Main terms and conditions of investor protection
An investor is the client of an investment institution operating in Estonia on the basis of an activity license issued by the Financial Supervision Authority, who holds a security or who has entered into the obligation to acquire securities.
An investment institution provides investment services to investors.
Investor protection is primarily applied in the event of an investment institution’s insolvency or for another reason due to which an investment institution is unable to return assets (securities, money) to clients.
Investments are compensated in full, but compensation shall not be larger than 20,000 euros. See more
The Guarantee Fund shall notify investors within 3 business days upon the occurrence of an investment compensation event.
Compensation for investments shall be paid out via one or several Estonian or foreign credit institutions determined with the decision of the supervisory board of the Guarantee Fund.
Whose investments and what kinds of investments are not compensated? Check here.
How are your investments protected
The purpose of the Guarantee Fund is to guarantee protection of the funds invested by investors via investment institutions in the event of an investment institution’s insolvency.
Irrespective of the strict measure to protect the assets of investors pursuant to which investment institutions must keep the assets of a client separate from their own assets and the assets of their other clients, and where the assets of clients do not belong to the bankruptcy estates of investment companies and the claims of creditors cannot be satisfied on account thereof, the insolvency of an investment institution is still on excluded.
Investment protection is applied primarily in the event of fraud, misuse of an administrative official position or an error, which means that the investment institution is unable to return assets to its clients. Investor protection does not cover investment risk, i.e. losses caused by decreases in the market value of investments or bankruptcy of an issuer of securities.
In order to meet this purpose, the Fund collects single and quarterly contributions from investment institutions into the Investment Guarantee Sectoral Fund (IGSF) and compensates the investments made by investors via investment institutions to the investors.
Investments of clients of investment institutions registered in Estonia – investors – are guaranteed and compensated for the account of the Investment Guarantee Sectoral Fund (IGSF). An investment institution registered in Estonia means an investment institution that has obtained an activity license from the Financial Supervision Authority.
The investments of the investors of a foreign branch of the same investment institution and cross-border investments received in foreign countries are also guaranteed and compensated for the account of the Investment Guarantee Sectoral Fund.
Investments are compensated in full, but compensation shall not be larger than 20,000 euros. See more.
The following investments are not subject to compensation: investments guaranteed on the basis of the Estonian Central Register of Securities Act, investments of qualified investors, investments of the state, local governments and financing institutions, investments of persons related to investment institutions that have become insolvent, investors whose holders have unperformed obligations to the credit institution to the extent of these obligations, and investments associated with money laundering. See more.
The investor protection guarantee scheme established with the Guarantee Fund Act in Estonia meets the requirements of the European Union investment guarantee directive.
The existence of the investor protection scheme also allows small investors to purchase investment services from branches of foreign investment institutions or as cross-border services as safely as from domestic investment institutions. Investor guarantee schemes spare investors the need to participate in lengthy insolvency proceedings, where the payouts made usually cover only a small part of the initial investment.
Investments of investors of Estonian branches of foreign investment institutions are also compensated in certain cases if they are guaranteed according to the guarantee scheme of the investment institution’s country of location to an extent that is smaller than prescribed in the Guarantee Fund Act.
For the purposes of the Guarantee Fund Act, an investment is a claim which is based on an agreement between the parties or on legislation and pursuant to which an investment institution is required to:
- repay the money owed to or belonging to investors and held or managed for their account by the investment institution in connection with the provision of investment services;
- return to investors the securities owed to or belonging to them and held, managed or administered for their account by the investment institution in connection with the provision of investment services.
The sectoral fund is also used to guarantee and compensate for investments if the investment institution provides cross-boarder investment services abroad.
Securities belonging to third persons held in securities accounts open for the official operations of notaries and bailiffs are treated separately for each person in the compensation case of investments.
Investment services are the services listed in § 43 and clause 44 1) of the Securities Markets Act, such as:
- receipt, forwarding and execution of orders relating to securities;
- securities portfolio management;
- safekeeping and management of securities for clients and associated activities.
- Credit institutions
- Investment firms
- Fund management companies which are entitled to provide securities portfolio management and securities safekeeping services
Investments shall be guaranteed and compensated for pursuant to the provisions of the Guarantee Fund Act to the extent of 100 per cent of their value as at the compensation date but not more than in the amount of 20 000 euro per investor in any one investment institution.
For the purposes of the Guarantee Fund Act, the value of an investment is the value of the money and securities, determined pursuant to the methods established by the minister responsible for the area mainly on the basis of the market value of the money and securities.