The Investor Protection Fund is an autonomous legal entity that provides limited property coverage funded from the contributions paid by its members and from other revenues as required under law and in the provisions of its own regulations if any of its members cannot effect delivery against certain customer claims due to lack of funds, i.e. is not capable of performing its commitment to disburse deposits.
IPF foundation and members
Act CXI of 1996, which contains a comprehensive set of provisions about the securities market and its institutions (the Securities Act), envisaged a new organisation of investor protection to be introduced in the Hungarian capital market in response partly to the level of development of the market itself, and in part due to the intended accession to the European Union (EU). The new organisation is designed to provide compensation to investors against property damages arising from the potential insolvency of investment providers.
When the Securities Act entered into force (on January 1, 1997) it obliged all operating investment providers by the force of statute to establish such an institution of investor protection. As a result, the Investor Protection Fund was set up on April 14, 1997 in line with the provisions of the Act.
All business organisations which are licensed to engage in covered lines of business by the Hungarian Central Bank are members of the Investor Protection Fund. A commodity dealer that holds a license to manage client accounts may join the IPF on a voluntary basis or may pursue this line of business without IPF cover.
At present all investment companies, credit institutions that provide investment services and investment fund management companies that manage private portfolios seated in Hungary are members of the IPF. None of the commodity dealers has joined the IPF yet.
Membership contributions are the main source of IPF assets. Members pay an initial contribution upon affiliation and make annual contribution payments to the IPF.
The IPF invests the amounts thus received in compliance with its Asset Management Regulations. From 2013 the asset manager of the IPF is the Government Debt Management Agency, and its depository is KELER Central Depository Ltd. The depository is obliged to invest the money of the IPF exclusively to government securities in line with the provisions of Act CXX of 2001 on the Capital Market.
The assets of the IPF cover the performance of its duty to pay compensation. If the available amount proved to be insufficient for the purposes of compensation, the IPF Board of Directors may order the IPF’s members to pay extraordinary contributions or may decide to take out a loan or issue bonds. Act CXX of 2001 on the Capital Market provides general state guarantee by force of law, should the IPF need to take out a loan or issue bonds.
In 2015 IPF issued state guaranteed private bonds with the expiration date of 7 October 2030, to be able to pay compensation.