Depositor and Investor Compensation Schemes The Schemes are intended to promote confidence in the financial system as a whole. FIND OUT MORE

Depositor and Investor Compensation Schemes

The Investor Compensation Scheme is a rescue fund for customers of failed investment firms which are licensed by the Malta Financial Services Authority (MFSA). We can only pay compensation if a licensed investment firm is unable or likely to be unable to pay claims against it. In general this is when the licensed firm stops trading or becomes insolvent. The Scheme is based on the EU Directive 97/9 on investor-compensation schemes.

The Depositor Compensation Scheme is a rescue fund for depositors of failed banks which are licensed by the Malta Financial Services Authority (MFSA). We can only pay compensation if a bank is unable to meet its obligations towards depositors or has otherwise suspended payment. The Scheme is based on the EU Directive 2014/49/EU on deposit-guarantee schemes.

Each scheme is a separate and distinct entity from the other. However, both schemes are managed by a single Management Committee which is appointed by the MFSA. This Committee is made up of persons representing the MFSA, the Central Bank of Malta, investment firms, the banks and customers.

Each Scheme is intended to promote confidence not only in licensed institutions, but more importantly, in the financial system as a whole. The two schemes are in fact financed by the banks and investment firms respectively. This means that the consumer will not be asked to contribute to these schemes.

These two schemes have been introduced as an additional layer of security within a regulatory and legal framework that is already sound and are not being implemented for any particular situation that has arisen in practice.

If you have any queries please drop us an email on [email protected]

Depositor Compensation Scheme

Investor Compensation Scheme

Depositor Compensation Scheme

The information which is provided in this section is complementary to any information which the bank is required to provide you at the time when you open an account as well as on an annual basis. Look out for this information when receiving your annual bank statements, whether by mail or electronically.

The Depositor Compensation Scheme (the Scheme) is a rescue fund for depositors of failed banks which are licensed by the Malta Financial Services Authority (MFSA). We can only pay compensation if a bank is unable to meet its obligations towards depositors or has otherwise suspended payment in the manner established by L.N.383 of 2015.

The Scheme is managed by a Committee appointed by MFSA. This Committee is made up of persons representing the MFSA, the Central Bank, licensed investment firms, the banks and customers.

The Scheme does not regulate licensed banks. Business conducted by banks licensed under the Banking Act is regulated by MFSA.

We aim to treat everyone fairly and openly. However we can only pay compensation according to the Depositor Compensation Scheme Regulations (the Regulations). By explaining how these rules generally operate, we wish to prevent any misunderstandings or unrealistic expectations about what we can do.

Purpose of the Scheme

The Scheme is intended to promote confidence not only in licensed banks, but more importantly, in the financial system as a whole. It draws its justification from the fact that many depositors are not generally in a position to make a comprehensive assessment of the risks affecting a licensed bank.

Banks covered by the Scheme

The Scheme covers deposits made with banks licensed under the Banking Act incorporated in Malta including their branches operating anywhere in the European Economic Area (“EEA”);
Deposits placed with a branch in Malta of a bank incorporated outside the EEA are not covered by the Scheme in Malta.  Neither does the Scheme in Malta cover deposits held in branches located outside the EEA of banks established in Malta.

The bank’s own literature is required to inform you which Scheme(s) the bank belongs to.  You will be able to find this information not only attached to any documentation which the bank may give you when opening an account, but also on the bank’s own website.

The Scheme in Malta can also advise you which banks participate in the Depositor Compensation Scheme in Malta. You can also click here to see an updated list of participant banks.

(The EEA stands for European Economic Area. Created in 1994, the EEA combines the countries of the European Union and member countries of EFTA (European Trade Association). Countries that belong to the EEA are: Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. Countries that are EEA member countries but NOT part of the European Union are: Norway, Iceland, Liechtenstein.)

Accounts covered by the Scheme

All deposit accounts are covered by the Scheme. This includes all savings, current and fixed deposit accounts, as well as any accounts which, at the time of the banks’ failure, may be in credit (such as credit card accounts and overdrafts).

Deposits which may be evidenced by way of a certificate or which might be linked to an investment (such as products where the principal is not repayable in full upon maturity) are not considered to be deposits and therefore not covered by the Scheme. However, certificates of deposit made out to named persons and which existed in Malta on 2 July 2014 are covered by the Scheme.

All your deposits at the same credit institution are added up and the total compensation is subject to the limit of EUR100, 000 per depositor (irrespective of the number of accounts held by that depositor with a failed bank).

Currencies covered by the Scheme

The Scheme covers all currencies without distinction.

However, in the event that the Scheme pays compensation, it will pay such compensation in euro. Therefore if your account is in any currency which is not the euro, the Scheme will exchange the amount in your account (with any accrued interest) into euro at the official exchange rate of the European Central Bank (ECB) when the Scheme is required to make such compensation.

Limits applicable in the event of a claim

Balances held on deposit:

The maximum amount which the Scheme is obliged to pay to depositors of a failed bank is €100,000.

This limit applies to the total amount of deposits held by the depositor with the failed bank, irrespective of the number of accounts, the currencies of such accounts as well as the location of the bank/branch within the EEA.

The Scheme will not deduct or take into account any amounts due by the depositor to that failed bank. These amounts may include, for example, amounts due in respect to loans and overdrafts.

Any compensation payable by the Scheme will be calculated on the amounts credited to that depositor’s accounts, including any interest which is accrued up to the date that the Scheme is obliged to pay compensation.

 

Temporary High Balances (additional compensation):

In addition to the maximum compensation sum of €100,000, there may be instances where the depositor is entitled to receive additional compensation (up to €500,000) for specific balances held in the same accounts of that depositor.

At the time when a bank fails, a depositor might have balances in his account which may have been derived from particular life or social situations. These would normally be temporary high payments made to the depositor.

In addition to the compensation of €100,000, some depositors may therefore also qualify to receive additional compensation not exceeding €500,000 if the balances in the depositor’s account are derived from the following life events:

(a) Monies deposited in preparation for the purchase of a private residential property by the depositor;
(b) Monies which represent the proceeds of sale of a private residential property of the depositor.
(c) sums paid to the depositor in respect of:

  1. A separation, divorce or dissolution of their civil union; or
  2. Benefits payable on retirement; or
  3. A claim for compensation for unfair dismissal; or
  4. A claim for compensation for redundancy; or
  5. Benefits payable for death or bodily injury;  or
  6. A claim for compensation for wrongful conviction.

In order to claim for such additional compensation, the depositor must provide the Scheme with a written application and evidence supporting the depositor’s claim that all or part of the deposit in excess of €100,000 qualifies as a temporary high balance.

The depositor may make more than ONE claim if there are multiple events that give rise to a temporary high balance, in which case the additional compensation of up to €500,000 would apply for each and every such temporary high balance claim.

Other than the criteria listed above, a temporary high balance would be eligible for compensation if the amounts derived have been credited in the depositor’s account within six months from the date the Scheme is required to pay compensation to that depositor.  Therefore, if a depositor claims to have had a balance (derived from any situation described above) in an account for more than six months from the date the Scheme is required to pay compensation to  that depositor, the Scheme would not be obliged to pay such additional compensation as described above.

How compensation is calculated

Each individual account holder, irrespective of the number of accounts, currencies and location of the account, benefits from compensation of not more than €100,000.

The share of each depositor of a joint account shall be considered separately in calculating compensation. In the absence of contrary provisions, the joint account shall be divided equally among the depositors.

Deposits in an account held by two or more persons as members of a business partnership, association or grouping of a similar nature, without legal personality, shall be aggregated and treated as if made by a single depositor for the purpose of calculating compensation.

Where a depositor is not absolutely entitled to the sums held in an account and another person is absolutely entitled to such sums, the person who is absolutely entitled shall be paid compensation in respect of the deposit.

In respect of deposits held by a person acting as trustee or nominee for one or more persons, the deposit making up the claim shall be deemed to belong to the beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons. It is up to the trustee or nominee to provide the Scheme with information about the names and amounts due to such beneficial owners.

Depositors which are not eligible for compensation

Only a few deposits or depositors ARE NOT ELIGIBLE to receive compensation from the Scheme.

These are:

  1. Deposits made by other credit institutions on their own  behalf and for their own account;
  2. Own funds of the bank;
  3. Deposits arising out of transactions in connection with which there has been a criminal conviction for money laundering;
  4. Deposits by financial institutions;
  5. Deposits by investment firms;
  6. Deposits the holder of which has never been identified;
  7. Deposits by insurance undertakings and by reinsurance undertakings;
  8. Deposits by collective investment undertakings.
  9. Deposits by pensions and retirement funds;
  10. Deposits by public authorities.
  11. Debt securities issued by a credit institution and liabilities arising out of own acceptances and promissory notes;
  12. Deposits held with a member in a branch of that member which is located in a non-Member State;
  13. Deposits held in a branch in Malta by a bank established outside the EEA area.

Activation of the Scheme

Either the MFSA, as the banks’ regulator in Malta, or the Courts can determine that a bank is unable to repay its deposits for reasons which are directly related to its financial circumstances and has no current prospect of being able to do so.

The Scheme shall pay compensation in respect of eligible deposits without a request to the Scheme being necessary within the applicable time period and as soon as reasonably practicable after:

  1. It is satisfied that the conditions in regulation 10(1) have been satisfied
  2. It has calculated the amount of compensation due to the depositor

Processing the claim

The applicable time period will be reckoned the day following the compensation date as follows 20 Working days. The Scheme may differ payment of compensation beyond the time period set out above in cases where:

  1. The deposit is a not active account;
  2. The amount to be repaid is deemed to be part of temporary high balance. In the case of a temporary high balance, the Scheme shall within three months of the compensation date, pay to the depositor a sum representing the amount due to the depositor in respect of the temporary high balance; or
  3. The amount to be repaid is to be paid out by the DGS of a host Member State in accordance with the Regulations.

Time for making a claim

Depositors whose deposits were not repaid or acknowledged by the Scheme within the time-limits set out in the Regulations, shall forfeit their claim to repayment of their deposit after the lapse of a peremptory term of two years from the compensation date.

The following examples are for guidance only. For the purposes of the following examples, the following information is applicable throughout:

  • The failed bank is established in Malta.
  • Compensation Date: 1 January 2016. This is the date when the MFSA has formally determined that the failed bank is unable to honour its obligations towards its depositors and therefore unable to repay deposits.
  • The payment date is within seven (7) business days of the Compensation Date.
  • The bank pays interest annually on 30 June of each financial year. This is the last time the bank has paid interest to depositors.

Situation 1 - Savings Account paying zero per cent interest

Mr A has deposited €16,300 in a savings account with a bank. The bank suspends payments. Mr A is entitled to receive compensation of €16,300 within seven business days of the compensation date.

Situation 2 - Savings Account with 0.1 per cent interest

Mr A has deposited €16,300, £10,000 and U.S $80,000 in three savings accounts with a bank. The bank suspends payments. Mr A is entitled to receive compensation in euro, calculated as follows:

Accrued Interest (1 July 2015 to 1 January 2016)  Exchange rate as at 1 January 2016  Amount in euro 
€16,300 €8.15  N/A  €8.15
£10,000 £5.00  1GBP =1.35388 EUR  €6.77
U.S $80,000 U.S $40.00  1USD = 0.917410 EUR  €36.70
Total =  €103,283.22

Mr A will therefore receive compensation of €100,000 (as the maximum payable under the Scheme). within seven business days of the compensation date.

Situation 3 – Fixed Deposit Account

Mr A has deposited €16,300 in a deposit account with a bank which will mature in two years’ time. The bank suspends payments. Mr A will receive compensation of €16,300 with accrued interest, if any, within seven business days of the compensation date.

Situation 4 – Savings Accounts

Mr A has 5 savings accounts with a bank, with which he has no outstanding loan. The bank suspends payment. The total amount in these accounts is €120,000. Mr A is entitled to receive compensation of €100,000 within seven business days of the compensation date.

Situation 5 – A deposit and a loan

Mr A has a savings account of €24,000 with a bank. He also has a home loan with an outstanding amount of €200,000 which is not yet due. The bank suspends payments. Mr A is entitled to receive compensation of €24,000, with accrued interest if any within seven business days of the compensation date.

Situation 6 – A deposit and a loan

Mr B has a savings account of €15,000 with a bank. He also has a home loan with an outstanding amount of €25,000 which is due. The bank suspends payments. Mr A  is entitled to receive compensation of €15,000 , with accrued interest if any within seven business days of the compensation date.

Situation 7 – A deposit and an overdraft

Mr C has a savings account of €15,000 with a bank. He has also drawn €200,000 on his overdraft account. The bank suspends payments. Mr C is entitled to receive compensation of €15,000 with accrued interest if any within seven business days of the compensation date.

Situation 8 – A deposit and a credit card account

Mr C has a savings account of €15,000 with a bank. He has also a credit card account in which he had just deposited €1,000 and is therefore in credit by such amount. The bank suspends payments. Mr C  will is entitled to receive compensation of €16,000 with accrued interest if any within seven business days of the compensation date.

Situation 9 – Joint Account

Mr A has deposited €50,000 with a bank. He also has a joint account with Mrs B amounting to €120,000. Mrs B has no other accounts with the bank. The bank suspends payments. In respect of Mr A, the Scheme calculates compensation as follows: €50,000 in respect of his personal account and his 50% share of the joint account, i.e. €60,000. Although Mr A has €110,000 in deposits, the maximum payment to Mr A would be €100,000. Mrs B is entitled to €60,000, her 50% share of the joint account.

Situation 10 - Two banks fail

Mr A has deposited €100,000 with Bank A. He has another deposit of €100,000 with Bank B. Both banks suspend payments. Mr A is entitled to compensation of €200,000 – €100,000 in respect of each bank.

Situation 11 – Temporary High Balances (1)

On the date a bank has been declared in default, Mr A has € 250,000 in his savings account. He does not have any other accounts with the failed bank. Mr A received €100,000 from the Scheme by way of compensation. However, the Scheme informs him (by way of adverts in the newspapers) that he might be eligible for additional compensation of up to €500,000 if the account at the bank might have had transactions relating to particular life events (see question 5). Mr A submits a claim to the Scheme saying that in his savings account, he had deposited an amount of €150,000 derived from a sale of private residential property exactly one month before the bank failed. Following detailed verifications, the Scheme pays Mr A an additional €150,000 by way of additional compensation.

Situation 12 – Temporary High Balances (2)

On the date a bank has been declared in default, Mr A has € 250,000 in his savings account. He does not have any other accounts with the failed bank. Mr A received €100,000 from the Scheme by way of compensation. However, the Scheme informs him (by way of adverts in the newspapers) that he might be eligible for additional compensation of up to €500,000 if the account at the bank might have had transactions relating to particular life events (see question 5). Mr A submits a claim to the Scheme saying that in his savings account, he had deposited an amount of €150,000 derived before a life insurance pay out in February 2015, more than six months from the date when the bank was declared in default. Following detailed verifications, the Scheme rejects Mr A’s claim for additional compensation because the Scheme is only obliged to pay for such additional compensation if the balances were credited in the depositor’s account within six months before the date the bank is declared in default.

Situation 13 – Temporary High Balances (3)

On the date a bank has been declared in default, Mr A has € 500,000 in his savings account. He does not have any other accounts with the failed bank. Mr A received €100,000 from the Scheme by way of compensation. However, the Scheme informs him (by way of adverts in the newspapers) that he might be eligible for additional compensation of up to €500,000 if the account at the bank might have had transactions relating to particular life events (see question 5). Mr A submits two claims to the Scheme saying that in his savings account, he had deposited (a) an amount of €150,000 derived from a life insurance pay out and (b) €300,000 from proceeds from sale of residential property. Both balances were credited in his account in November 2016, within the six months from the date when the bank was declared in default. Following detailed verifications, the Scheme accepts Mr A’s claim for additional compensation of €400,000 as the limit of €500,000 in additional compensation is per life event.

Situation 14 – Appeal

Mr A has deposited € 40,000 with a bank. He has € 100,000 deposited in another account which he claims to be part of a Temporary High Balances for the purchase of a private residential property. The Scheme has decided after viewing all evidence that the claim made by Mr A does not fall within with meaning of Temporary High Balance under the Regulations.

Mr A, who feels aggrieved by the decision, may request the Scheme to reconsider its decision. The Scheme shall within two months from such request provide the said depositor with a reasoned decision. This however does not prejudice the right of Mr A to  bring forward any claim he may also have against the Scheme before a competent court or tribunal of civil jurisdiction.

Situation 15 – Prescription / Time barred

Mr A has deposited € 10,000 with a bank. When the bank failed he did not receive compensation by the Scheme within 20 business days. Two years have elapsed after the 20 business days within which he should have received compensation. Mr A would not be entitled to receive compensation since the right to claim repayment has elapsed.

1. How would I know if I am covered by the Scheme in Malta?

If you are already an account holder with a bank in Malta, you are automatically protected by the Scheme if that bank were to ever fail. At least once annually, your bank is not only required to inform you whether your account is covered by the Scheme but it is also obliged to provide you with an information sheet describing the level and extent of protection you enjoy. For a specimen copy of the information sheet, click here.

If you are a new account holder, your bank is also obliged to give you the information sheet referred to above. You would also need to confirm to the bank that you have received a copy of the information sheet.

2. What accounts are covered by the Scheme?

All eligible deposit accounts are covered by the Scheme. This includes all savings, current and fixed deposit accounts, as well as any accounts which, at the time of the banks’ failure, may be in credit (such as credit card accounts and overdrafts).

Deposits which may be held evidenced by way of a certificate or which might be linked to an investment (such as products where the principal is not repayable in full upon maturity) are not considered to be deposits and therefore not covered by the Scheme.  However, certificates of deposit made out to named persons and which existed in Malta on 2 July 2014 are covered by the Scheme.

3. I have a number of accounts with the same bank, denominated in various currencies. Are all currencies covered and how will payment of compensation be calculated?

The Scheme covers deposits in all currencies without distinction.

In addition, as you have more deposits at the same credit institution, all your deposits at the same credit institution are added up and the total is subject to the limit of compensation of EUR100,000 per depositor.

However, in the event that the Scheme pays compensation, it will pay such compensation in euro. Therefore if your account is in any currency which is not the euro, the Scheme will exchange the amount in your account (with any accrued interest) into euro at the official exchange rate of the European Central Bank (ECB) when the Scheme is requested to make such compensation.

4. If my bank fails, how much do I expect to be compensated by the Scheme?

The maximum amount which the Scheme is obliged to pay to depositors of a failed bank is €100,000.

This limit applies to the total amount of deposits held by the depositor with the failed bank, irrespective of the number of accounts, the currencies of such accounts as well as the location within the EEA.

However, you may also be eligible for additional compensation if you are able to prove that – at the moment the bank failed – you held amounts greater than €100,000 which had been derived from specific life events. See next question for further information.

5. Tell me more about the possibility of a greater amount of compensation that the Scheme may pay me, over and above the €100,000 compensation limit.

At the time when a bank fails, a depositor might have balances in his account which may have been derived from particular life or social situations. These would normally be temporary high payments made to the depositor.

In addition to the compensation of €100,000, some depositors may therefore also qualify to receive additional compensation not exceeding €500,000 if the amount to the depositor’s account is derived from the following life events:

  1. Monies deposited in preparation for the purchase of a private residential property by the depositor; or
  2. Monies which represent the proceeds of sale of a private residential property of the depositor; or
  3. Sums paid to the depositor in respect of:
    • A separation, divorce or dissolution of their civil union; or
    • Benefits payable on retirement; or
    • A claim for compensation for unfair dismissal; or
    • A claim for compensation for redundancy; or
    • Benefits payable for death or bodily injury;  or
    • A claim for compensation for wrongful conviction.

In order to claim for such additional compensation, the depositor must provide the Scheme with a written application and evidence supporting the depositor’s claim that all or part of the deposit in excess of €100,000 qualifies as a temporary high balance. Further details will be made available in due course.

The depositor may make more than ONE claim if there are multiple events that give rise to temporary high balance, in which case the additional compensation of up to €500,000 would apply for each and every such temporary high balance claim.

Other than the criteria listed above, a temporary high balance would be eligible for compensation if the amounts derived have been credited in the depositor’s account within six months from the date the Scheme is required to pay compensation to that depositor.  Therefore, if a depositor claims to have had a balance (derived from any situation described above) in an account for more than six months from the date the Scheme is required to pay compensation to  that depositor, the Scheme would not be obliged to pay such additional compensation as described above.

Therefore, if you claim to have had a balance (derived from any situation described above) in an account for more than six months, the Scheme would not be obliged to pay such additional compensation as described above.

6. If I have loans as well as deposits with a failed bank, will I still be entitled to compensation by the Scheme?

Yes, you would still be entitled for compensation.  The Scheme will not deduct or take into account any amounts which may be due to that failed bank. These amounts may include, for example, amounts due in respect to loans and overdrafts.

Any compensation payable by the Scheme will be calculated on the amounts credited to that depositor’s accounts, including any interest which is accrued up to the date that the Scheme is obliged to pay compensation.

That stated, the fact that a bank failed will not cancel your debts or dues to that bank.  But the bank’s liquidator will deal with those aspects later.

The Scheme may also withhold payment of compensation on deposits which the bank might have blocked as a result of legal and court obligations (such as anti-money laundering and seizure).

Am I always covered by the Scheme once I hold a deposit account, or do I have to renew my protection?

No, you do not need to renew your protection. The application of the guarantee is applicable for all existing accounts, as well as any future accounts opened with banks.  In addition, such protection will not expire.

7. Do I need to apply to the Scheme for compensation?

No, you will not be required to apply for compensation as the Scheme shall be required to obtain information about your deposits directly from the failed bank’s systems. Payment of compensation will be effected on the basis of information which the bank will pass on to the Scheme.

8. How long does it take for the scheme to pay compensation?

By 1 January 2024, the Scheme is obliged to pay compensation within 7 business days from the date when a bank has been declared in default because it is unable to repay deposits to its depositors.

Until such target date, the Scheme is required to pay compensation within 20 business days from the date when a bank has been declared in default because it is unable to repay deposits to its depositors.  The Scheme is also obliged to ensure that depositors have access to an amount – equivalent to three times the gross weekly minimum wage (as applicable at the time of compensation) to cover the cost of living – within five working days of a request from the depositor. Further details about this will be provided in due course.

The scheme may also defer payment in regard to balances held in dormant accounts.  A dormant account is an account in which there have been no transactions within the previous 24 months (two years).  Therefore, if your bank has classified an account to be dormant any balances will not be taken into account by the Scheme for the purposes of calculating compensation. You may apply to the Scheme – at a later stage – for additional compensation (i.e. within the maximum limit of €100,000) for any amounts held in such dormant account.

However, the Scheme may still refuse to pay such additional compensation if the value of the deposit is lower than the administrative cost that would be incurred by the Scheme in making such a payment.

Payment for accounts under nominee or trusteeship may also be deferred.

9. How will the Scheme be able to calculate the amount of compensation due to me?

All banks will be required to identify and classify all depositors and deposits in such a manner which would enable the Scheme to calculate the amount of compensation due to each depositor.

Such classification of information will be done electronically in accordance with standards as required by the Scheme.

The legislation provides that the Scheme should be able to test the manner in which the banks are classifying such accounts. For this purpose, it requires the Scheme to carry out periodic rigorous tests to ensure that the banks are in conformity with the legislation.

Both the Scheme and the banks are required to treat depositor information with strict confidentiality and data protection legislation, to the highest extent possible.

10. Does the Scheme cover companies as well as individuals?

As stated earlier, most types of eligible deposits are covered, including current, fixed and savings accounts.

Similarly, most depositors are covered by the Scheme.

A company which holds accounts with a failed bank, and is not excluded from receiving compensation as allowed by law (see below), is likely to be covered by the Scheme and eligible to receive compensation within the maximum allowed of €100,000.

The Scheme will not cover a deposit with a bank falling under any of the categories below:

  1. Deposits made by other credit institutions on their own  behalf and for their own account;
  2. Own funds of the bank;
  3. Deposits arising out of transactions in connection with which there has been a criminal conviction for money laundering;
  4. Deposits by financial institutions;
  5. Deposits by investment firms;
  6. Deposits the holder of which has never been identified;
  7. Deposits by insurance undertakings and by reinsurance undertakings;
  8. Deposits by collective investment undertakings;
  9. Deposits by pensions and retirement funds;
  10. Deposits by public authorities;
  11. Debt securities issued by a credit institution and liabilities arising out of own acceptances and promissory notes;
  12. Deposits held with a member in a branch of that member which is located in a non-Member State;
  13. Deposits held in a branch in Malta by a bank established outside the EEA area.

In case of doubt, it is advisable that you seek confirmation from your bank whether you are eligible to receive compensation by the Scheme.

11. Do you cover investment services?

Investment services are not covered by this Scheme. They may however be eligible to protection under a different arrangement, namely the Investor Compensation Scheme.

12. What triggers payment of compensation by the Scheme?

Compensation is not triggered if a licensed bank could hand over your deposit but is refusing to do so for reasons unconnected with its adverse financial circumstances. So the Scheme will not cover such claims.

13. How does the Scheme obtain its funds to pay compensation to depositors?

The Depositor Compensation Scheme is not an insurance company. It is not funded by the Government or by the taxpayer. The Scheme is funded by cash contributions and assets pledged by all banks which are licensed by the MFSA.

14. What if I have a joint account or a trust, or my holdings are held under nominee?

The share of each depositor of a joint account shall be considered separately in calculating compensation. In the absence of contrary provisions, the joint account shall be divided equally among the depositors.

Deposits in an account with two or more persons are entitled as members of a business partnership, association or grouping of a similar nature, without legal personality, shall be aggregated and treated as if made by a single depositor for the purpose of calculating compensation.

Where a depositor is not absolutely entitled to the sums held in an account and another person is absolutely entitled to such sums, the person who is absolutely entitled shall be entitled to compensation in respect of the deposit.

In respect of deposits held by a person acting as trustee or nominee for one or more persons, the deposit making up the claim shall be deemed to belong to the beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons. It is up to the trustee or nominee to provide the Scheme with information about the names and amounts due to such beneficial owners. Indeed, such types of accounts would not be paid by the Scheme within the time limits explained to above. When a bank fails, the Scheme will invite account holders operating such accounts to provide it with a detailed list of the beneficial owners of such accounts to enable the Scheme to pay such compensation that may be due to such beneficial owners.

15. Are there any particular instances where the payment of compensation may be withheld or deferred?

Ordinarily, the payment of compensation will be made within the periods explained in question 8 above.

However, there may be instances where the Scheme may defer the payment of compensation beyond these time period.

Temporary High Balances (see question 5) will not be paid within the respective time period because the depositor would have to apply to the Scheme to be considered for any additional payment under this category of payments. If the Scheme is satisfied that you are entitled to any additional amounts because there are balances in your account which qualify for a further amount of compensation, the Scheme will be obliged to pay such additional compensation as due within three months from receipt of all information and documentation by the claimant.

The scheme may also defer payment in regard to balances held in dormant accounts.  A dormant account is an account in which there have been no transactions within the previous 24 months (two years).  Therefore, if your bank has – after contacting you – classified an account to be dormant – any balances in that account will not be taken into account by the Scheme for the purposes of calculating compensation.  You may apply to the Scheme – at a later stage – for additional compensation (i.e. within the maximum limit of €100,000) for any amounts held in such dormant account. However, the Scheme may still refuse to pay such additional compensation if the value of the deposit is lower than the administrative cost that would be incurred by the Scheme in making such a payment.

Payment for accounts under nominee or trusteeship may also be deferred (as explained in question 2 Above).

16. I am a depositor with a branch located in an EEA member state of a bank incorporated in Malta. Under which Scheme will I be covered – the Scheme in Malta or that in the country where the branch is located?

The scheme in the member state where the host is located will be responsible for the payment of compensation due to you.  For example, if you hold an account with a branch in Spain of a bank incorporated and licensed in Malta, the Scheme in Spain will be responsible for the payment of compensation due to you.

17. I am a depositor of a branch in Malta of a bank incorporated in another EEA country. If that bank were to fail, which Scheme will compensate me for my losses?

The Scheme in the member state where the branch is located will be responsible for the payment of compensation due to you, and will make such compensation in line with the time periods described above. For example, if you hold an account with a branch in Malta of a bank incorporated and licensed in Germany, the Scheme in Malta will be responsible for the payment of compensation due to you.

18. I am a depositor of a branch in Malta of a bank established outside the EEA. Will the Scheme in Malta cover my deposits?

No, your deposits are not covered by the Scheme in Malta. You should check with your bank under which scheme your deposits are covered, if at all.   For example, if you hold an account with a branch in Malta of a bank incorporated and licensed in Turkey, the Scheme in Malta will not be responsible towards you and you should check with your bank if you are protected by a similar scheme to that in Malta.

19. I am a depositor of a branch located outside the EEA of a bank established in Malta? Will the Scheme in Malta cover my deposits?

No, your deposits are not covered by the Scheme in Malta. You should check with your bank under which scheme your deposits are covered, if at all.  For example, if you hold an account with a branch in the USA of a bank incorporated and licensed in Malta, the Scheme in Malta will not be responsible towards you and you should check with your bank if you are protected by a similar scheme in the country where the branch is located.

20. Do I have any rights if I reject a decision taken by the Scheme in my regard?

Your legal rights will not be prejudiced if the Scheme fails to repay you within the deadlines established above, or you reject a decision taken by the Scheme in your regard,  It is important to note that the time to claim reimbursement may be barred after a certain time limit. For instance, if you delay by more than two years to claim for additional compensation as explained above (i.e. up to €500,000), you will lose your right to receive such additional compensation.

Investor Compensation Scheme

The Investor Compensation Scheme is a rescue fund for investors that are clients of failed investment firms licensed by the Malta Financial Services Authority (MFSA). We can only pay compensation if a licensed investment firm is unable or likely to be unable to pay claims against it. In general this is when the licensed firm stops trading or becomes insolvent.

The Investor Compensation Scheme is managed by a Committee appointed by MFSA. This Committee is made up of persons representing MFSA, the Central Bank, licensed firms, the banks and customers.

The Investor Compensation Scheme does not regulate licensed investment firms. Business conducted by investment firms licensed under the Investment Services Act is regulated by MFSA.

We aim to treat everyone fairly and openly. However we can only pay compensation according to the Investor Compensation Scheme Regulations (the Regulations). By explaining how these rules generally operate, we wish to prevent any misunderstandings or unrealistic expectations about what we can do.

Purpose of the Scheme

The Scheme is intended to promote confidence not only in licensed investment firms, but more importantly, in the financial system as a whole. It draws its justification from the fact that an investor is not generally in a position to make a comprehensive assessment of the risks affecting a licensed investment firm.

Firms covered by the Scheme

The following firms are covered by the Scheme:

  • Firms licensed under the Investment Services Act, 1994 incorporated in Malta including their branches in the European Economic Area (“EEA”), if any;
  • Certain firms incorporated in EEA States which may join the Scheme to supplement the cover available from the scheme operating in their home country in respect of investments made by their Malta offices;
  • Certain firms incorporated outside the EEA in respect of investments taken by their Malta offices;
  • The firm’s own literature in relation to the Scheme may state to which scheme(s) the firm belongs. If this information is unavailable, you should ask your firm to provide you with more information in this respect.

The Management Committee of the Investor Compensation Scheme can also advise you if a firm participates in the Scheme. You can also click here to see a list of present participants.

(The EEA stands for European Economic Area. Created in 1994, the EEA combines the countries of the European Union and member countries of EFTA (European Trade Association). Countries that belong to the EEA are: Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. Countries that are EEA member countries but NOT part of the European Union are: Norway, Iceland, Liechtenstein.)

Limits applicable in the event of a claim

The Scheme covers 90% of a firm’s net liability to an investor in respect of investments which qualify for compensation under the Investment Services Act subject to a maximum payment to any one person of €20,000.

A firm’s total liability to an investor is the aggregate of all accounts in the name of that investor in any currency, including the investor’s share in a joint account or a client account.

Joint accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits described above.

In respect of investments held by a person acting as trustee or nominee for one or more persons, the investment making up the claim shall be deemed to belong to the beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons.

The following will be deducted from the amounts payable under the Scheme:

  • payments received from investment compensation schemes elsewhere;
  • payments from any insurance policy taken out by the claimant in respect of the investment;
  • payments from the liquidator or receiver; and
  • any amounts which had a right of set-off at the date of declaration.

Currencies covered by the Scheme

The Scheme covers investments in any currency.

Types of investments covered

Most types of investments are covered. Certain investments are not covered by the scheme, such as:-

  • Investment by companies which are not permitted to draw up abridged balance sheets in terms of the Companies Act.
  • Amounts invested by another firm for its own account.
  • Investments arising out of transactions in connection with which there has been a conviction under the anti money-laundering legislation.
  • Investments by financial institutions.
  • Investments by insurance undertakings.
  • Investments by governments, central administrative authorities or local or regional governments or authorities.
  • Investments by collective investment undertakings.
  • Investments by pension and retirement funds.
  • Investments by a credit institution’s own directors, managers, members personally liable, holders of at least 5% of the institution’s capital, persons responsible for carrying out the statutory audits of the institution’s accounting documents and depositors of similar status in other companies in the same group.
  • Investments by close relatives and third parties acting for the depositors referred to in the paragraph above.
  • Investments by other companies in the same group which provide consolidated accounts.
  • Investments which do not disclose the investor’s identity.
  • Investments for which the investor has, on an individual basis, obtained from the same institution rates and financial concessions which have helped to aggravate its financial situation.
  • Debt securities issued by the same institution and liabilities arising out of own acceptances and promissory notes.
  • Investments held by nominees, trustees or other third parties acting on behalf of or in the interest of the persons referred to in this schedule to the extent of the funds held in such capacity.

Activation of the Scheme

The Scheme is activated upon the occurrence of one of the criteria prescribed in regulation 13 of the Investor Compensation Scheme Regulations. The most likely of these events is a Court’s decision to put the investment firm into liquidation. The Scheme will also be activated if the Malta Financial Services Authority, as regulator of investment firms in Malta, determines that a firm has been unable to meet its obligations arising from claims by its investors for reasons which are directly related to its financial circumstances and has no current prospect of being able to do so.

Points to remember

You cannot claim compensation on the basis of:

  • Market movements resulting in a decrease in the value of an investment.
  • Poor investment advice.
  • A failed investment that had been duly executed
  • A failure of a collective investment scheme.
  • Inflation.
  • A decrease in interest rates.

You must fill in an application form if you want to claim compensation. The application form tells us:

  • The full name of the licensed investment intermediary.
  • The type of investment you made.
  • When, why and how much you invested.
  • Why you believe you have a claim.
  • We will need to see evidence the firm has given you about your investments. The more information you give us, the easier it will be to deal with your claim.

A specimen application form will be available as soon as the need arises.

Time for making a claim

The Investor Compensation Scheme has a duty to advise the public of any determination that has a bearing on the ability of a licensed firm to meet its obligations to investors. Therefore you should make your compensation claim as soon as possible after you become aware that a licensed firm has been determined to be in default. The Regulations set no time limits for making a claim for compensation to the Scheme. However we will normally abide by legal time limits, such as those that a Court would apply, although in certain circumstances we may disregard such limits.

Processing the claim

After we have examined your claim and examined all the facts and figures, we will inform you whether you are eleiglbe, and if so, the amount of compensation which we can pay you.

We aim to pay compensation for verified claims within three months from a determination. However delays may be caused by factors outside our control, such as if an application for compensation is not fully completed, or in cases where the insolvency is particularly complicated. For example we may have difficulty getting hold of important files or be waiting for information from a liquidator. Such factors are outside our control, and may force us to request an extension for the processing of your claim.

If your claim is accepted by us, we will pay 90% of the net loss subject to a maximum of € 20,000.

Some examples:

Situation 1

A client has paid a licensed investment firm €16,000 to invest in a bond. The bond was never purchased, and the investment firm goes insolvent.  The client will be entitled to compensation of €14,400 (90% of €16,000).

Situation 2

A client has given a licensed investment firm €35,000 to invest in a collective investment scheme. The units were never purchased, and the investment firm goes insolvent.  The client will be entitled to compensation of €20,000. This is the maximum limit payable by the Scheme.

Situation 3

A client has given a licensed investment firm €23,000 to purchase shares in a UK company. The shares were bought and a contract note evidencing the transaction was issued. The value of the shares fell 50%.  The client will not be entitled to compensation.

Assignment of rights

To receive compensation you will be required to sign some statements including a subrogation in favour of the Scheme. This subrogation gives us the right to recover the amounts which we have paid you, in the event that the failed intermediary has any money or assets left. A subrogation will also enable us to claim back money from other persons who may be responsible for your losses.

1. How do you decide whether the losses I am claiming are covered?

We have to check carefully every claim for compensation and ensure that every claim is covered by the regulations before we can deal with it. If you are not eligible for compensation under the regulations, we will write to you and explain why.

2. Does the scheme cover losses caused by bad advice?

The scheme does not cover losses caused by bad advice or poor investment management.

3. Does compensation cover investment losses arising from market fluctuations?

The Scheme does not compensate losses caused by market fluctuations in the value of investments. So there is no cover for a downturn in the market, nor for any losses caused by inflation. These economic effects are beyond the control of the intermediaries.

4. Will I be covered if I did business through the lnternet?

Business carried on through the Internet may only be covered if the firm you are dealing with is a licensed intermediary.

5. Does the Scheme cover companies as well as individuals?

Most investors and types of investments are covered. There are however some investors who might not be able to claim. Companies which are permitted to draw up abridged balance sheets in terms of the Companies Act are also covered by the Scheme.

6. Do you cover bank deposits?

Bank deposits are not legally defined as investments and are not covered by this Scheme. They may however be eligible to protection under a different arrangement, namely the Depositor Guarantee Scheme.

7. Will I be covered if a licensed investment firm refuses to hand over any monies because of some dispute with me?

Compensation is not triggered if a licensed firm could hand over the monies to you but is refusing to do so for reasons unconnected with its adverse financial circumstances. So the Investor Compensation Scheme will not cover such claims.

8. What happens if the licensed investment firm holds specific investment instruments or other assets which belong to me?

The Scheme covers not only the repayment of monies owed to you. It is also required to return any investments or assets which are held on your behalf by a licensed firm, or, where this is not possible, to pay compensation on the basis of their value.

9. How does the Scheme obtain its funds to pay compensation to investors?

The Investor Compensation Scheme is not an insurance company. It is not funded by the Government or by the taxpayer. The Scheme is funded by contributions from most intermediaries which are licensed by law to provide investment services. These contributions take the form of a fixed amount which is paid annually and a variable provision which accumulates each year and is payable on call, in case of need.

10. What if I have more than one claim?

An investor can only submit one claim for all his investments taken in aggregate against a failed licensed firm.

11. What if I have a joint account or a trust, or my holdings are held under nominee?

Joint investment accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits prescribed in the Regulations, subject to eligibility.  In respect of investments held by a person acting as trustee or nominee for one or more beneficial owners, the investment making up the claim shall be deemed to belong to such beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons.