Dispute resolution in the area of investment

The competence of the Financial Arbitrator is laid down by the Act No. 229/2002 Coll., on Financial Arbitrator, as amended (hereinafter referred to as “the Financial Arbitrator Act”). In the area of investment, the Financial Arbitrator's competence has been extended by several amendments to the Financial Arbitrator Act.

Since 1 July 2011 the Financial Arbitrator has been competent, in accordance with Sec. 1 Par. 1 letter d) of the Financial Arbitrator Act, to decide disputes in the area of collective investment. Since 19 August 2013 Sec. 1 Par. 1 letter d) of the Financial Arbitrator Act has stated that the Financial Arbitrator shall be competent to decide disputes between a consumer and “a person managing or administering a collective investment fund, or offering an investment in a collective investment fund or in a comparable foreign investment fund in connection with managing or administering a collective investment fund, or with offering an investment in a collective investment fund or a comparable foreign investment fund”.

Since 1 February 2016 the competence of the Financial Arbitrator has been extended to cover the area of investment services as well, in accordance with Sec. 1 Par. 1 letter h) of the Financial Arbitrator Act. Since 1 December 2018 Sec. 1 Par. 1 letter h) of the Financial Arbitrator Act has stated that the Financial Arbitrator shall be competent to decide disputes between a consumer and “a person providing investment services in connection with providing investment services”. That also means that the Financial Arbitrator is competent to decide disputes in the area of investment services against foreign entities as well.

Laws and regulations in the investment area

The area of collective investment shall be governed by the Act No. 240/2013 Coll., Act on Management Companies and Investment Funds (hereinafter referred to as “the MCIF Act”), implementing, inter alia, the Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities. The offering or mediation of the collective investment and providing of investment services shall be governed by the Act No. 256/2004 Coll., on Capital Market Undertakings, as amended (hereinafter referred to as “the CMU Act”), implementing, inter alia, the Directive 2014/65/EU of the European Parliament and of the Council of 15 may 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU. Additional rules to govern the area of investment are to be found in the implementing legislation, i.e. decrees of the Czech National Bank (e.g. Decree No. 308/2017 Coll., on a more detailed regulation of certain rules in the provision of investment services) and Government regulations, as well as in the directly applicable EU legislation.

The Financial Arbitrator decides disputes on standard and special investment collective funds between consumers and persons managing, administrating or distributing funds.

A person managing a fund is usually a management company, an investment fund with legal personality, a foreign person from the EU with a license granted by a competent supervisory authority of another member state or a foreign person outside the EU with a license granted by the Czech National Bank. A person administrating a fund is usually an administrator or a person managing a fund. A person distributing a fund may be a management company, investment firm or and investment intermediary.

According to Sec. 93 Par. 1 of the MCIF Act „a collective investment fund is a) a legal person with its registered office in the Czech Republic authorised to collect financial means from the public by issuing shares and to perform collective investment of the collected financial means on the basis of a specified investment strategy on the principle of risk distribution in favour of the owners of these shares, and to further manage this property, and b) a unit fund whose purpose consists in collecting financial means from the public by issuing unit certificates and in collective investment of the collected financial means on the basis of a specified investment strategy based on the principle of risk distribution in favour of the owners of these unit certificates, and in further management of this property”.

According to Sec. 97 of the MCIF Act “a foreign investment fund is a) a legal person, having its registered office in another state than in the Czech Republic, comparable to an investment fund, or b) a facility set up according to the law of another state, comparable to a unit fund or a trust“.

According to Sec. 4 Par. 2 of the CMU Act “the main investment services are (a) reception and transmission of orders in relation to one or more financial instruments, (b) execution of orders on behalf of clients in relation to one or more financial instruments, (c) dealing on own account in relation to one or more financial instruments, (d) managing portfolios of clients' assets on a discretionary client-by-client basis under a contractual mandate (portfolio management), where such portfolios include one or more financial instruments, (e) investment advice in relation to one or more financial instruments, (f) operation of an MTF, (g) operation of an OTF, (h) underwriting and/or placing of financial instruments on a firm commitment basis, (i) placing of financial instruments without a firm commitment basis”.

According to Sec. 4 Par. 3 of the CMU Act “the ancillary investment services are (a) safekeeping and administration of financial instruments for the client, including custodianship and related services, with the exception of the maintaining asset accounts by the central securities depository or a foreign central securities depository, (b) granting credits or loans to an investor to allow him to carry out transaction with one or more financial instruments, where the firm granting the credit or loan is involved in the transaction, (c) advisory services relating to the structure of capital, industrial strategy and related matters, as well as the provision of consultations and services relating to the transformation of companies or the transfer of business premises or the acquisition of participation in a business corporation, (d) investment research and financial analysis or other forms of general recommendation relating to the trading of financial instruments, (e) foreign exchange services related to the provision of investment services, (f) services relating to the underwriting of financial instruments, (g) a service similar to an investment service that relates to a thing to which the value of a financial instrument referred to in Section 3(1)(g) to (k) and which is related to the provision of investment services”.

Disputes in competence of the Financial Arbitrator

The Financial Arbitrator is authorized to decide disputes arising in connection with collective investment, for example disputes between a consumer and a management company or an investment fund regarding:

  • the settlement of the buy/sell/exchange of units,
  • the value of units,
  • the proper execution of the order to buy/sell/exchange units by the management company,
  • the proper execution of the order to buy/sell/exchange units by the investment intermediary,
  • damages caused by an investment advice provided by a management company or an investment intermediary in connection with collective investment,
  • the fee charged for buy/sell/exchange of units,
  • damages related to the fulfilling of information duties by a management company or an investment fund.

The Financial Arbitrator is authorized to decide disputes arising from providing investment services between a consumer and a person providing investment services, e.g. an investment firm, an investment intermediary, a tied agent or a foreign person authorized by the supervisory authority of another EU member state, for example in the following cases:

  • the proper execution of the order to buy/sell a financial instrument,
  • damages caused by an investment firm or an investment intermediary in connection with providing investment advice,
  • the fee charged for buy/sell of a financial instrument,
  • the validity or termination of an investment services agreement.

Disputes out of competence of the Financial Arbitrator

  • disputes of shareholders and bondholders if there were no investment services provided by the institution,
  • disputes on investment instruments other than defined by law, such as cryptocurrencies.

Filing a complaint

It is recommended to use a Complaint Filing Tutorial of a complaint form for filing a complaint.

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