Investor protection in a regulated environment

Financial regulation establishes rules and restrictions for financial institutions to maintain the stability of the financial system and protect consumers. In this article, we take a look at how Mintos is regulated, and how this benefits investors.

Key takeaways

  • Increased protection for investors thanks to a regulated environment
  • Investors’ assets are held separately from Mintos’s assets
  • Investors will be protected up to €20 000 under the investor compensation scheme once Notes become available (details and exceptions below)

The regulatory framework for Mintos

The financial system is an integral part of our daily lives. For example, we need banks to make payments or transfer money, or investment firms to invest our money to gain future returns. Unregulated or poorly regulated financial institutions have the potential to undermine the stability of the financial system and harm consumers.

Investment firms in the EU need to comply with several laws and regulations aimed at protecting investors and the stability of the financial system. A combination of sound internal control mechanisms, internal and external audits, and regulatory oversight ensures they strictly follow all applicable requirements.

The most prominent regulations include:

  • MiFID and MiFIR
  • PRIIPs regulation
  • Prospectus regulation
  • Investment firm prudential regime

MiFID and MiFIR

The Markets in Financial Instruments Directive (MiFID) is a regulatory framework that aims to increase investor protection and reduce systemic risk by establishing common standards and rules for investment firms operating in the European Union. MiFID sets standards for the organizational and business conduct, such as transparency rules.[1]

The Markets in Financial Instruments Regulation (MiFIR) complements the European Union’s second Markets in Financial Instruments Directive (MiFID II). It focuses on business requirements for investment firms, such as trade reporting and transaction reporting. MiFIR aims to increase transparency for investors, and requires investment firms in the European Economic Area to publicly disclose certain quotes and trades.

PRIIPs regulation

The Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation aims to increase the efficiency of EU markets by helping investors to better understand and compare the key features, risk, rewards, and costs of different PRIIPs, through access to a short and consumer-friendly Key Information Document (KID).

Prospectus regulation

The Prospectus Regulation creates a framework for the format, content, and approval of prospectuses. It aims to make prospectuses shorter and more investor-friendly. It also establishes a unified format so that investors can more easily compare prospectuses for different investments.

Investment firm prudential regime

The Investment Firms directive and regulation (IFD and IFR) introduce a prudential framework for investment firms. This framework includes minimum capital requirements, a liquidity buffer, and concentration risk limits based on the firm’s asset size and the riskiness of their activities.

How regulation benefits investors

Investing in a regulated environment has many benefits for investors.

Suitable and appropriate product offering

To ensure that investors are aware of the risks of investing on Mintos, and that their financial situation allows them to bear these risks, Mintos checks whether offered products fit their expectations and goals, and are appropriate for their knowledge and experience. The outcome of this assessment determines which products and services will be available to the investor. You can read more about the assessment on our blog. Investing on Mintos isn’t risk-free, so it’s not suitable for investors who wish to only preserve capital. We advise investors to set investment goals that match their circumstances and risk tolerance.

Investor-friendly presentation of information

To help investors make informed decisions about the investment, they are provided standardized information in a consumer-friendly format. This information is designed to help investors understand the behavior of investment products and compare them with other products. Mintos has also published several disclosures, such as information on investment risk and fees, and will publish Key Information Documents (KIDs) and prospectuses once Notes become available. Stay tuned for more information about what’s in a prospectus coming soon.

Safeguarding of investor assets

Investors’ funds are protected by safeguarding them in special accounts in banks. Mintos is required to ensure that the available balance on investors’ Mintos accounts matches the balance on the safeguarded accounts held with banks. These funds are used only to execute the investors’ orders to invest or withdraw the funds, or to cover fees and charges payable to Mintos. Mintos is not allowed to combine its own funds with the funds of investors. Creditors of Mintos are not entitled to recover from the safeguarded accounts.

Financial instruments belonging to the investors on Mintos are held separately from Mintos’s own assets. These instruments can only be used to execute the investors’ orders, for example to sell the instruments.

Investor compensation scheme

As an authorized investment firm, Mintos will be a member of the national investor compensation scheme once Notes become available.

  • The compensation scheme was established according to Directive 97/9/EC and applies to all authorized investment firms and banks in the respective EU country. Mintos will be a member of the Latvian investor protection scheme as it is regulated in Latvia by the FCMC. Similar schemes exist in other EU countries.
  • The compensation scheme protects retail investors’ funds and financial instruments held by Mintos.
  • Retail investors are protected against permanent loss resulting from a failure of Mintos to transfer the funds or financial instruments of the investor held by Mintos according to the investor’s instruction. This means retail investors are protected if Mintos loses a financial instrument they invested in, or if Mintos does not have sufficient funds on the safeguarded account to transfer to the investor’s bank account.
  • The scheme allows the retail investors to receive compensation for 90% of the permanent loss resulting from this failure, up to a limit of €20 000.
  • This investor compensation scheme protects retail investors on Mintos irrespective of their country of residence.

The compensation scheme does not protect against investment risks, including

  • Changes in the price of an investment
  • The default of a borrower, lending company, or issuer
  • The lack of a market for the purchase or sale of an investment
  • Suspension of instruments from the Secondary Market

The investor protection scheme does not apply to investments in loans via assignment agreements. It also doesn’t apply to investors whose accounts were closed before the transition to Notes was completed.

If you have any questions about investor protection, let us know in the Community.

The information in this publication is marketing communication only and is not considered investment or legal advice.

[1] Adopted through the Latvian Financial Instruments Market Law

Share: