Investor Compensation Scheme Luxembourg | CSSF FAQ

Evelyn MaherPartner, Bonn Steichen & Partners

On 26 November 2020, the CSSF issued Frequently Asked Questions regarding the Investor Compensation Scheme Luxembourg established by article 156 of the Law 18 December 2015 and governed by Part III, Title III of the same Law (the “FAQ” and the “Law”).

The Investor Compensation Scheme or Système d’indemnisation des investisseurs Luxembourg (“SIIL”) covers clients of investment firms, banks, management companies and AIFMs whose authorisation extends to the provision of investment portfolio management services on an individualised and discretionary basis. In the event of a loss of financial instruments SIIL will, in certain cases and up to certain amounts, compensate such clients.

The FAQ are intended to provide clarity on the definition of “other professional investors” that are excluded from the coverage of the SIIL, on the basis of the relevant decision of the Council for the Protection of Depositors and Investors (the “CPDI” -the Authority in charge of management and administration of the SIIL).

Under article 195(2), point 7 of the Law “the claims listed below which result from investment business shall be excluded from SIIL: … 7. Claims of other professional or institutional investors;…”.

The CPDI has decided that the definition of “professional investors”refers to the definition of “professional clients” under Annex II of the Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU ( “MiFID 2”).

The definition of professional clients includes both per se professionals and the clients who request to be treated as professionals. Under the CPDI decision, both these categories are excluded from the coverage of the Investor Compensation Scheme.

It has to be highlighted that the said Annex II also provides for a professional client to be treated as a non professional one for the purpose of the applicable conduct of business regime, on the basis of a written agreement specifying the service, product or transaction to which it applies. Any claims regarding the aforesaid services, products or transactions are covered by the Investor Compensation Scheme, provided that they are under no professional client treatment.