Investor protection and compensation fund

Investor protection

Crowdbase offers the ancillary service of safekeeping clients’ Financial Instruments and funds. At Crowdbase’s level, all Client holdings and transactions are recorded in dedicated accounts in the name of each Client.

When holding Clients’ funds, we take adequate measures in order to ensure the maximum protection of the financial instruments and funds that the Company safeguards on behalf of its clients. The Company deposits the funds of its clients into specially designated bank accounts in authorized and reliable credit institutions under the name “clients’ account” and takes all necessary steps to protect the clients’ proprietary rights.

Moreover, in order to verify the clients’ rights in regard to their transferable securities in the end of a successful crowdfunding project, the Company takes the following measures:

  • Keeps all the necessary records and accounts in order to be in the position, at any given time and with no delay, to distinguish the aggregate amount committed in each crowdfunding project.
  • Keeps its records and accounts in a way that ensures that they are timely, true and accurate.
  • sConducts, upon the completion of a crowdfunding project, reconciliations between our internal accounts and records and those of the crowdfunding company.
  • Takes all the necessary measures in order to ensure that the clients’ funds, deposited at authorized financial institutions, are kept into a separate account or accounts to any other accounts that may be used for funds that belong to the Company, i.e. they are segregated.
  • Applies all necessary organizational measures in order to minimize the risk of loss or reduction of the client’s rights in regard to these transferable securities, because of asset misappropriation, fraud or negligence.
  • Provides a complete record of the investors in the crowdfunding project to the target company, including all information required for the company to transfer ownership to the investors.

Investor Compensation Fund (ICF)

According to the relevant legislation and Directive D187-07 for the operation of the ICF, dated 8 March 2019, issued by the Cyprus Securities and Exchange Commission (“CySEC”) for the Continuance of the Operation and the Operation of the IF Investor Compensation Fund (“the Directive”), the object of the ICF is to secure the claims of the covered clients against investment firms, members of the ICF (hence forth “participating CIFs”), through the payment of compensation in cases where the concerned participating CIF is unable, due to its financial circumstances and when no realistic prospect of improvement in the above circumstances in the near future seems possible:

  • to return to its covered clients, funds owed to them or funds which belong to them but are, directly or indirectly, held by the participating CIF in the context of providing investment services to the said clients, or
  • to hand over to covered clients, financial instruments which belong to them and which the participating CIF concerned holds, manages or keeps on their account.

The ICF does not cover Professional Clients or Eligible Counterparties. The total payable compensation to each covered client of an ICF’s member may not exceed €20,000 (EURO twenty thousand), irrespective of the number of accounts held, currency and place of offering the investment service. The maximum payable compensation to each covered client equals €20.000 (EURO twenty thousand) or 90% of the covered client’s claim, whichever is lower. This means that, if the claim determined is €50.000, and the participating CIF is unable to pay, the client will get a compensation of €20.000 from the ICF. However, if the determined claim is for €10.000, the coverage will be only 90% of €10.000, i.e., €9.000.

CIFs established and operating in the Republic of Cyprus, other than banks, offering investment services (the “participating CIFs”), are members of the ICF. The ICF constitutes a legal entity under private law, the administration of which is exercised by a five-member Management Committee. The ICF commenced operations on the 30th May 2004.

Covered services for compensation under ICF

  • reception and transmission, on behalf of clients, of orders relating to the execution of transactions in one or more Financial Instruments,
  • b. investment advice
  • placing of financial instruments without a firm commitment basis
  • as well as the ancillary service of holding in custody or administration of one or more Financial Instruments.

Covered clients

Covered clients are participating CIFs’ clients, except those included in the following investor categories (as classified by the relevant legislation):

  • Institutional and professional investors such as:
    • i. Investment Firms (IFs),
    • ii. legal entities associated with a participating member of the ICF and, in general, belonging to the same group of companies as the participating IF,
    • iii. banks,
    • iv. co-operative credit institutions,
    • v. insurance companies,
    • vi. collective investment undertakings in transferable securities and their management companies,
    • vii. social insurance institutions and funds,
    • viii. Investors that have been classified by the participating IF as professionals, upon investors’ own request, in accordance with the provisions of paragraph B of the Second Annex of the Law.
  • States and supranational organizations.
  • Central, federal, confederate, regional and local administrative authorities.
  • Enterprises associated with a participating IF.
  • Executive and managerial officers of a participating IF.
  • Shareholders of a participating IF whose direct or indirect shareholding in the participating IF’s capital amounts to at least 5% of its share capital, or the participating IF’s associates who are personally liable for the participating IF’s obligations, as well as persons responsible for carrying out the financial audit of the participating IF as provided by the Law, such as its qualified auditors.
  • Investors holding positions or duties corresponding to the ones listed in 5 and 6 notes, in enterprises which are either associated or in general belong to the same group of companies as the participating IF.
  • Up to and including second degree relatives and spouses of persons listed in 5, 6 and 7 notes as well as third parties acting on behalf of these persons.
  • Investors that their claim is arising from transactions of persons convicted of a criminal offence, for the aforementioned transactions, under the provisions of the Prevention and Suppression of Money Laundering Activities Law of 2007 (as the same is amended and/or replaced from time to time).
  • Investors-clients of a participating IF responsible for events which have caused financial difficulties to the participating IF or which have contributed to the aggravation of its financial situation, or investors-clients of a participating IF who have benefited from such events.
  • Other companies of the same Group.
  • Corporate Investors, which due to their size, are not allowed to draw a summary balance-sheet in accordance with the Companies Law of the Republic of Cyprus or a corresponding law of a member state of the European Union.

Prerequisites for initiating the procedure for compensation

The ICF initiates compensation payment procedures when at least one of the following prerequisites is met:

  • a. The CySEC deemed through a relevant decision that a participating CIF does not appear for the time being able to meet its obligations arising from its clients’ claims, in connection with covered services provided, as long as such inability is directly related to the participating CIF’s financial position which is not expected to improve in the near future, or
  • b. The Court, based on reasons directly related to the financial situation of a participating CIF, has issued a ruling, which has the effect of suspending the ability of the covered clients to pursue their claims against that participating CIF.

The CySEC issues its decision for the commencement of compensation payment procedure from the ICF, within a reasonable time, and publishes the relevant information on its website. Upon issuance of a decision by the CySEC or a Court ruling in accordance with paragraphs (a) and (b) above, for the commencement of compensation payment procedures, the ICF publishes in at least two newspapers of broad national circulation, an invitation to covered clients to make their claims, arising from covered services, against the affected participating CIF. The invitation should designate the procedure, content and deadline for submission of pertinent applications.

Calculating the amount payable for compensation

The amount of compensation payable to each covered client is calculated in accordance with the legal and contractual terms, especially those in relation to the set off rules and counterclaims, that apply for the valuation on the date of commencement of the compensation payment procedure, of the amount of the capital or value determined with reference to the market value wherever possible, of the financial instruments that belong to the covered client and which the participating CIF is unable to repay or return, respectively.

The amount of payable compensation is derived by summing up all of the covered client’s documented claims against the participating CIF. Such claims arise from all the investment services provided by the participating CIF, regardless of the number of accounts to which a client is a beneficiary to, the currency as well as the place of provision of the service, within the European Union.

Upon completing the valuation, the ICF:

  • issues and communicates within five working days to both the CySEC and the participating CIF, its decision for the compensation, along with the amount of money each client is entitled to receive. The decision also lists the clients to whom compensation will not be given and the reasons for such a decision.
  • communicates its decision to each affected client, as soon as practicable from the date of its issuance.

In case of disagreement with the ICF’s decision, the claimant has the right to appeal the decision to the CySEC, justifying sufficiently his alleged claim, within one month from receiving the relevant communication. The justified disagreement should be submitted by email to [email protected] with subject “Objection to the ICF decision”. The CySEC has to conclude on the objection within 45 days and in case that any mistake is noted at the evaluation conducted by the ICF, the CySEC will ask ICF in writing to take corrective measures and inform accordingly the affected client.

The ICF pays the covered clients the estimated compensation in Euro within three months from the communication of its decision to the said client. In exceptional and justified cases, the ICF may ask CySEC to extend this period of time by further three months.

For any further information regarding the Regulations please refer to the CySEC’ website at: https://www.cysec.gov.cy/en-GB/complaints/tae/ or contact the ICF’s Management Committee offices at: "Management Committee of the Investor Compensation Fund for IF Clients, 19 Diagorou Str., 1097 Nicosia".