Who is eligible for IPF compensation?
An investor may turn to the IPF for compensation whenever upon concluding a valid contract with a member of the IPF for any of the lines of business it covers the provider of the investment services fails to deliver the assets (securities or money) which are registered as the holdings of the investor and have been transferred to the possession of the provider under the contract.
The insurance offered by the IPF covers contracts concluded for commission brokerage, trading, portfolio management, safekeeping, custody, managing customer accounts and securities accounts.
Entities pursuing any of the covered lines of business, i.e. the provision of investment services and supplementary investment services, require a license issued by the Hungarian Financial Supervisory Authority (HFSA). The Act makes it mandatory for a provider of investment services, a manager of an investment fund that manages private portfolios and each financial enterprise to join the IPF; hence the regulatory license these entities are granted by the supervisory authority implies IPF coverage. As commodity exchange service providers are not required under law to join the IPF; it is worth asking them directly about IPF membership.
Compensation is only paid if the contract that constitutes the basis of a claim was concluded after joining the IPF (i.e. acquiring membership).
Depending on the provisions in its by-laws, a provider of investment services is required to record contracts in writing or capture them electronically if they are concluded under a written blanket agreement and an investor must support its claim for compensation with the related written contract.
An exclusion clause in the Act provides that IPF coverage may not be granted to certain legal entities (e.g. institutional investors, local governments, business organisations permanently and fully owned by the state); and private individuals, particularly proprietors of an IPF insured investment service provider, as well as their immediate relatives. All investors (legal entities, companies without legal entity and natural persons), other than the persons excluded under law, are eligible for compensation provided that they do not receive their justifiable claims.