Who insures liabilities to investors?

Insurance of liabilities to investors is offered by the state company Deposit and Investment Insurance“.

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.

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.

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.

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.

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.

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:

the amount in litas equivalent to 22 000 euros– from January 1, 2008

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).

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.

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.

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.

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

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.

What must investors submit when collecting insurance compensations?

The Council of the Insurance Company announces the procedure for paying insurance compensations in the Valstybės Žinios (Parliamentary Record).

An investor must produce a personal identification document specifying the personal code (passport is the best option).

When and who may terminate deposit insurance?

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 pranešimai (Information Notices) of the Valstybės Žinios.

What are the investors’ rights after the termination of deposit insurance?

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.