How are customers’ assets protected in LHV Bank?
Any preventive action stems, first of all, from customers’ own knowledge. The general rule is: the better the customer’s knowledge, the more secure his or her investments. LHV Bank helps to raise customers' awareness through its website and seminars. Information concerning investment-related risks is also provided by the Financial Supervision Authority on its web page at www.minuraha.ee as well as by NASDAQ OMX Tallinn tock Exchange on its web page at www.nasdaqomxbaltic.com.
LHV Bank acts as a credit institution on the basis of the licence issued by the Financial Supervision Authority
LHV Bank is a credit institution under the licence issued by the Financial Supervision Authority in 2009. The Financial Supervision Authority exercises supervision inter alia over the management of LHV Bank’s and its customers’ assets. LHV Varahaldus, a company belonging in the same group with LHV Bank, acts as a fund management company under the licence issued by the Financial Supervision Authority in 2002. Information concerning the licences is available on the website of the Financial Supervision Authority at www.fi.ee. Under the supervision of the Financial Supervision Authority, LHV Bank and LHV Varahaldus submit reports on their activities and on the amount of their capital and own funds to the Financial Supervision Authority on a regular basis. Based on those reports, the Financial Supervision Authority assesses our performance results, credibility, capital adequacy and sustainability. The reporting obligation derives from the Estonian Credit Institutions Act and the Estonian Investment Funds Act. The content of the obligation has been specified in various regulations of the Ministry of Finance and the Governor of the Bank of Estonia.
Investments and money
For the purposes of provision of investment services, customers’ investments (incl. securities) are not deemed to be included in the assets of LHV Bank. Then again, deposits (money) engaged from customers are deemed to be included in the assets of LHV Bank.
How are customers’ assets managed?
LHV Pank holds the assets of its customers on accounts separate from its own assets and accounts for the money and securities of every customer separately.
Shares traded on the Tallinn, Vilnius and Riga stock exchanges and other securities registered in the Baltic central depository (Nasdaq CSD) are held on every customer’s personal Baltic securities account. All other securities are held on representative accounts opened in the name of LHV Pank at carefully selected account managers and foreign brokers. The assets of LHV Pank and its customers are separated on the representative accounts so that only the assets of customers are held on the securities account opened in the name of LHV Pank’s customers, separately from the securities that belong to LHV Pank.
LHV Pank maintains a register of assets and securities so as to be able to distinguish securities held for customers from the assets of other customers and LHV Pank at any time.
LHV Pank stores data, registers and accounting records so as to be able to distinguish securities held for customers from the assets of other customers and LHV Pank at any time.
SEB Pank is the depot bank for the investment and pension funds managed by LHV Varahaldus, i.e., the assets of all the funds are held there.
What could jeopardise the preservation of customers' assets?
Investing entails usual market risks, i.e. risks relating to changes in securities’ prices, interest rates and currency exchange rates may affect the value of an investment. In addition, one should reckon with risks relating to issuers as well as to the economic and political stability of the issuers’ countries of location. To mitigate those risks, it is advised to examine the issuer in question as well as the economic and political stability of the issuer’s country of location and to diversify investments between different issuers and regions. Please read a more detailed description of investment-related risks on the website.
How does LHV Bank protect customers’ assets?
Customers’ assets held by LHV Bank are comprehensively protected through three measures: LHV Bank’s internal control system, LHV Bank’s equity capital and the state system for protection of investors and depositors.
LHV Bank has years of experience in managing customers' assets and mitigating the related risks. LHV Bank has put in place an efficient internal control system which is subject to regular review by the Compliance Officer and the internal auditor.
Ensuring the undisrupted functioning of services is one of the most common processes of risk management in banks. This means that banks have to apply sufficient measures to avoid disruptions in the functioning of services. We also have activity plans for occasions when a disruption does occur (including in crisis situations). As a provider of vital services, LHV is also subject to the requirements of the Emergency Act and its implementing acts with regard to payments, card payments and ATMs. Among other things, this obligates us to have alternative sources of electricity, back up data and data communication connections both with separate cable mainlines and separate data communication service providers. We hold a large part of our customers’ deposits and foreign securities outside of Estonia, and these are also protected if the bank temporarily does not operate. We shall most certainly make all possible efforts to ensure the functioning of our services and the protection of our customers’ assets during major crises.
LHV Pank selects its partners (foreign brokers and account managers) by very carefully weighing and analysing at which foreign broker or account manager to hold the assets and securities of its customers. LHV Pank also regularly monitors and assesses the services and economic activities of its partners with the aim of ensuring high-quality services for its customers.
How does the state protect customers’ assets?
The state system for protection of investors and depositors is an additional safeguard for customers’ investments. The system comprises the Guarantee Fund that collects contributions from credit institutions, investment companies, insurers and management companies of mandatory pension funds, and compensates, under the conditions, to the extent and pursuant to the procedure provided by law, the funds placed by depositors, investors and unit-holders.
Within the Guarantee Fund, the Investor Protection Sectoral Fund and the Deposit Guarantee Sectoral Fund have been formed.
Investor Protection Sectoral Fund
The Investor Protection Sectoral Fund has been formed as a state guarantee and as part of the Guarantee Fund. Investments placed through LHV Bank will be compensated out of the fund to the extent of 100% of their value as at the compensation obligation date but not more than in the amount of 20,000 € per investor (for more details please see the Estonian Guarantee Fund Act). For the purposes of compensating investments out of the Investor Protection Sectoral Fund, securities belonging to third persons, which are kept on a notary’s or bailiff’s securities account, opened for the purposes of their professional acts, shall be regarded as securities belonging to each person separately. The Guarantee Fund will not compensate for the decrease in the market value of securities.The state will compensate for investments taking into account the following exceptions:
- Investments belonging to a professional investor or the Republic of Estonia or a foreign state, an Estonian or foreign local government or a legal entity, the principal and permanent activity of which is to acquire holdings or conclude one or more of the transactions or acts specified in articles 6(1)(2)- 6(1)(12) of the Estonian Credit Institutions Act, will not be guaranteed or compensated out of the Investor Protection Sectoral Fund.
- An investment belonging to a person who has collectable liabilities to LHV Bank will not be compensated out of the Investor Protection Sectoral Fund to the extent of such liabilities, but will be compensated regarding the remaining part of the investment.
- Investments which have been confiscated in accordance with a judgment of conviction in a money laundering or terrorist financing court case will not be compensated out of the Investor Protection Sectoral Fund. In case disposal of an investment has been restricted by a precept of the Financial Intelligence Unit or an investment has been seized in criminal proceedings of a money laundering or terrorist financing court case, compensation for such an investment will be suspended until the precept has been repealed or the court judgment has entered into force.
Deposit Guarantee Sectoral Fund
The Deposit Guarantee Sectoral Fund has been established as a state guarantee and as part of the Guarantee Fund. Deposits placed through LHV Bank will be guaranteed and compensated out of the Deposit Guarantee Sectoral Fund together with interest accumulated by the date on which the deposits become suspended. The deposits and accumulated interests will be compensated to the extent of 100% but not more than in the amount of 100,000 € per depositor (for more details please see the Estonian Guarantee Fund Act). For the purposes of compensating deposits out of the Deposit Guarantee Sectoral Fund, monetary assets belonging to third persons, which are kept on a notary’s or bailiff’s account, opened for the purposes of their professional acts, shall be regarded as deposits belonging to each person separately. The state will compensate for deposits taking into account the following exceptions:- Deposits belonging to the Republic of Estonia or a foreign state, an Estonian or foreign local government, insurer, investment fund, investment firm, fund manager, credit institution or a legal entity, the principal and permanent activity of which is to acquire holdings or conclude one or more of the transactions specified in articles 6(1)(2)-6(1)(12) of the Estonian Credit Institutions Act, will not be guaranteed or compensated out of the Deposit Guarantee Sectoral Fund.
- A deposit belonging to a person who has collectable liabilities to LHV Bank will not be compensated out of the Deposit Guarantee Sectoral Fund to the extent of such liabilities, but will be compensated regarding the remaining part of the deposit.
- Deposits which have been confiscated in accordance with a judgment of conviction in a money laundering or terrorist financing court case will not be compensated out of the Deposit Guarantee Sectoral Fund. In case disposal of a deposit has been restricted by a precept of the Financial Intelligence Unit or a deposit has been seized in criminal proceedings of a money laundering or terrorist financing court case, compensation for such a deposit will be suspended until the precept has been repealed or the court judgment has entered into force.
LHV Bank pays regular contributions into the Guarantee Fund. For more information please see the website of the Guarantee Fund at www.tf.ee.
How does the Stock Exchange protect customers’ assets?
To secure transactions made on NASDAQ OMX Tallinn Stock Exchange, the Stock Exchange has formed a guarantee fund which is financed by the monetary contributions of its members. The Stock Exchange may use the resources of the guarantee fund if a member of the Stock Exchange goes bankrupt or if it does not have sufficient securities or money to complete a transaction on the Stock Exchange.
In order to prevent situations where the completion of a transaction is called into question, LHV Bank checks whether all the customers have sufficient resources to complete the transactions, i.e. sufficient amounts of securities in the case of a sales transaction and available funds on the account in the case of a purchase transaction.
More information is available on the website of the Stock Exchange at www.nasdaqomxbaltic.com.
