can be excluded from coverage16 under Annex I of the ICSD.  

However,  since  the  ICSD  pre-dates  the  MiFID,  the  list  of  professional  and 
institutional investors under the ICSD does not coincide with the corresponding list 
under  MiFID17.  This  may  create  complexities  in  the  phase  of  compensation,  where 
the  clients  classified  as  professionals  for  the  provision  of  services  may  not 
correspond  to  the  clients  which  may  be  excluded  from  coverage  according  to  the 
ICSD.  

The  proposal  aligns  the  classification  of  clients  in  the  ICSD  with  the  MiFID 
definition  of  clients  to  be  considered  as  professional.  This  will  provide  greater 
consistency  and  clarity  and  simplify  the  position  for  compensation  schemes  and 
investors,  as  there  will  be  consistency  between  the  two  Directives.  The  alignment 
with  the  clients  to  be  considered  as  professional  will  ensure  certainty  and  will  also 
result  in  a  better  protection  for  medium-sized  enterprises  which  may  currently  be 
excluded from the protection granted by the ICSD and are instead normally classified 
as  retail  clients  under  the  MiFID18.  A  cross-reference  to  the  MiFID  definition  of 
client  to  be  considered  as  professionals  will  allow  the  automatic  adaptation  of  the 
ICSD to any future MiFID change. 

4.3.2.  Failure of a third party custodian - Article 2(2), Article 12 

The ICSD protects investors when a firm is unable to return financial instruments or 
money  held  on  a  client's  behalf  in  connection  with  investment  services.  Under 
MiFID, financial instruments can be held in two different ways: (i) by the investment 
firm itself holding financial instruments for a client, or (ii) by a custodian (a "third 
party custodian") usually selected by the firm19. Investors may therefore not only be 
exposed to the failure of the firm, but also to the potential failure of a custodian. In a 
case where a third party custodian is not able to return the financial instruments to its 
client, the client will not be able to benefit from any compensation payment by the 
compensation scheme established under the ICSD. This is because under the current 

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See for example the reference to small investors in recital 4 of the ICSD. 
A list of such investors is set out in Annex 1 of the ICSD. 
Article 4(2) and Annex 1 of the ICSD. 
MiFID - Annex II.  
Currently firms which meet at least two of the following criteria are always able to claim compensation 
under  the  ICSD:  Balance  sheet  total  ≤  €4  400  000,  net  turnover  ≤  €8  800  000,  average  number  of 
employees ≤ 50. Under MiFID, only the bigger firms meeting at least two of the following criteria may 
be classified as professional clients per se: Balance sheet total ≥ €20 000 000, net turnover ≥ €40 000 
000,  own  funds  ≥  €2  000  000.  As  a  result,  the  adoption  of  the  MiFID  definitions  would  narrow  the 
scope of firms that may be excluded under the ICSD.  
Article  16  and  17  of  Directive  2006/73/EC  Implementing  Directive  2004/39/EC  as  regards 
organisational  requirements  and  operating  conditions  for  investment  firms  and  defined  terms  for  the 
purposes of that Directive. 

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scope  of  the  ICSD,  compensation  schemes  are  only  available  to  investors  whose 
financial  instruments  have  been  lost  by  the  investment  firm  "for  reasons  directly 
related  to  an  investment  firm's  financial  circumstances".  As  a  result,  there  is  under 
the  ICSD  a  difference  in  the  level  of  protection  provided  for  investors  who  have 
purchased  a  financial  instrument,  depending  on  whether  the  firm  itself  or  a  third 
party custodian holds their assets.  

The  proposal  amends  Article  2(2)  to  extend  compensation  to  investors  for  claims 
relating to the failure of a firm to return financial instruments due to the failure of a 
third party custodian. This measure will deal with the potential gap that would arise 
if  a  custodian  were  to  default.  Investment  firms  remain  responsible  to  take  all 
reasonable steps to recover assets from a custodian. 

The  proposal  does  not  amend  the  Article  to  include  failure  of  an  institution  with 
whom monies are deposited by an investment firm. The reason for this difference is 
that the Directive 2006/73/EC Implementing MIFID provides for a very strict list of 
institutions where client funds may be deposited (a central bank, a credit institution, a 
bank  authorised  in  a  third  country  or  a  qualifying  money  market  fund)20.  This 
differentiates the treatment of funds compared with financial instruments, for which, 
subject to due diligence criteria from the investment firm concerned, entities which 
are  not  regulated  might  be  appointed  for  the  deposit  of  client  financial  instrument. 
This different regime justifies a different treatment under the ICSD.  

4.3.3.  Failure of a UCITS depositary - Article 1(4), Article 2(1), Article 2 (2b), Article 4a, 

Article 5, Article 10(1), Article 12 

The  management  of  Undertakings  for  Collective  Investment  in  Transferable 
Securities (UCITS)21 is not a MiFID investment service. As a result the ICSD does 
not cover UCITS and their units' holders in cases where losses are suffered due to the 
failure  of  a  UCITS  depositary  or  sub-custodian.  This  situation  however  is 
comparable, in substance, to the one describe under paragraph 4.3.2 where losses are 
suffered due to the failure of an investment firm custodian or sub-custodian. 

As  a  consequence,  the  proposed  measure  will  give  UCITS  holders  the  right  to  be 
compensated by the investor-compensation scheme if the assets cannot be returned to 
the  UCITS,  because  of  the  failure  of  a  UCITS  depositary  or  sub-custodian.  The 
definition  of  "investor"  under  Article  1(4)  would  encompass  a  unit  holder  in  a 
UCITS and a series of articles are being modified in order to capture the failure of a 
UCITS depository or sub-custodian (Articles 2, 4, 5, 10, 12). Since the proposal will 
protect UCITS or UCITS depositaries or sub-custodians, the cost of this extension in 
coverage should be borne by these entities rather than investment firms. In addition, 
in  light  of  the  choice  made  to  extend  coverage  of  the  ICSD  in  case  of  failure  of  a 
third  party  custodian  used  in  connection  with  investment  business,  it  makes  sense 
that the risk is addressed in similar terms in the case of problems with depositaries or 
sub-custodians of the UCITS.  

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Article 18 of Directive 2006/73/EC. 
Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to 
undertakings for collective investment in transferable securities (OJ L 302, 17.11.2009, p. 32–96). 

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This measure will introduce some protection for UCITS investors. At the same time 
it  should  be  complemented  by  changes  to  the  legislation  applicable  to  the  UCITS 
depositaries function under the UCITS Directive22 in order to further harmonise the 
depositaries'  duties  and  their  responsibility  regime.  The  Commission  is  working  on 
possible changes to that legislation23. 

4.3.4.  Exclusion of claims involving market abuse - Article 3 and Article 9(3) 

Article 3 of the ICSD excludes claims where a criminal conviction has been obtained 
for  money  laundering24  but  not  claims  by  investors  who  have  engaged  in  market 
abuse.  By  modifying  Article  3,  the  ICSD  will  explicitly  exclude  any  claim  for 
compensation  where  the  investor  has  engaged  in  actions  that  are  prohibited  under 
Directive  2003/6/EC  on  insider  dealing  and  market  manipulation25.  The  investors 
who  have  committed  these  acts  should  be  excluded  from  compensation,  as  they 
should not benefit from the general protection offered by the Directive. 

4.3.5.  Level of compensation - Article 4(1) and Article 2(3) 

Article 4(1) of the ICSD harmonizes the minimum level of compensation (€20 000) 
for  each  investor.  When  the  ICSD  was  introduced,  it  was  considered  sufficient  to 
align  this  level  with  the  one  set  under  the  Deposit  Guarantee  Scheme  Directive 
(€20 000 at the time)26. But the compensation limit of €20 000 was never adjusted to 
reflect  inflation  or  the  increased  exposure  of  European  investors  to  financial 
instruments  since  the  ICSD  entered  into  force.  Furthermore,  the  Deposit  Guarantee 
Schemes Directive (DGSD) was recently amended to provide for at least €50 000 per 
depositor per credit institution, to be increased to a fixed level of €100 000.27  

The  Commission  proposes  the  modification  of  Article  4(1)  in  order  to  increase  the 
level of compensation to a fixed amount of €50 000. The level has been fixed to take 
account  of  the  effects  of  inflation  in  the  EU  and  to  better  align  the  level  of 
compensation  to  the  average  value  of  investments  held  by  retail  clients  in  the  EU. 
The level of compensation should be set at a fixed amount in order to avoid arbitrage 
and investors' choice to be influenced by any different coverage granted in different 
Member  States.  As  some  Member  States  have  currently  a  higher  level  of 
compensation,  a  grandfathering  clause  of  three  years  is  foreseen  to  allow  them  to 
adapt to the €50 000 coverage level.  

In the case of credit institutions doubts may arise as to the coverage under the ICSD 
rather than the DGSD of monies deposited in a bank in the context of the provision 
of  investment  services.  To  deal  with  situations  of  possible  uncertainty  due  to  the 

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Articles 22 to 26 and 32 to 36 of Directive 2009/65/EC. 
The relevant legislative proposal, preceded by consultation, should be adopted by Spring 2011. 
Money  laundering  was  defined  in  Article  1  of  Council  Directive  91/308/EEC  of  10  June  1991  on 
prevention of the use of the financial system for the purpose of money laundering. The Directive has 
been  repealed  by  Directive  2005/60/EC  on  the  prevention  of  the  use  of  the  financial  system  for  the 
purpose of money laundering and terrorist financing (OJ L 309, 25.11.2005, p. 15–36).  
Directive  2003/6/EC  of  the  European  Parliament  and  of  the  Council  of  28  January  2003  on  insider 
dealing and market manipulation (market abuse) (OJ L 96, 12.4.2003, p. 16–25). 
Article 7 of Directive 94/19/EC on deposit-guarantee schemes. 
See Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009 amending 
Directive 94/19/EC as regards the coverage level and the payout delay (OJ L 68, 13.3.2009, p. 3–7). 

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specific  nature  of  banks  which  may  provide  both  banking  activity  and  investment 
services,  the  Article  2(3)  of  the  ICSD  is  being  amended  to  specify  that  in  cases  of 
doubt the investor is to be compensated under the DGSD (which provided a higher 
level  of  coverage).  This  would  protect  investors  in  an  efficient  manner  and  reduce 
level playing field concerns.  

4.3.6.  Funding principles - Article 4a 

The broad discretion under the ICSD about how to fund schemes (e.g. ex ante or ex 
post, in respect of the occurrence of any loss events) and huge differences in the way 
funding  is  organised  by  individual  Member  States  create  a  number  of  problems.  It 
undermines  investor  protection  and  investor  confidence  in  the  use  of  investment 
firms  (if  investors  are  not  confident  that  there  will  be  adequate  funding  in  place  to 
pay  their  claims  if  there  is  a  default).  It  also  affects  the  proper  functioning  of  the 
internal market if the likelihood of investor protection, and the contributions required 
from  firms,  vary  significantly  across  Member  States  depending  on  the  adequacy  of 
individual funding arrangements.  

A new Article is introduced specifying the basic principles about the funding of the 
investor-compensation schemes. In particular, according to the provision: 

–  in principle, the cost of financing schemes should continue to be borne by market 

participants; 

–  the  schemes  should  be  adequately  financed  in  proportion  to  their  potential 

liabilities; 

–  in order to provide a sufficient level of funding, a minimum target fund level will 
be  established  for  all  the  schemes.  This  target  fund  level  will  be  fully  ex  ante 
funded.  Taking  into  account  the  current  differences  at  national  level,  the  target 
fund level should initially be reached within a 10-year period; 

–  when, in concrete cases, the ex ante funds are not sufficient to cover the liabilities 
of  a  scheme,  additional  calls  for  contributions  from  entities  covered  under  the 
scheme  should  be  ensured.  However,  they  should  not  jeopardise  the  stability  of 
the financial system of the Member State;  

–  once these funding sources have been exhausted, the scheme may have recourse to 
borrowing from other compensation schemes as further detailed in the following 
point 4.3.7; 

–  access to further multiple funding sources has to be ensured, including borrowing 

facilities; 

–  schemes should publish details about their level of funding.  

The detailed implementation of some points will be specified via delegated acts to be 
adopted by the Commission in accordance with Article 290 of the Treaty. The details 

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to  be  made  public  by  the  schemes  will  be  specified  via  technical  standards  by  the 
future European Securities and Markets Authority (ESMA)28.  

This  measure  is  proportionate  as  it  will  result  in  more  harmonisation  of  funding  of 
schemes  without  being  overly  prescriptive  and  excessively  detailed  and  it  will  still 
leave  some  flexibility  to  Member  States  as  to  the  practical  implementation  of  the 
principles.  More  harmonisation  will  improve  the  proper  functioning  of  the  single 
market for investment services by reducing discrepancies affecting the treatment of 
investment firms and investors in different Member States. It will also reduce the risk 
of a scheme having insufficient funding to meet its obligations and therefore result in 
greater  consumer  protection  and  investor  confidence  in  the  use  of  investment 
services.  

4.3.7.  Borrowing last resort mechanism between national schemes - Article 4b 

Together with the establishment of consistent funding rules between Member States, 
the  introduction  of  cooperation  arrangements  among  national  schemes  will  provide 
greater  protection  to  investors  and  promote  investor  confidence  in  investment 
services.  

The  system  is  based  on  the  principle  of  solidarity  between  the  national  schemes. 
According  to  the  proposed  Article,  a  borrowing  mechanism  among  schemes  is 
introduced as a last resort tool.  

These  measures  should  provide  schemes  with  an  alternative  back  up  source  of 
funding, under specific conditions and on a temporary basis. They will also facilitate 
a closer relationship and better on-going coordination between national schemes and 
will  act  as  an  incentive  to  develop  more  harmonized  practices  and  working 
procedures. Detailed funding principles and a repayment (mid-term) obligation upon 
the  borrowing  scheme  will  limit  the  risk  of  moral  hazard  between  undersized  and 
better funded schemes. More in detail: 

–  schemes should have the right to borrow from the other schemes if their funds are 

insufficient to cover their immediate needs;  

–  a  portion  of  ex-ante  funding  in  each  compensation  scheme  will  have  to  be 

available for lending to other schemes; 

–  ESMA  should  receive  any  borrowing  request,  assess  whether  the  relevant 

requirements are met and, if this is the case, transmit it to the other schemes; 

28 

In October, 2009 the European Commission has adopted a package of draft legislation to strengthen the 
supervision of the financial sector in Europe. The legislation will create a new European Systemic Risk 
Board (ESRB) to detect risks to the financial system as a whole. It will also set up a European System 
of  Financial  Supervisors  (ESFS),  composed  of  national  supervisors  and  three  new  European 
Supervisory  Authorities  for  the  banking,  securities  and  insurance  and  occupational  pensions  sectors. 
The  ESMA  is  one  of  the  three  European  Supervisory  Authorities  included  in  the  legislative  package. 
The relevant legislative proposal is available at the following link: 
http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_503_en.
pdf 

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10 

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–  loans should be repaid to the lending schemes at the latest after 5 years since the 
request. Interests should accrue on the loans; the interest rate shall be equivalent 
to the marginal lending facility rate of the ECB; 

–  the  borrowing  mechanism  should  be  limited  to  the  claims  covered  under  the 
Directive. For instance, schemes will not be able to borrow for any needs arising 
from the default of entities not included in the scope of the directive;  

–  in  order  to  avoid  that  the  funds  available  for  lending  at  EU  level  are  rapidly 
exhausted, a limit of 20% of the portion set aside for lending may be used for each 
case. 

4.3.8.  Compensation limit ("co-insurance principle") - Article 4(4), Article 8(1) 

Article  4(4)  of  the  ICSD  allows  Member  states  to  limit  the  coverage  of  the 
compensation to a specified percentage (equal to or exceeding 90%) of an investor's 
claim.  This  means  that  a  client  can  be  required  to  bear  a  proportion  of  the  loss 
(within  the  compensation  limit).  The  reason  for  this  option  in  the  ICSD  was  to 
encourage investors to take some care in choosing investment firms29. But arguably it 
is unrealistic to expect retail investors to be able to identify which firms are more or 
less likely to be affected by fraud or systems failures. 

Eliminating this option under Article 4(4) will provide increased investor protection 
under the ICSD as clients will no longer have to bear part of the loss if there is fraud 
at a firm or other problems with the firm's systems or controls. 

Moreover, in order to better protect investors, the provision giving the possibility to 
Member  States  to  exclude  from  coverage  of  the  compensation  scheme  funds  in 
currencies  other  than  of  the  Member  States  is  eliminated.  This  provides  better 
protection to investors as it ensures that clients' funds are covered irrespective of the 
currency involved.  

4.3.9.  Payout delays – Article 2, Article 9(2) 

Article 9(2) of the ICSD establishes a strict deadline for reimbursement (as soon as 
possible and at the latest within three months). But, this deadline only runs once the 
"eligibility  and  the  amount  of  the  claim"  have  been  established.  That  is,  it  is  not 
linked to the date on which the firm is declared to be in default. Processing claims 
takes  considerably  longer  than  the  limits  set,  possibly  up  to  several  years  as 
evidenced  by  recent  cases.  So  in  practice  there  is  a  considerable  delay  before  an 
investor  receives  any  compensation.  This  undermines  investor  protection  and 
investor confidence. 

The  proposed  modification  to  Article  9(2)  introduces  the  obligation  for  schemes  to 
provisionally pay partial compensation based on an initial assessment of the claim if 
payout delay exceeds a specified time period. The level of the partial payment will 
amount to one third of the initial assessment of the claim. The balance will be paid 
out later once the claim had been fully verified. Schemes will also need the ability to 

29 

See recital 13 of the Directive. 

EN 

11 

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recover  amounts  provisionally  paid  out  if  it  was  subsequently  determined  that  the 
claim was not in fact valid.  

Article  2  is  also  being  amended  to  clarify  that  a  competent  authority  must  make  a 
determination of whether a firm is unable to meet its obligations to investors within 
three  months.  This  is  to  mitigate  concerns  about  individual  cases  where  competent 
authorities could be very slow to make a determination. 

The  delays  introduced  by  the  proposal  take  into  account  the  difference  between 
situations covered under the ICSD and the DGSD, where depositors must be repaid 
within 20 working days of the date on which the authorities make their determination 
as  to  the  inability  of  credit  institutions  to  repay  the  deposits.  In  the  case  of 
the  underlying  situations  of  fraud,  malpractices  or 
compensation-schemes, 
operational  problems  covered  by  the  directive  make  it  necessary  a  longer  delay  in 
order to reconstruct the position of single investors. 

4.3.10.  Investor information- Article 10(1) 

Article  10(1)  of  the  ICSD  requires  Member  States  to  ensure  that  investment  firms 
make  available  to  actual  and  potential  investors  information  about  the  relevant 
investor compensation scheme including the amount and scope of cover. Information 
must  be  made  available  in  a  readily  comprehensible  manner.  However,  concerns 
have  been  raised  about  how  this  provision  has  been  applied  in  practice  in  the 
Member States.  

Article 10(1) is amended to require also to UCITS managers, as a consequence of the 
broadening of coverage of the Directive, to disclose to investors in clear and simple 
terms  what  is  effectively  covered  by  schemes  (e.g.  investment  risk  is  usually  not 
covered). Under this proposal the existing obligation for investment firms to provide 
information  about  compensation  schemes  to  new  clients  will  be  supplemented  by 
requiring  further  detail  to  be  provided  about  what  is  compensated  under  the  ICSD 
and  how  it  applies  in  cross  border  situations,  also  for  UCITS.  Specifically  it  will 
require  them to  clearly explain that certain losses (e.g. due to investment risks) are 
not subject to the payment of compensation under the ICSD.  

5. 

BUDGETARY IMPLICATION  

The proposal has no implication for the Union budget  

EN 

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2010/0199 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 97/9/EC of the European Parliament and of the Council on investor-
compensation schemes  

(Text with EEA relevance)  

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,  

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 53(1) thereof,  

Having regard to the proposal from the European Commission30,  

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Economic and Social Committee31,  

Acting in accordance with the ordinary legislative procedure,  

Whereas:  

(1) 

At the request of the Commission, a report published on 25 February 2009 by a high-
level  group  of  experts  chaired  by  J.  de  Larosière  concluded  that  the  supervisory 
framework needed to be strengthened to reduce the risk and severity of future financial 
crisis  and  recommended  far-reaching  reforms  to  the  structure  of  supervision  of  the 
financial  sector in  Europe, including the creation of  a European  System of  Financial 
Supervisors, comprising three European Supervisory Authorities, one for the securities 
sector, one for the insurance and occupational pensions sector and one for the banking 
sector,  and  the  creation  of  a  European  Systemic  Risk  Board.  The  Commission 
Communication  of  4  March  2009,  "Driving  European  Recovery",  proposed  to 
strengthen  the  Union's  regulatory  framework  for  financial  services,  in  particular  to 
enhance  investor  protection.  The  Commission  proposed  in  September  2009  the 
legislative  package  for  the  creation  of  the  new  authorities,  including  the  European 
Securities and Markets Authorities (ESMA) to, in particular, contribute to a consistent 
application of Union legislation and to contribute to the establishment of high quality 
common regulatory and supervisory standards and practices.  

(2) 

It  is  necessary  to  amend  Directive  97/9/EC  of  the  European  Parliament  and  of  the 
Council  of  3  March  1997  on  investor-compensation  schemes32  in  order  to  maintain 

30 
31 
32 

OJ C , , p. .  
OJ C , , p. .  
OJ L 84, 26.3.1997, p. 22–31. 

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13 

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(3) 

(4) 

(5) 

(6) 

confidence  in  the  financial  system  and  to  better  protect  investors  in  view  of  the 
developments  in  the  legal  framework  of  the  Union,  the  evolution  in  the  financial 
markets and the problems experienced in the application of that Directive in Member 
States  in  cases  of  inability  of  investment  firms  to  return  assets  held  on  behalf  of 
clients.  

At  the  time  of  its  adoption,  Directive  97/9/EC  complemented  Council  Directive 
93/22/EEC of 10 May 1993 on investment services in the securities field33 to ensure 
that each Member State would set up an investor-compensation system to guarantee a 
harmonized minimum level of protection, at least for small investors, in the event of 
an investment firm being unable to meet its obligations to its clients. When Directive 
2004/39/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on 
markets  in  financial  instruments  amending  Council  Directives  85/611/EEC  and 
93/6/EEC  and  Directive  2000/12/EC  of  the  European  Parliament  and  of  the  Council 
and  repealing  Council  Directive  93/22/EEC34  repealed  Directive  93/22/EEC,  it 
introduced a new list of investment services and activities in order to encompass the 
full range of investor-oriented activities and to provide for the degree of harmonisation 
needed to  offer  investors a high level  of protection  and  to  allow  investment  firms  to 
provide  services  throughout  the  Union.  Therefore,  it  is  necessary  to  align  Directive 
97/9/EC  with  Directive  2004/39/EC  in  order  to  ensure  that  the  provision  of  all 
investment services and activities continue to be adequately covered under schemes. 

At the time of its adoption, Directive 97/9/EC took into account the coverage and the 
functioning  of  deposit-guarantee  schemes  as  regulated  under  Directive  94/19/EC  of 
the  European  Parliament  and  of  the  Council  of  30  May  1994  on  deposit-guarantee 
schemes35.  Consequently,  it  is  appropriate  to  continue  taking  into  account  any 
modifications of Directive 94/19/EC. 

Investors may not be aware of any limits of investment firms' authorisations, thus it is 
necessary to protect them in situations in which investment firms act in breach of their 
authorisation notably by holding client assets or providing services to a particular type 
of  client  contrary  to  the  conditions  of  their  authorisation.  Therefore,  schemes  should 
cover  clients'  assets  which  are  de  facto  held  by  investment  firms  in  connection  with 
any investment business.  

Commission  Directive  2006/73/EC  of  10  August  2006  implementing  Directive 
2004/39/EC of the European Parliament and of the Council as regards organisational 
requirements and operating conditions for investment firms and defined terms for the 
purposes  of  that  Directive36  allows  investment  firms  to  deposit  financial  instruments 
held on behalf of clients into accounts opened with a third party. The third party is not 
necessarily subject to specific regulation and supervision. Notwithstanding compliance 
with the conditions under Directive 2006/73/EC, failure of the third party may affect 
investors'  rights  if  that  party  is  not  able  to  return  the  financial  instruments  to  the 
investment firm. In order to strengthen investor confidence, it is appropriate to extend 
compensation  under  Directive  97/9/EC,  without  prejudice  to  applicable  national 
liability  regimes,  to  the  inability  of  an  investment  firm  to  return  client  financial 

33 
34 
35 
36 

OJ L 141, 11.6.1993, p. 27–46. 
OJ L 145, 30.4.2004, p. 1–44. 
OJ L 135, 31.5.1994, p. 5–14. 
OJ L 241, 2.9.2006, p. 26–58. 

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14 

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(7) 

(8) 

(9) 

instruments  due  to  the  failure  of  a  third  party  where  the  financial  instruments  have 
been deposited by the investment firm or by its custodians.  

Directive 2006/73/EC requires investment firms to place any client funds they receive 
into  one  or  more  accounts  opened  with  a  third  party.  The  third  party  entities  are 
limited to a central bank, a credit institution or a bank authorised in a third country or a 
qualifying  money  market  fund.  The  strict  regime  ensured  by  Directive  2006/73/EC 
make  it  unnecessary  to  extend  the  schemes  coverage  to  the  failure  of  the  third  party 
where funds have been deposited.  

As the compensation coverage under  Directive 94/19/EC is now higher than the  one 
under  this  Directive,  it  is  necessary  to  provide  the  highest  protection  to  investors  in 
cases where both Directives 94/19/EC and 97/9/EC could cover assets held by banks . 
Therefore,  in  those  cases,  the  investor  should  be  compensated  under  Directive 
94/19/EC.  

In  order  to  be  able  to  recover  the  funds  paid  for  compensation,  schemes  making 
payments  to  compensate  investors  for  failure  of  a  depositary  or  a  third  party  should 
have  the  right  of  subrogation  to  the  rights  of  the  investor,  investment  firm  or 
undertakings for collective investment in transferable securities (hereinafter referred to 
as  "UCITS")  in  liquidation  proceedings  for  amounts  equal  to  their  payments.  This 
Directive should not be intended to diminish the responsibility of investment firms or 
UCITS to recover assets from a depositary or custodian.  

(10)  Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 
on  the  coordination  of  laws,  regulations  and  administrative  provisions  relating  to 
undertakings for collective investment in transferable securities (UCITS)37 requires the 
UCITS'  assets  to  be  safe  kept  by  a  depositary.  If  the  depositary  or  one  of  its  sub-
custodians defaults and is unable to return the financial instruments held in custody , 
this affects the value of the UCITS units or shares. In order to increase protection in 
this situation, unit and share holders in UCITS should benefit from the same level of 
protection as if they were investing directly into the financial instruments concerned, 
should the entity holding the financial instruments become unable to return them. Unit 
holders and share holders in UCITS should receive compensation for the loss of value 
of the UCITS. At the same time, they should be able to keep the UCITS units or shares 
in order to preserve their right to redeem them when they consider this is adequate. 

(11)  Directive  97/9/EC  already  excludes  from  any  compensation  under 

investor-
compensation schemes claims arising out of transactions where a criminal conviction 
has been obtained for money laundering within the meaning of Directive 2005/60/EC 
of the European Parliament and of the Council of 26 October 2005 on the prevention 
of  the  use  of  the  financial  system  for  the  purpose  of  money  laundering  and  terrorist 
financing38.  It  is  also  appropriate  to  exclude  any  claim  for  compensation  where  the 
assets  concerned  result  from  conduct  prohibited  under  Directive  2003/6/EC  of  the 
European  Parliament  and  of  the  Council  of  28  January  2003  on  insider  dealing  and 
market manipulation (market abuse)39 in which the claimant has been involved. 

37 
38 
39 

OJ L 302, 17.11.2009, p. 32–96. 
OJ L 309, 25.11.2005, p. 15.  
OJ L 96, 12.4.2003, p. 16. 

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(12)  The  minimum  level  of  compensation  was  established  in  1997  and  has  not  been 
modified  since  then.  This  level  should  be  increased  to  EUR  50  000  in  order  to  take 
into  account  developments  in  the  financial  markets  and  in  the  Union  legislative 
framework.  This  amount  takes  into  account  the  effects  of  inflation  in  the  Union  and 
the  need  to  better  align  the  level  of  compensation  with  the  average  value  of 
investments  held  by  retail  clients  in  the  Member  States.  In  order  to  increase  the 
protection  provided  to  investors,  it  is  necessary  to  remove  the  existing  option  for 
Member States to limit or exclude from cover funds in currencies other that those of 
the Member States.  

(13) 

In order to ensure investors receive the compensation provided for under this Directive 
and a comparable level of investor protection across Member States, it is necessary to 
introduce  common  rules  governing  the  funding  of  the  schemes.  The  schemes  should 
be  financed  in  proportion  to  their  liabilities.  An  appropriate  level  of  pre-funding 
should  be  ensured  and  the  schemes  should  have  in  place  adequate  arrangements  to 
assess  and  reach  their  target  funding  level  prior  to  the  occurrence  of  any  loss  event 
relevant  under  Directive  97/9/EC.  A  common  minimum  target  fund  level  should  be 
reached within a ten-year period.  

(14)  Where necessary, exceptional call for contributions to the members of the scheme or 
access to borrowing sources, such as from commercial banks or public institutions on 
commercial  grounds,  should  ensure  a  timely  coverage  of  any  needs  which  is  not 
covered by the funds collected from members prior to the occurrence of loss events.  

(15)  The functioning of the schemes is currently highly differentiated in Member States and 
this Directive aims at introducing further harmonisation while leaving some flexibility 
to  Member  States  as  to  the  detailed  organisation  of  the  schemes.  The  Commission 
should  be  empowered  to  adopt  delegated  acts  on  certain  essential  features  of  the 
functioning of schemes in accordance with Article 290 of the Treaty. In particular the 
delegated acts should be adopted in respect of the method to determine the potential 
liabilities of the schemes, the alternative funding arrangements that schemes must have 
in  place  to  be  able,  where  necessary,  to  obtain  short  term  funding,  the  criteria  to 
determine the contributions by entities covered by  the schemes and  the factors  to be 
considered  in  assessing  the  ability  of  additional  contributions  to  not  jeopardise  the 
stability  of  the  financial  system  of  a  Member  States.  In  order  to  determine  the 
conditions  of  application  of  the  provisions  concerning  the  financing  of  the  schemes, 
the European Securities and Markets Authority established by Regulation …/… of the 
European Parliament and of the Council [ESMA]40 should develop technical standards 
relative to the details to be made public by the schemes. 

(16) 

In  order  to  ensure  that  investors  receive  compensation  in  due  time  a  last  resort 
borrowing  mechanism  among  national  schemes  in  the  Union  should  be  established. 
The  system  should  include  the  possibility  for  schemes  to  borrow  funds  from  other 
schemes  in  the  exceptional  case  they  face  a  temporary  lack  of  funding.  For  this 
purpose, a portion of ex-ante funding in each scheme should be available for lending 
to other schemes.  

40 

OJ L ... 

EN 

16 

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(17)  The borrowing mechanism should not impinge any fiscal responsibility of the Member 
States.  The  borrowing  schemes  should  be  able  to  make  recourse  to  the  borrowing 
possibility provided for in this directive after exhausting the funds collected to reach 
the target fund level and the additional calls for contribution to their members. While 
respecting  the  supervision  of  investor-compensation  schemes  by  Member  States, 
ESMA  should  contribute  to  the  achievement  of  the  objective  of  making  it  easier  for 
investment firms and UCITS to pursue their activities while at the same time ensuring 
effective  protection  for  investors.  To  that  end,  ESMA  should  confirm  that  the 
conditions  of  borrowing  between  investor-compensation  schemes  laid  down  in  this 
Directive  are  fulfilled  and  state,  within  the  strict  limits  set  by  this  Directive,  the 
amounts to be lent by each scheme, the initial interest rate as well as the duration of 
the  loan.  In  this  respect,  ESMA  should  also  collect  information  on  investor-
compensation  schemes,  in  particular  on  the  amount  of  covered  monies  and  financial 
instruments in each scheme, confirmed by competent authorities. It should inform the 
other investor-compensation schemes about their obligation to lend.  

(18) 

(19) 

(20) 

In order to simplify the lending process, if more than one scheme is established in a 
Member  State,  the  Member  State  shall  designate  one  scheme  acting  as  the  lending 
scheme  of  that  Member  State  and  inform  the  European  Securities  and  Markets 
Authority accordingly. Borrowing should be limited to the coverage of compensation 
deriving from Directive 97/9/EC.  

It  is  necessary  to  ensure  that  the  overall  funds  available  for  lending  may  be  used  to 
satisfy  a  plurality  of  requests  from  borrowing  schemes.  For  this  purpose,  no  loan 
should exceed a pre-determined threshold of funds available for lending.  

In  order  to  accelerate  the  compensation  process,  the  determination  by  a  competent 
authority of the fact that an investment firm is not able to meet its obligations arising 
out of investors' claims should be made as soon as possible.  

(21)  The procedures necessary to establish the eligibility and the amount of compensation 
claim,  often  depending  on  national  administrative  and  insolvency  laws,  may  cause 
long delays in the payments to investors. In order to make payment delays shorter, it is 
necessary to ensure that, in systems or situations where the eligibility and the amount 
of the claim depends on insolvency or judicial procedures regarding the entities failing 
to  meet  their  obligations,  the  schemes  should  be  able  to  participate  in  those 
procedures.  In  addition,  the  obligation  to  grant  a  provisional  payout  of  partial 
compensation should be provided for in the case of delays longer than twelve months 
in  order  to  allow  investors  to  receive  a  portion  of  the  compensation  claimed. 
Mechanisms to return the money to the schemes in case it is established that the claim 
was not eligible should be envisaged.  

(22)  Directive  97/9/EC  allows  Member  States  to  exclude  professional  and  institutional 
investors from cover but the relevant list is not aligned with the classification of clients 
of  investment  firms  under  Directive  2004/39/EC.  In  order  to  ensure  consistency 
between  Directives  97/9/EC  and  2004/39/EC,  to  simplify  the  assessment  for 
compensation schemes and to limit the possible exclusion, in the case of enterprises, 
only  to  large  undertakings,  Directive  97/9/EC  should  refer  to  investors  who  are 
considered as professional clients according to Directive 2004/39/EC.  

EN 

17 

   EN 

 
(23)  The  Commission  should  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article 290 of the Treaty. In particular, the delegated acts should be adopted in respect 
of the determination of the method to calculate the target fund level to be established 
by the schemes and to modify this target fund level, the percentage of the determined 
ceiling of the funds available for lending between national compensation schemes, the 
procedure to deal with investors' claims and the technical criteria to calculate the loss 
of value of a UCITS in the circumstances covered by this Directive. The Commission 
should  also  be  empowered  to  amend,  by  means  of  delegated  acts,  the  percentage  of 
funds  available  for  lending  taking  into  account  the  developments  in  the  financial 
markets.  

(24)  Directive 97/9/EC should therefore be amended accordingly, 

HAVE ADOPTED THIS DIRECTIVE:  

Article 1  
Amendments to Directive 97/9/EC 

Directive 97/9/EC is amended as follows:  

(1) 

(a) 

Article 1 is amended as follows: 

Point 2 is replaced by the following: 

"2. 'investment business' shall mean investment services and activities as defined in 
Article 4(1)(2) of Directive 2004/39/EC and the ancillary service referred to in point 
1 of Section B of the Annex I to Directive 2004/39/EC of the European Parliament 
and of the Council (*); 

* 

OJ L 45, 16.2.2005, p. 18." 

(b) 

Point 4 is replaced by the following: 

"4. 'investor' means, in relation to investment business, any person who has entrusted 
money  or  instruments  to  an  investment  firm,  and  in  relation  to  the  activities  of 
UCITS, a unit holder or share holder in a UCITS (hereafter "unit holder");" 

(c) 

Point 7 is replaced by the following: 

"7.  'competent  authorities'  means  the  authorities  defined  in  Article  4  (1)  22  of 
Directive  2004/39/EC  and  in  Article  2(1)  (  h)  of  Directive  2009/65/EC  of  the 
European Parliament and of the Council (*). 

Where  this  Directive  refers  to  the  [ESMA  regulation]  investor-compensation 
schemes shall, for the purpose of this regulation, be considered competent authorities 
under Article 2(3) of the [ESMA regulation]; 

* 

OJ L 302, 17.11.2009, p. 32." 

(d) 

The following points 8 to 11 are added: 

EN 

18 

   EN 

 
 
 
"8.  'UCITS'  means  an  undertaking  as  defined  in  Article  1(2)  and  (3)  of  Directive 
2009/65/EC; 

9.  'depositary'  means  in  relation  to  UCITS  activities,  an  institution  as  defined  in 
Article 2(1)(a) of Directive 2009/65/EC;" 

10. 'third party' means, in relation to investment business, an institution with whom 
an  investment  firm  has  deposited  financial  instruments  held  by  it  on  behalf  of  its 
clients  as  referred  to  in  Article  17  of  Directive  2006/73/EC  or  with  whom  such  an 
institution  has  sub-deposited  the  financial  instruments;  in  relation  to  a  UCITS 
business, an institution with whom a UCITS depositary has entrusted assets on behalf 
of the UCITS; 

11. 'low-risk assets' means asset items falling into one of the categories set out in the 
first and second category of Table 1 of point 14 of Annex I to Directive 2006/49/EC 
of the European Parliament and of the Council(*) but excluding asset items defined 
as qualifying items in point 15 of that Annex. 

* 

OJ L 177, 30.6.2006, p. 201." 

(e) 

The following paragraph 2 is added: 

"2.  The  provisions  of  this  Directive  applying  to  investment  firms  shall  apply  to 
management companies authorized in accordance with Directive 2009/65/EC, where 
their authorization also covers the services listed in Article 6(3), of that Directive."  

(2) 

Article 2 is amended as follows:  

(a)  The first subparagraph of paragraph 1 is replaced by the following: 

"1.  Each  Member  State  shall  ensure  that  within  its  territory  one  or  more  investor-
compensation  schemes  are  introduced  and  officially  recognized.  Except  in  the 
circumstances  envisaged  in  the  second  subparagraph  and  in  Article  5(3),  no 
investment  firm  authorized  in  that  Member  State  or  UCITS  authorized  in  that 
Member State may carry on investment business or carry on activities as a UCITS, 
unless it belongs to such a scheme."  

(b)  Paragraph 2 is replaced by the following: 

"2. A scheme shall provide coverage for investors in relation to investment business 
in accordance with Article 4 where one of the following conditions is met first:  

(a) 

(b) 

the  competent  authorities  have  determined  that  an  investment  firm 
appears,  for  the  time  being,  for  reasons  directly  related  to  the  financial 
circumstances  of  the  investment  firm  or  the  financial  circumstances  of 
any third party with whom financial instruments have been deposited by 
the  investment  firm,  to  be  unable  to  meet  its  obligations  arising  out  of 
investors' claims and has no early prospect of being able to do so,  

a judicial authority has made a ruling, for reasons directly related to the 
the  financial 
financial  circumstances  of 
circumstances  of  any  third  party  with  whom  financial  instruments  have 

investment  firm  or 

the 

EN 

19 

   EN 

 
 
been  deposited  by  the  investment  firm,  which  has  the  effect  of 
suspending investors' ability to make claims against the firm or the firm's 
ability to make claims against the third party. 

Member  States  shall  ensure  that  competent  authorities  make  the  determination 
referred to in point (a) of the first subparagraph as soon as possible and in any event 
within  3  months,  after  first  becoming  aware  that  an  investment  firm  has  failed  to 
meet its obligations arising out of investors' claims." 

(c)  The following paragraphs 2a, 2b and 2c are inserted: 

"2a. The coverage referred to in paragraph 2 shall be provided in accordance with the 
legal  and  contractual  conditions  applicable  for  claims  arising  out  of  an  investment 
firm's inability to perform either of the following: 

(a) 

(b) 

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

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

Member  States  shall  ensure  that  the  schemes  provide  coverage  where  financial 
instruments  or  monies  are  held,  administered  or  managed  for  or  on  behalf  of  an 
investor, irrespective of the type of investment business being carried on by the firm 
and of whether or not the firm is acting in accordance with any restriction set out in 
its authorisation. 

2b. A scheme shall also provide coverage for UCITS unit holders in accordance with 
Article 4 where either of the following conditions is met first: 

(a) 

(b) 

the competent authority has determined that a depositary or a third party 
to  whom  the  assets  of  the  UCITS  are  entrusted  is  unable  to  meet  its 
obligations to a UCITS, for the time being, for reasons directly related to 
the financial circumstances of the depositary or the third party and has no 
early prospect of being able to do so;  

a judicial authority has made a ruling, for reasons directly related to the 
financial  circumstances  of  the  depositary  or  any  third  party  to  whom 
assets of the UCITS are entrusted, which has the effect of suspending the 
UCITS' ability to make claims against the depositary or the third party. 

Member  States  shall  ensure  that  the  competent  authorities  make  the  determination 
referred to in point (a) of the first subparagraph as soon as possible and in any event 
within  3  months,  after  first  becoming  aware  that  a  depositary  or  a  third  party  to 
whom the assets of the UCITS are entrusted has failed to meet its obligations arising 
out of the UCITS' claims. 

2c. The coverage referred to in paragraph 2b shall be provided in accordance with the 
legal  and  contractual  conditions  applicable  for  a  claim  by  a  UCITS  unit  holder  for 
the loss of value of the UCITS unit due to the inability of a depositary or a third party 

EN 

20 

   EN 

 
to  whom  the  assets  of  the  UCITS  have  been  entrusted,  to  perform  either  of  the 
following: 

(a) 

(b) 

repay money owed to or belonging to the UCITS and held on its behalf in 
connection with UCITS activities, 

return  to  the  UCITS  any  instruments  belonging  to  it  and  held  or 
administered on its behalf in connection with UCITS activities." 

(f) 

Paragraph 3 is replaced by the following:  

"3.  Any  claim  referred  to  in  paragraph  2a  on  a  credit  institution  which,  in  a  given 
Member  State,  would  be  eligible  both  under  this  Directive  and  Directive  94/19/EC 
shall be  dealt with  under Directive 94/19/EC. No claim shall  be eligible more than 
once under those directives." 

EN 

21 

   EN 

 
(3) 

Article 3 is replaced by the following: 

"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 Directive 2005/60/EC 
of  the  European  Parliament  and  of  the  Council(*),  or  arising  out  of  conduct  that  is 
prohibited  under  Directive  2003/6/EC  of  the  European  Parliament  and  of  the 
Council(**), shall be excluded from any compensation under investor-compensation 
schemes. 

* 

OJ L 309, 25.11.2005, p. 15. 

**  OJ L 96, 12.4.2003, p. 16." 

(4) 

Article 4 is amended as follows: 

(a)  Paragraph 1 is replaced by the following: 

"1. Member States shall ensure that schemes provide for coverage of EUR 50 000 for 
each investor in respect of the claims referred to in Article 2(2a) or (2c). 

Members States which provide for coverage of more than EUR 50 000 at the time of 
adoption of this Directive, may maintain that level of coverage for no longer than 3 
years  from  the  date  for  the  transposition  of  this  Directive.  After  that  date,  those 
Member States shall ensure that the level of coverage is EUR 50 000. 

Member  States  who  convert  the  amounts  expressed  in  euro  into  their  national 
currency shall initially use in the conversion the exchange rate prevailing on the date 
of entry into force of this Directive. 

Member States may round off the amounts resulting from the conversion, provided 
that such rounding off does not exceed EUR 2500. 

Without  prejudice  to  the  fourth  subparagraph,  Member  States  shall  adjust  the 
coverage  levels  converted  into  another  currency  to  the  amount  referred  to  in  this 
paragraph  every  five  years.  Member  States  may  make  an  earlier  adjustment  of 
coverage levels, after having consulted the Commission, following the occurrence of 
unforeseen events such as currency fluctuations. 

(b)  The following paragraph 1a is inserted: 

"1a. The Commission may adjust by means of delegated acts the amount referred in 
paragraph 1, taking into account the following parameters:  

(a)  inflation  in  the  Union,  on  the  basis  of  changes  in  the  harmonised  index  of 
consumer prices published by the Commission; 

(b) average amount of funds and financial instruments held by investment firms on 
behalf of retail investors." 

(c)  Paragraph 2 is replaced by the following: 

EN 

22 

   EN 

 
"2.  A  Member  State  may  provide  that  certain  investors  shall  be  excluded  from 
coverage by schemes for claims referred to in Article 2(2a) or (2c) or shall be granted 
a lower level of coverage. Those exclusions shall be as listed in Annex 1. "  

(d)  Paragraph 4 is deleted. 

EN 

23 

   EN 

 
(5) 

The following Articles 4a and 4b are inserted:  

"Article 4a 

1. 

2. 

3. 

4. 

5. 

6. 

Member  States  shall  ensure  that  schemes  have  in  place  adequate  systems  to 
determine  their  potential  liabilities.  Member  States  shall  ensure  that  compensation 
schemes are adequately financed in proportion to their liabilities.  

Member  States  shall  ensure  that  each  scheme  establishes  a  target  fund  level  of  at 
least 0.5% of the value of the monies and financial instruments held, administered or 
managed by the investment firms or UCITS that are covered by the protection of the 
investor  compensation  scheme.  The  value  of  the  covered  monies  and  financial 
instruments shall be calculated every year as at 1 January. 

The Commission shall adopt, by means of delegated acts in accordance with Article 
13a and subject to the conditions of Articles 13b and 13c, measures to determine the 
method  to  calculate  the  value  of  monies  and  financial  instruments  covered  by  the 
protection  of  the  investor  compensation  schemes  in  order  to  determine  the  target 
fund level to be established by the schemes and to modify the target fund level taking 
account of the developments in financial markets.  

The target fund level shall be financed prior to and irrespective of the occurrence of 
any  event  relevant  under  Article  2(2)  or  (2b).  Member  States  shall  ensure  that  the 
level of funding for each scheme is reached within a ten-year period after the entry 
into  force  of  this  Directive  and  that  each  scheme  adopts  and  complies  with  an 
appropriate planning in order to fulfil this objective.  

Contributions collected to reach the target fund level shall only be invested in cash 
deposits and low-risk assets with a residual term to financial maturity of 24 months 
or less, which can be liquidated within a time limit not exceeding one month.  

Member  States  shall  ensure  that  the  schemes  may  make  additional  calls  for 
contribution to the members of the scheme in case the target fund level is insufficient 
to  meet  the  payment  of  the  compensation  claims  referred  to  in  Article  9(2).  Those 
additional  contributions  shall  not  exceed  0.5%  of  the  covered  monies  and  financial 
instruments  as  referred  to  in  paragraph  2  of  this  Article.  Those  additional 
contributions shall not jeopardise the stability of the financial system of the Member 
State concerned and be based on affordability criteria.  

Member States shall ensure that schemes have in place adequate alternative funding 
arrangements to enable them to obtain short term funding to meet claims against the 
scheme  once  the  pre-funded  amount  has  been  exhausted.  Those  arrangements  may 
include  borrowing  facilities  from  commercial  banks.  They  may  also  include 
borrowing  facilities  from  public  institutions  provided  that  those  facilities  are  based 
on commercial grounds. 

Member States shall ensure that the cost of financing schemes is ultimately borne in 
relation  to  investment  business  by  the  investment  firms  or  third  party  custodians 
covered  by  the  scheme  and  in  relation  to  UCITS  activities,  by  UCITS  or  their 
depositaries or third parties who are covered by the scheme. Regular contributions by 
members shall be raised annually. 

EN 

24 

   EN 

 
7. 

8. 

Member States shall annually inform the ESMA of the target fund level, as referred 
to  in  paragraph  2,  and  the  level  of  funding,  as  referred  to  in  paragraph  3,  of  the 
schemes  in  their  Member  State.  This  information  shall  be  confirmed  by  the 
competent  authorities  and  shall,  accompanied  by  this  confirmation,  be  transmitted 
within 30 days from the end of each year to the ESMA. 

Member States shall ensure that the information referred to in the first subparagraph 
is published on the web-site of the Schemes at least on an annual basis. 

Member States shall ensure that 10% of the ex-ante funding amount of the schemes 
referred  to  in  Article  4a  (2)  is  available  for  lending  to  other  schemes  under  the 
conditions established in Article 4c. 

The Commission may amend, by means of delegated acts in accordance with Article 
13a and subject to the conditions of Articles 13b and 13c, the percentage of the ex-
ante funding amount to be made available for lending to other schemes, taking into 
account the developments in financial markets. 

9. 

The Commission shall adopt, by means of delegated acts in accordance with Article 
13a and subject to the conditions of Articles 13b and 13c, measures to determine: 

(a) 

(b) 

(c) 

(d) 

10. 

the  method  to  determine  the  potential  liabilities  of  schemes  as  referred  to  in 
paragraph 1; 

the alternative funding arrangements as referred to in paragraph 5 that schemes 
must have in place to be able to obtain short term funding if necessary;  

the factors to be considered in assessing the ability of additional contributions 
as  referred  to  in  paragraph  4  to  not  jeopardise  the  stability  of  the  financial 
system of a Member State; 

the criteria to determine the contributions by entities covered as referred to in 
paragraph 6. 

In  order  to  ensure  uniform  conditions  of  application  of  paragraph  7, 
subparagraph 2, the European Securities and Markets Authority established by 
Regulation  …/…  of  the  European  Parliament  and  of  the  Council(*)  [ESMA] 
(hereinafter referred to as "ESMA") shall develop draft technical standards to 
specify the details of the information to be published by the schemes.  

ESMA shall submit the draft technical standards referred to in the first subparagraph 
to the Commission by 31 December 2012. 

The  Commission  may  adopt  the  draft  technical  standards  referred  to  in  the  first 
subparagraph in accordance with the procedure laid down in Article 7e of Regulation 
.../.... [ESMA]. 

Article 4b  

1. 

A scheme shall have the right to borrow from all other schemes referred to in Article 
2 within the Union provided that all of the following conditions are met: 

EN 

25 

   EN 

 
the borrowing scheme is not able to fulfil its obligations under Article 2 (2a) or 

(a) 
(2c) because of previous payments made to fulfil those obligations; 

the  situation  referred  to  in  point  (a)  of  this  subparagraph  is  due  to  a  lack  of 

(b) 
funds as referred to in Article 4a(3); 

the borrowing scheme has made recourse to additional contributions referred in 

(c) 
Article 4a(4); 

the  borrowing  scheme  undertakes  the  legal  commitment  that  the  borrowed 

(d) 
funds will be used in order to pay claims under Article 2 (2a) and (2c); 

a  scheme  that  has  not  repaid  a  loan  to  other  schemes  under  this  Article  shall 

(e) 
neither borrow from nor lend to other schemes; 

(f) 

the borrowing scheme shall state the amount of money requested;  

the borrowing scheme informs without delay the ESMA and states the reasons 

(g) 
why the above conditions are fulfilled and the amount of money requested. 

The amount referred to in point (f) of the first subparagraph shall be determined as 
follows:  

[amount  of  claims  to  be  paid  under  Article  2(2a)  and  2(2c)]  –  [level  of  funding  as 
referred to in Article 4a(7)] + maximum amount of additional contributions referred 
to in Article 4a(4)] 

The other schemes shall act as lending schemes. For this purpose, Member States in 
which more than one scheme is established shall designate one scheme acting as the 
lending scheme of this Member State and inform the ESMA thereof. Member States 
may  decide  if  and  how  the  lending  scheme  is  reimbursed  by  other  Schemes 
established in the same Member State. 

2. 

The loan shall be subject to the following conditions: 

subject  to  the  limit  established  in  the  following  subparagraph,  each  scheme 
(a) 
shall lend the amount proportionate to the amount  of  covered  monies  and  financial 
instruments  in  each  scheme  without  taking  account  of  the  borrowing  scheme.  The 
amounts shall be calculated pursuant to the latest information referred to in Article 4a 
(2); 

(b) 
the  borrowing  scheme  shall  repay  the  loan  at  the  latest  after  5  years.  It  may 
repay  the  loan  in  annual  instalments.  Interest  shall  be  due  only  at  the  time  of 
repayment; 

the interest rate shall be equivalent to the marginal lending facility rate of the 

(c) 
European Central Bank during the credit period. 

The total amount lent to each borrowing scheme shall not exceed the 20% of the total 
amount of the funds available at Union level for lending as referred to in Article 4a 
(8). 

EN 

26 

   EN 

 
3. 

4. 

5. 

ESMA shall confirm that the requirements referred to in paragraph 1 have been met, 
state the amounts to be lent by each scheme as calculated pursuant to paragraph 2(a) 
and the initial interest rate pursuant to paragraph 2-(c) as well as the duration of the 
loan. 

ESMA  shall  transmit  its  confirmation  together  with  the  information  referred  to  in 
paragraph  (g)  to  the  lending  Schemes.  They  shall  receive  this  confirmation  and 
information within 15 working days. The lending schemes shall, without delay but at 
the latest within further 15 working days after reception effect payment of the loan to 
the borrowing scheme. 

Member  States  shall  ensure  that  the  contributions  levied  by  the  borrowing  scheme 
are sufficient to reimburse the amount borrowed and to re-establish the target level 
fund as soon as possible and at latest within a ten-year period after the reception of 
the loan. 

In  order  to  facilitate  an  effective  cooperation  between  investor-compensation 
schemes,  the  schemes,  or,  where  appropriate,  the  competent  authorities,  shall  have 
written cooperation agreements in place. Such agreements shall take into account the 
requirements  set  out  in  Directive  95/46/EC  of  the  European  Parliament  and  of  the 
Council (**). 

ESMA shall be notified of the existence and the content of the agreements referred to 
in subparagraph 1. It may issue opinions on such agreements under Articles [6(2)(f) 
and 19 of the ESMA regulation]. If competent authorities or schemes cannot reach an 
agreement or if there is a dispute about the interpretation of such agreement, ESMA 
shall settle disagreements pursuant to [Article 11 of the ESMA regulation]. 

The  absence  of  the  agreements  referred  to  in  subparagraph  1  shall  not  affect  the 
claims of investors under Article 2(2a) or (2c).  

* 

OJ L … 

**  OJ L 084, 26/03/1997, p.22. 

(6) 

Articles 5 and 6 are replaced by the following: 

"Article 5 

1. 

2. 

If  an  investment  firm,  UCITS,  depositary  or  third  party  required  by  Article  2(1)  to 
belong  to  a  scheme  do  not  meet  their  respective  obligations  incumbent  on  it  as  a 
member of that scheme, the competent authorities which issued the investment firm 
authorization  or  the UCITS authorization shall be notified and, in cooperation with 
the  compensation  scheme,  shall  take  all  measures  appropriate,  including  the 
imposition  of  penalties,  to  ensure  that  the  investment  firm,  UCITS,  depositary  or 
third party meets its obligations. 

If the measures referred to in paragraph 1 fail to secure compliance on the part of the 
investment firm, UCITS, depositary or third party, the scheme may, with the express 
consent  of  the  competent  authorities,  give  not  less  than  12  months'  notice  of  its 
intention  of  excluding  the  investment  firm,  UCITS,  depositary  or  third  party  from 

EN 

27 

   EN 

 
membership  of  the  scheme.  The  scheme  shall  continue  to  provide  the  coverage 
referred  to  in  Article  2(2a)  and  (2c)  in  respect  of  investment  business  or  UCITS 
activities  carried  on  during  that  period.  If,  on  expiry  of  the  period  of  notice,  the 
investment  firm,  UCITS,  depositary  or  third  party  has  not  met  its  obligations,  the 
compensation  scheme  may,  again  having  obtained  the  express  consent  of  the 
competent authorities, exclude it. 

An  investment  firm,  UCITS,  depositary  or  third  party,  excluded  from  an  investor-
compensation  scheme,  may  continue  to  carry  on  investment  business,  its  UCITS 
activities or be entrusted with investors' and UCITS financial instruments under the 
following conditions: 

a) before its exclusion, it had made alternative compensation arrangements ensuring 
that investors and UCITS would enjoy cover that is at least equivalent to that offered 
by  the  officially  recognized  scheme  and  that  the  characteristics  of  such  alternative 
compensation arrangements would be equivalent to those of the officially recognized 
scheme; 

b) the competent authority responsible for the authorization of the investment firm or 
UCITS, has confirmed that the conditions referred to in letter a) are met. 

If  an  investment  firm  or  a  UCITS  the  exclusion  of  which  is  proposed  under 
paragraph  2  is  unable  to  make  alternative  arrangements  which  comply  with  the 
conditions  imposed  in  paragraph  3,  the  competent  authorities  which  issued  its 
authorization shall: 

(a)  with  respect  to  the  investment  firm  for  which  it  has  issued  the  authorization, 
withdraw the authorization without delay;  

(b)  with respect to the UCITS it has approved, withdraw the authorization without 
delay. 

Where  a  depositary  or  a  third  party,  the  exclusion  of  which  is  proposed  under 
paragraph  2  is  unable  to  make  alternative  arrangements  which  comply  with  the 
conditions  imposed  in  paragraph  3,  it  shall  not  be  allowed  to  be  entrusted  with 
investors' or UCITS assets."  

3. 

4. 

5. 

Article 6 

After  the  withdrawal  of  an  investment  firm's  authorization  or  UCITS'  authorization,  the 
coverage  referred  to  in  Article  2(2a)  and  (2c)  shall  continue  to  be  provided  in  respect  of 
investment business transacted up to the time of that withdrawal." 

(7) 

Articles 8 and 9 are replaced by the following: 

"Article 8 

1. 

The cover provided for in Article 4(1) and (3) shall apply to the investor's aggregate 
claim  on  the  same  investment  firm  or  the  same  UCITS  under  this  Directive 
irrespective of the number of accounts, the currency and location within the Union. 

EN 

28 

   EN 

 
2. 

Each  investor's  share  in  joint  investment  business  shall  be  taken  into  account  in 
calculating the cover provided for in Article 4 (1) and (3).  

3. 

1. 

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)  and  (3),  be 
aggregated and treated as if arising from an investment made by a single investor. 

Where  an  investor  is  not  entitled  to  the  sums  or  securities  held,  the  person  who  is 
entitled shall receive the compensation, provided that that person has been or can be 
identified before the date of the determination or ruling referred to in Article 2(2) and 
(2b). 

If two or more persons are entitled, the share of each under the arrangements subject 
to which the sums or the securities are managed shall be taken into account when the 
limits laid down in Article 4(1) and (3) are calculated. 

"Article 9 

The  compensation  scheme  shall  take  appropriate  measures  to  inform  investors  of  a 
determination  or  ruling  referred  to  in  Article  2(2)  and  (2b)  and,  if  they  are  to  be 
compensated,  to  compensate  them  as  soon  as  possible.  It  may  fix  a  period  during 
which investors shall be required to submit their claims. That period may not be less 
than five months  from  the date of  the determination or ruling referred to in Article 
2(2) and (2b) or from the date on which that determination or ruling is made public. 

The  fact  that  that  period  has  expired  may  not  be  invoked  by  the  scheme  to  deny 
coverage to an investor who  has  been unable to assert his right to compensation in 
time. 

2. 

The scheme shall be in a position to pay an investor's claim as soon as possible and 
at the latest within three months of the establishment of the eligibility and the amount 
of the claim.  

In  exceptional  circumstances  a  compensation  scheme  may  apply  to  the  competent 
authorities  for  an  extension  of  the  time  limit.  No  such  extension  may  exceed  three 
months. Competent authorities shall inform immediately the European Securities and 
Markets  Authority  of  any  extension  granted  to  any  compensation  schemes  and  the 
circumstances justifying such extension.  

Member  States  shall  ensure  that  compensation  schemes  may  participate  in 
insolvency or judicial procedures that may be relevant in establishing the eligibility 
and the amount of a claim.  

The  third  subparagraph  shall  be  without  prejudice  to  schemes  being  able  to  adopt 
other methods to determine the eligibility or amount of a claim.  

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If final payment has not been made within nine months of the determination or ruling 
referred  to  in  Article  2(2)  or  (2b),  Member  States  shall  ensure  that  the  scheme 
provides,  within  three  months  of  that  determination  or  ruling,  for  a  provisional 
payout  of  partial  compensation  of  not  less  than  one  third  of  the  claim  based  on  an 
initial assessment of the claim. The balance shall be paid out within the period set out 
in the first subparagraph of this paragraph after the eligibility and the amount of the 
claim  are  finally  established.  Member  States  shall  ensure  that  the  scheme  has  the 
means  to  recover  amounts  provisionally  paid  out  if  it  is  established  that  the  claim 
was not eligible. 

The Commission shall adopt, by means of delegated acts in accordance with Article 
13a and subject to the conditions of Articles 13b and 13c, measures to determine the 
procedure to deal with investors' claims and the technical criteria to calculate the loss 
of value of a UCITS as a result of the events mentioned under Article 2(2b) and (2c).  

3. 

Notwithstanding  the  time  limit  laid  down  in  the  first  subparagraph  of  paragraph  2, 
where an investor or any other person entitled to or having an interest in investment 
business  has  been  charged  with  an  offence  arising  out  of  or  in  relation  to  money 
laundering as defined in Article 1 of Directive 2005/60/EC or is the subject of action 
for  contravention  of  Directive  2003/6/EC,  the  compensation  scheme  may  suspend 
any  payment  pending  the  judgment  of  the  court  or  determination  of  a  competent 
authority." 

(8) 

In Article 10, paragraph 1 is replaced by the following: 

"1.  Member  States  shall  ensure  that  each  investment  firm  or  UCITS  takes 
appropriate  measures  to  make  available  to  actual  and  intending  investors  the 
information necessary for the identification of the investor-compensation scheme of 
which the investment firm or UCITS and its branches within the Union are members 
or any alternative arrangement provided for under the second subparagraph of Article 
2 (1) or Article 5 (3). Investors shall be informed of the provisions of the investor-
compensation  scheme  or  any  alternative  arrangement  applicable,  including  the 
amount  and  scope  of  the  cover  offered  by  the  compensation  scheme  and  any  rules 
laid down by the Member States pursuant to Article 2(3). That information shall be 
made available in a readily comprehensible manner. 

Information  shall  also  be  given  on  request  concerning  the  conditions  governing 
compensation and the formalities which must be completed to obtain compensation. 

The  information  provided  shall  be  fair,  clear  and  not  misleading  and  in  particular 
shall explain the situations and claims covered by the relevant compensation scheme 
and how it applies in cross border situations. The information provided should also 
give examples of situations and claims not covered under the scheme." 

(9) 

Article 12 is replaced by the following: 

"Article 12  

1. 

Without  prejudice  to  any  other  rights  which  they  may  have  under  national  law, 
schemes which make payments in order to compensate investors shall have the right 

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2. 

3. 

4. 

of subrogation to the rights of those investors in liquidation proceedings for amounts 
equal to their payments.  

In  the  case  of  a  loss  due  to  the  financial  circumstances  of  a  third  party  that  holds 
financial instruments belonging to an investor in relation to investment business, as 
referred  to  in  Article  2(2),  schemes  which  make  payments  in  order  to  compensate 
investors  shall  have  the  right  of  subrogation  to  the  rights  of  the  investor  or 
investment firm in liquidation proceedings for amounts equal to their payments. 

In the case, provided for in Article 2(2c), of losses due to the financial circumstances 
of a depositary or third party to whom the assets of the UCITS have been entrusted, 
schemes  which  make  payments  in  order  to  compensate  UCITS  unit  holders  shall 
have  the  right  of  subrogation  to  the  rights  of  the  UCITS  holder  or  UCITS  in 
liquidation proceedings for amounts equal to their payments. 

If the third party that holds financial instruments belonging to an investor in relation 
to  investment  business  or  the  depositary  or  third  party  to  whom  the  assets  of  the 
UCITS  have  been  entrusted  are  located  in  a  third  country  in  which  the  judiciary 
system does not allow the scheme to subrogate to the rights of the investment firm or 
the UCITS, Member States shall ensure that the investment firm or the UCITS return 
to the scheme amounts  equal to  their  payments in  case  they receive any  amount in 
the liquidation proceedings." 

(10) 

The following Articles 13a, 13b and 13c are inserted: 

1. 

2. 

3. 

1. 

2. 

3. 

"Article 13a 

The  powers  to  adopt  the  delegated  acts  referred  to  in  Article  4a(2),  Article  4a(8), 
Article  4a(9)  and  Article  9(2)  shall  be  conferred  on  the  Commission  for  an 
indeterminate period of time. 

As soon as it adopts a delegated act, the Commission shall notify it simultaneously to 
the European Parliament and to the Council. 

The powers to adopt delegated acts are conferred on the Commission subject to the 
conditions laid down in Articles 13b and 13c.  

Article 13b 

The delegation of power referred to in Article 4a(2), Article 4a(8) Article 4a (9) and 
Article 9(2) may be revoked by the European Parliament or by the Council. 

The institution which has commenced an internal procedure for deciding whether to 
revoke the delegation of power shall endeavour to inform the other institution and the 
Commission  within  a  reasonable  time  before  the  final  decision  is  taken,  stating  the 
delegated  powers  which  could  be  subject  to  revocation  and  the  reasons  for  a 
revocation. 

The decision of revocation shall put an end to the delegation of the powers specified 
in that decision. It shall take effect immediately or at a later date specified therein. It 

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shall  not  affect  the  validity  of  the  delegated  acts  already  in  force.  It  shall  be 
published in the Official Journal of the European Union.  

Article 13c 

1. 

2. 

3. 

The European Parliament and the Council may object to the delegated  act  within  a 
period of two months from the date of notification. At the initiative of the European 
Parliament or the Council this period shall be extended by one month.  

If,  on  expiry  of  that  period,  neither  the  European  Parliament  nor  the  Council  has 
objected  to  the  delegated  act  it  shall  be  published  in  the  Official  Journal  of  the 
European Union and shall enter into force at the date stated therein.  

The  delegated act  may be published in the Official Journal of the European Union 
and enter into force before the expiry of that period if the European Parliament and 
the  Council  have  both  informed  the  Commission  of  their  intention  not  to  raise 
objections. 

If  the  European  Parliament  or  the  Council  objects  to  the  adopted  delegated  act,  it 
shall  not  enter  into  force.  The  institution  which  objects  shall  state  the  reasons  for 
objecting to the delegated act. 

(11) 

The following Article 14a is inserted: 

"Article 14a 

The Member States may conclude cooperation agreements on exchange of information with 
the  competent  authorities  of  third  countries  in  accordance  with  Article  63  of  Directive 
2004/39/EC and Article 102 of Directive 2009/65/EC." 

19. 

Annex I is amended as follows:  

(a)  Point 1 is replaced by the following: 

"1.  Professional  investors  referred  to  in  points  1  to  4  of  section  I  of  Annex  II  of 

Directive 2004/39/EC on markets in financial instruments." 

(b)  Points 2, 3 and 8 are deleted. 

Article 2  
Transposition  

1. 

Member States shall adopt and publish, by [twelve months after the entry into force 
of  this  Directive]  at  the  latest,  the  laws,  regulations  and  administrative  provisions 
necessary  to  comply  with  this  Directive.  They  shall  forthwith  communicate  to  the 
Commission  the  text  of  those  provisions  and  a  correlation  table  between  those 
provisions and this Directive. 

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They shall apply those provisions from [eighteen months after the entry into force of 
this Directive] except for provisions transposing Article 4b that shall be applied from 
31 December 2013. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 3 
Entry into force  

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union.  

Article 4 
Addressees  

This Directive is addressed to the Member States.  

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President  

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