CNVM working on regulations for investors' compensation fund

The National Securities Commission (CNVM) is working on two sets of regulations that could drastically change the Romanian capital market by the end of this year. The CNVM is drafting regulations on the investors’ compensation fund, which will provide for granting compensation to investors and will function much like the banking deposits’ guarantee fund. Starting today, the National Securities Commission will also discuss the secondary legislation on Financial Investment Companies (SIFs), with its stipulations eagerly awaited by Bucharest Stock Exchange investors.

The investors’ compensation fund, introduced in the new capital market legislation that came into effect one month ago, will pay damages to investors in the event of their brokerage company or investment manager being unable to reimburse them or to return the stocks they own on behalf of their clients. The law does not stipulate compensations for mutual fund investors, but only for the holders of individual accounts at the investment management companies.

“The fund will grant compensations to investors only if a financial investment consultancy or an investment management company defaults, regardless of whether or not this situation was triggered by illegal actions,” said Ciprian Ene, spokesperson for the CNVM.

However, the fund will not disburse compensation for damages triggered by the illegal actions of brokers or account managers, if the company does not default on its obligations.

The fund will be organised as a joint-stock company, with its shareholding structure to include brokerages and investment management companies that handle individual investment accounts. The fund is supposed to be managed by a Board, elected by shareholders.

Brokers say this fund is a good idea, but most of them fear the costs they will have to bear. The exact quota of the financial contributions will be decided by the National Securities Commission, in the secondary legislation.

“The investors’ compensation fund is a good idea, but it needs to be enforced so as not to interfere with the operations of the brokerage firms. If fund-related expenses are unjustifiably high, they could be transferred to the clients, by raising fees,” says Razvan Pasol, president of Intercapital Invest. He does not believe that capital market investors will be willing to pay bigger fees for the extra safety guaranteed by the compensation fund.

“The fund’s creation is rather a matter of image. In the past few years, there were no cases of a company failing to meet its obligations to the clients and, more recently, the small-size brokerages have vanished altogether,” Pasol maintained.

Considering the other stipulations of the law, it is rather difficult for a brokerage that is not guilty of any illegalities to fail to return the money or stocks of the clients, even if it goes bankrupt.

Brokerages have to keep their clients’ money in a separate banking account, whereas the stocks they buy from the Bucharest Stock Exchange are also registered in their clients’ name.
laurentiu.ispir@zf.ro