Which statement describes how the Investor Compensation Scheme is funded?

• A. Levies on covered firms
• B. The Government
• C. The Central Bank
• D. European Authority

Answer: (A)

The funding comes from levies on covered firms. The Investor Compensation Scheme is financed by contributions from the investment firms (and other covered entities) that participate in the scheme. These firms pay risk-based levies into a central fund, which is used to compensate eligible investors if a covered firm fails or defaults. This approach keeps the cost within the industry that carries the risk and avoids relying on government or taxpayer funding. The government, central bank, or European authority oversee and regulate the scheme, but the actual funds come from the levies paid by the firms.