Brexit is around the corner. My relationship with Interactive Brokers is with the entity based in the United Kingdom, specifically Interactive Brokers (U.K.) Limited (“IBUK”) and the services provided to me are provided by IBUK and, depending on the products you do business in, their US affiliate Interactive Brokers LLC (“IBLLC”).
At present IBUK utilizes what is known as a financial services passport to be able to perform its part of the service provision across continental Europe. With Brexit, IBUK will lose its financial services passport, and that from 1 January 2021 Interactive Brokers will need to make some changes in relation to which legal entity does business with you.
Interactive brokers have established a new Interactive Brokers legal entity in Hungary, namely, Interactive Brokers Central Europe Zrt. (“IBCE”). They proposed to transfer the business that i am currently conduct with IBUK and IBLLC to IBCE. In other words, all of my accounts, investments and services currently provided to me by IBUK and IBLLC will instead be singularly provided by IBCE.
IBCE, an investment service provider, is licensed and authorized by the Central Bank of Hungary. IBCE’s regulatory status and profile is very similar to IBUK’s. This is because both IBCE and IBUK are authorised pursuant to the second Markets in Financial Instruments Directive (Directive 2014/65/EU). This is an EU-wide piece of legislation the purpose of which is to, as much as possible, harmonise how investment firms are regulated across the EU.
The real question is :
How am I protected against loss? Are there any material differences that will apply to my relationship with IBCE compared to those that apply to my existing relationship with IBUK?
Currently, your eligible assets are protected from loss either under the US Securities Investor Protection Corporation at an amount of up to USD 500,000 (subject to a cash sub-limit of USD 250,000) or the UK Financial Services Compensation Scheme at an amount up to £50,000 (which regime applies depends on the relevant segment of your IBUK account, as explained in the response to Question B2 above). After the Proposed Transfer, the Hungarian Investor Protection Fund according to Act CXX of 2001 on the Capital Market may protect your assets from loss, at an amount up to a maximum of EUR 100,000, should IBCE default and be unable to meet its obligations to you.
Hungary’s compensation scheme is similar to the compensation scheme you have access to in the UK, The purpose of the Fund is to pay compensation to you in the event that:
- the Central Bank of Hungary initiates liquidation proceedings of IBCE , or
- a court orders the liquidation of IBCE.
IBCE is a member of the Fund.
The compensation provided by the Fund covers claims arising from contracts entered into within the agreement with IBCE of brokerage activity, securities custody, securities account management and client account management activities performed by IBCE.
You can only make a claim after a firm goes out of business and its assets have been liquidated and distributed to those who are owed money. Please check the details of the schemes for any limits that apply – not all losses will be covered as there are maximum levels of compensation. The Fund will pay you compensation for the amount you have lost up to a maximum of EUR 100,000. The amount paid by the Fund is:
- 100% up to the limit of the EUR equivalent of one million forints (EUR 2,800 on 12th December 2020),
- above one million forints: 1 million forints and 90% of the part above one million forints to a maximum of EUR 100,000.
Unfortunately, these are not good news for European Investors as now the maximum protection is EUR 100,000.
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