The purpose of the ICS is to protect retail investors, excluding professional investors, namely credit institutions, financial companies, financial institutions, insurance companies, pension fund management companies and general government entities, among others.
money-market instruments' means those classes of instruments which are normally dealt in on the money market, such as treasury bills, certificates of deposit and commercial papers and excluding instruments of payment.
5. What financial instruments are guaranteed by the ICS?
The ICS guarantees the financial instruments listed in section C of Annex I of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (shares, bonds, investment fund units, commercial paper, treasury bills, CFDs, futures and option on financial instruments, interest rate forward contracts and swaps).
6. When does the investor benefit from ICS coverage?
When following conditions are cumulatively met:
a) The defaulting financial intermediary is a participating entity of the ICS (see the Participating Entities list);
b) The investor is eligible for hedging purposes;
c) The investor's credit is eligible for hedging purposes, i.e. transactions in hedged financial instruments or cash delivered to the FI that has been explicitly intended for investment in hedged financial instruments.
7. What is the limit of compensation paid by the ICS?
The maximum compensation limit is €25,000 per investor, regardless of the number of accounts the investor holds and the number of holders of those accounts.
This limit is set per person (not per account) and is applied to the sum of the investor's shares in the various accounts held.
8. Is the compensation amount calculated based on the purchase price of the financial instruments?
No. The amount of compensation is calculated based on the value of the assets (cash and financial instruments) at the time the ICS is triggered. The ICS does not compensate for the losses on investments in financial instruments.
9. Is the client's portfolio of securities (shares, bonds or investment fund units) protected in the event of the financial intermediary's bankruptcy?
FIs must safeguard clients' assets and thus, these assets must be separated in the accounting and operations records from those belonging to the financial intermediary.
If the FI does not return the securities to the Client, these amounts are covered by the ICS up to a maximum amount of €25,000 per investor.
10. Does the ICS cover retirement savings plans (RSP)?
RSPs are savings funds and may take the format of a securities investment fund, pension fund or unit-linked.
The ICS only covers RSP investment units that take the format of securities investment funds provided that they are in the custody of the participating entity that originates the activation of the ICS.
The ICS does not cover market or credit risks arising from investment made in the Investment Fund, nor the failure to fulfil duties by the Fund's depositary entity.
11. Does the ICS cover capitalisation insurance?
The ICS covers those financial instruments listed in section C of Annex I of Directive 2014/65/EC of 15 May concerning markets in financial instruments.
Since capitalisation insurance products are not financial instruments as per the terms of said Directive, the ICS does not cover capitalisation insurance, regardless of whether said have guaranteed capital or not.
12. Are complex financial products are covered by the ICS in the event of bankruptcy?
The classification of a financial instrument as a Complex Financial Product is not relevant for the purposes of its eligibility for coverage by the ICS. Only financial instruments listed in Section C of Annex I of Directive 2014/65/EC of 15 May (MiFID) are covered by the ICS, in response to FAQ 5, therefore the eligibility of a financial instrument qualified as a Financial Product Complex will be determined on a case-by-case basis, depending on whether or not the financial instrument qualified as a Complex Financial Product belongs to that list.
Nevertheless, the ICS never covers counterparty risk nor credit events concerning issuers of financial instruments, including those qualified as Complex Financial Products.
For example, a structured bond (issued or not by an ICS participating entity), wherein the reimbursement of the invested capital and/or interest payment relies on the performance of another asset, instrument or financial contract – thus, a complex financial instrument – does not benefit from ICS coverage as regards the reimbursement of the invested capital or the interest payment by the issuing entity. In these cases, the ICS only covers the amount due to the investor by the financial intermediary (ICS participant) if the latter does not replace the commitment deposited by the customer at the ICS participant and does not have the financial capacity to repair this failure for the customer.
13. Does the ICS cover stock market devaluation?
No. Investment loss resulting from the normal functioning of the capitals market are not covered by the ICS:
14. Does the ICS cover losses due to bad investment advice?
No. Investment loss due to bad advice or advice by entities unauthorised to provide financial intermediary services are not covered by the ICS.
15. What credits resulting from investment operations are excluded from the ICS coverage?
The following is excluded from ICS coverage:
a) Credits resulting from investment operations via non-participating ICS entities;
b) The credits resulting from investment operations carried out:
- Through financial intermediaries, collective investment institutions, pension funds and other professional investors referred to in Article 30(1) of the Securities Code, whether acting in their own name or on behalf of clients, or entities in the public administrative sector;
- In the name and on behalf of members of the management or supervisory bodies of the participating entity, shareholders who hold qualified shares in it, statutory auditors employed by said, external auditors who provide audit services or investors with similar status in other companies that are in a domain or group relationship with the participating entity;
- Acting in the name of or on behalf of the persons or entities that have performed duties, have held stakes or provided the services referred to in the preceding paragraph within the four years preceding the date when the ICS was activated, or the adoption by Banco de Portugal of recovery and reorganisation measures pursuant to the law, and whose action or omission has been the source of the financial difficulties of the participating entity or has contributed to the aggravation of such situation, as well as the credits arising from investment operations carried out in the name and on behalf of the spouse, relatives or related in the 1st degree or third parties acting on behalf of investors referred to in this item;
- By an investor, any other person or party interested in such transactions in respect of whom a final judgment has been given of money laundering;
- Acting in the name and on behalf of companies in a controlling or group relationship with the participating entity;
- By investors who are responsible for, or have benefited from, events related to the participating entity which are the reason for the financial difficulties or have contributed to the aggravation of the situation;
- By investors acting on behalf of any persons or entities referred to in the preceding paragraphs.
c) Credits arising from return guarantees as well as reimbursement guarantees of funds allocated to investment operations that have been abusively agreed between investors and participating entities or granted by said.
16. Does the ICS cover the bankruptcy of an issuer of financial instruments?
The ICS does not cover credit risk of issuers of financial instruments.
17. Does the ICS cover investor credit on operations carried out by a branch in Portugal of a financial intermediary headquartered in another EU country?
In cases where the guarantee provided by the ICS is greater than the guarantee of the home country system, branches of financial intermediaries based in another EU country may choose to participate in the ICS.
In these cases, investors benefit from the protection of the home country system, which is complemented by the Portuguese system.
18. Does the ICS cover financial instruments of national investors registered/deposited in a branch in Portugal of a financial intermediary headquartered outside the EU?
Yes. An institution with head office outside the EU must participate in the ICS, unless the CMVM and Banco de Portugal consider that the protection offered by the home country compensation system in respect of investment transactions in financial instruments made through the branch in Portugal is equivalent to that provided by the ICS.
19. Are unit-linked products covered by the ICS?
The ICS guarantees the financial instruments listed in Section C of Annex I of Directive 2014/65/EC of 15 May concerning markets in financial instruments.
Unit-linked products are not financial instruments under said Directive and are thus not covered by the ICS.
20. In which situations is the ICS activated?
The ICS is activated when:
a) The participant of the ICS does not have the financial capacity to reimburse or repay the investor with the financial instruments or money deposited therein to be invested in financial instruments and Banco de Portugal, after hearing the CMVM, finds that the participant will not be able to do so soon;
b) Banco de Portugal notifies of the decision to revoke the authorisation to exercise its activity to the participating entity in the ICS;
c) For institutions with branches in Portugal, when the notification is received from the supervisory authority of the country of origin demonstrating that the exercise of investors' rights to lodge their claims on that entity, is suspended.