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Who insures liabilities to
investors?
Insurance of liabilities to
investors is offered by the state
company Deposit and Investment
Insurance“.
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What is the subject matter of
the insurance of liabilities to
investors?
The subject matter of the insurance
of liabilities to investors are
liabilities to return to investors
securities, irrespective of what
currency they are in, or money in
litas or a foreign currency –dollars
of the United States of America, euros
and national currencies of member
states of the European Union.
Important
The investor acquires a right to
insurance compensation as of the day
of insured event only if the insurer
has assigned investor’s securities and
(or) money or have used them without
the investor’s will. In many cases
this could be dishonest work of a
broker, i.e. theft. When calculating
compensation for insurance of
liabilities to investors, liabilities
to investor include only those
investor’s securities and money that
the insurer is not able to return to
the investor.
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Whose liabilities to investors
are insured?
Financial brokerage companies and
banks must insure liabilities to
investors. This means that each
insurer guarantees securities and
monetary funds of one person according
to the Law on Insurance of Deposits
and Liabilities to Investors of the
Republic of Lithuania.
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Who participates in the system
of insurance of liabilities to
investors?
Liabilities to investors are
insured by insurers providing
investment services. Currently in
Lithuania liabilities to investors are
insured by
commercial banks and
financial brokerage companies, management companies.
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How much and how banks and
financial brokerage companies pay for
the insurance system?
Banks paying insurance premiums for
safety of deposits make no additional
premium payments for safety of
investment, even though they do get
it, i.e. investment safety is
guaranteed, but this does not increase
the cost to the bank.
Insurance premium of financial
brokerage companies is comprised of
two parts:
1. The annual premium of a company
that does not handle the accounting of
investors’ securities is 3,000 litas,
whereas the annual premium of a
company that does handle the
accounting of investors’ securities is
10,000 litas.
2. A company making transactions
with investors’ funds pays an
additional payment of a part of the
annual premium – 0.01 percent of the
total value of transactions made by
the company with investors’ funds over
the preceding calendar year, however,
this part must be at least 1000 litas,
but under 10,000 litas.
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What liabilities to investor are
insured?
Liabilities to investor are the
total of insurer’s liabilities to
investor in providing investment
services:
1) money returnable to the investor
assigned to or owned by it;
2) securities returnable to the
investor owned by it.
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Currencies of insured
liabilities to investors
Liabilities to return securities to
investors are insured, irrespective of
what currency they are in, or money in
litas or a foreign currency – dollars
of the United States of America, euros
and national currencies of member
states of the European Union.
Liability limit
Liability limit is the value
setting the maximum amount, up to
which insurance compensations are
calculated for the client of the
insurer that went bankrupt.
Liability limit regarding the
liabilities to investor equals, but
may not be higher than, liabilities to
investor of a commercial bank or a
financial brokerage company as on the
day of insured event:
4) the amount in litas equivalent
to 22 000 euros– from January 1, 2008
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Excluded liabilities to
investors
Debt securities (certificates of
deposit) and liabilities issued by the
very insurer, related to bonds
accepted by it and ordinary bonds, as
well as liabilities to the following
entities may not be the insurance
subject:
1) the Bank of Lithuania;
2) insurance companies;
3) credit institutions;
4) financial brokerage companies;
5) insurance companies acting under
the Law on Insurance;
6) pension funds
7) investment management companies;
8) companies engaging in leasing
(financial lease).
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The right to insurance
compensation
The insurer is considered to have
insured liabilities to investors when
it pays insurance premiums according
to the established procedure.
An investor acquires a right to
insurance compensation as of the day
of insured event only if the insurer
has assigned the investor’s securities
and (or) money or has used them
without the investor’s will. In many
cases this could be dishonest work of
the broker, i.e. theft of the client’s
securities or money. When calculating
compensation for insurance of
liabilities to investors, liabilities
to investor include only those
investor’s securities and money that
the insurer is not able to return to
the investor. However, if law
enforcement institutions have been
appealed to regarding legitimacy of
acquisition of investor’s funds, but
the ruling has not been passed yet,
payment of the insurance compensation
to such an investor will be suspended.
Insurance compensations are not
paid to:
1) investors, liabilities to
investors of which by the court ruling
have been acknowledged to have been
acquired in an illegitimate way;
2) investors, liabilities to
investors of which have been, by
agreements or otherwise (with the
exception of inheritance), assigned
after the day of the insured event;
3) heads of a commercial bank,
credit union or company
administration, heads of branches
(departments) of a bank, credit union
or company, members of a council
(observers’ council) and board;
persons holding at least 5 percent of
the bank’s share capital, or persons
holding over 50 percent of the capital
in companies holding at least 5
percent of the bank’s share capital;
persons, carrying out independent
audit of a commercial bank, credit
union or company; children,
step-children, spouses, partners in
registered partnership, parents or
stepparents of the persons specified
under this item;
4) recipients of a loan from a
commercial bank, credit union or
financial brokerage company if
investor’s liabilities to the insurer
(unreturned loans with interest)
exceed the insurer’s liabilities to
the investor. If investor’s
liabilities to the insurer (unreturned
loans with interest) are less than the
insurer’s liabilities to the investor,
liability limit is calculated by
subtracting investor’s liabilities to
the insurer from the insurer’s
liabilities to the investor, but even
in this case the liability limit may
not exceed the amount provided for in
part 3 of article 9 of the Law.
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Values of insurance
compensations:
from January 1, 2008 – 100
percent of liabilities to investors up
to the amount in litas equivalent to
3 000 euros and 90 percent liabilities
to investors from the amount in litas
equivalent to 3 000 euros to the amount
in litas equivalent to 22 000 euros.
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Who and how calculates insurance
compensations?
Insurance compensations to clients
of the insurer undergoing bankruptcy
are calculated by the state company
Deposit and Investment Insurance. The
Insurance Company calculates insurance
compensations based on the insurer’s
data. Administrator (liquidator) of
the insurer undergoing bankruptcy must
within one month after bankruptcy
action has been brought against the
insurer submit exact data on investors
entitled to insurance compensation to
the Insurance Company.
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How is insurance compensation
calculated?
Insurance compensations for
liabilities to investors in foreign
currency are calculated based on the
ratio of litas and a foreign currency
set by the Bank of Lithuania on the
day of insured event.
The value of insurance compensation
to investors is calculated based on
the market value of the investor’s
securities on the day of the insured
event.
Insurance compensations are
calculated and paid in litas.
Investor’s insurance compensation
is calculated as follows:
1) only those securities and money
owned by the investor are added up
that the insurer has assigned or used
without the investor’s will. This
amount includes investor’s money and
securities and part of money and
securities owned by the investor, that
a group of investors has a right of
claim to, that are held in all
branches (departments) of the same
insurer. Securities are evaluated
based on the market value of the
investor’s securities on the day of
the insured event. If the supplier of
investment service is a commercial
bank or a branch of a foreign bank, or
a credit union, only securities are
added up, whereas the money is not
included in the indicated amount (in
this case money is compensated as
deposits);
2) up to 3 000 EUR of the amount
received is compensated 100 percent.
3) the part of the amount exceeding
3 000 EUR is compensated 90 percent
(see section
Values of insurance
compensations).
EXAMPLE
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Who, how and over what period of
time pays insurance compensations?
Insurance compensations to
investors of a bank or a branch of a
foreign bank undergoing bankruptcy are
paid from the moneys of the Deposit
Insurance Fund, whereas to investors
of a financial brokerage company
undergoing bankruptcy– from the moneys
of the Insurance of Liabilities to
Investors Fund. Insurance
compensations are paid within three
months from bringing bankruptcy action
against the insurer. The Council of
the Insurance Company may extend this
term for no longer than three months.
The method of insurance
compensations is selected by the
Insurance Company. In every case of
payment of insurance compensations the
Insurance Company will notify the
public through the media where and how
insurance compensations will be paid.
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What must investors submit when
collecting insurance compensations?
The Council of the Insurance
Company announces the procedure for
paying insurance compensations in the
Valstybës Þinios (Parliamentary
Record).
An investor must produce a personal
identification document specifying the
personal code (passport is the best
option).
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When and who may terminate insurance
of liabilities to investors ?
Insurer’s insurance of liabilities
to investors is terminated if the
supervisory institution annuls the
right of the insurer to supply
investment services.
2. The supervisory institution must
immediately notify the Council of the
Insurance Company about the revocation
of the right to provide investment
services.
3. If the insurer violates the
insurance procedure and (or) its
activity puts in danger ability of the
Insurance Company to fulfil
liabilities, the Council of the
Insurance Company, having communicated
this to the supervisory institution,
gives at least a 12-months notice to
the insurer about the possible
insurance termination. If within 12
months after the notice the insurer
does not rectify violations of the
insurance procedure, by a resolution
of the Council of the Insurance
Company, coordinated with the
insurer’s supervisory institution,
insurance of deposits accepted by the
insurer or liabilities to investors
may be terminated.
4. The Insurance Company announces
the termination of insurance of
liabilities to investors in the
supplement Informaciniai praneðimai
(Information Notices) of the Valstybës
Þinios.
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What
are the investors’ rights after the
termination of insurance of
liabilities to investors ?
If the insurer, the insurance of
which has been terminated, suffers an
insured event, the Insurance Company
pays insurance compensations only for
those liabilities that had been
assumed before the resolution on
insurance termination went into effect
and have not been returned or
fulfilled by the day of the insured
event.
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