Hong Kong Investor Compensation Fund: coverage, defaults, and limits

The SFO’s Investor Compensation Fund is a statutory safety net for eligible pecuniary losses caused by a default of a covered intermediary in specified exchange-traded products. It does not insure investment performance or every loss from fraud, and limits depend on the default date and product category.

Purpose and administrator

The Investor Compensation Fund (ICF) is established under the Securities and Futures Ordinance (SFO) to compensate eligible investors for specified pecuniary losses caused by a default of a covered intermediary. Claims are administered by the Investor Compensation Company Limited (ICC), which receives and assesses claims, determines eligibility, makes payments, and pursues recoveries against defaulting intermediaries. The SFC provides the regulatory framework and publishes investor-facing FAQs. The ICF is a statutory compensation arrangement, not a general government guarantee for investment accounts. Its purpose is limited by the type of default, the intermediary, the product, and the applicable compensation cap. A claimant must establish the relevant loss and satisfy the claims process; the existence of an account statement alone does not guarantee payment.

What counts as a covered default

The SFC describes defaults as including insolvency, bankruptcy or winding up, breach of trust, defalcation, fraud, or misfeasance by a covered intermediary. A market decline, a disappointing product, or a poor recommendation does not automatically constitute a covered default for ICF purposes. A client complaint may have other remedies, but that is different from establishing a claim against the Fund. The ICC determines whether a default occurred and whether a claimant is entitled to compensation. The analysis is tied to the intermediary’s conduct and the claimant’s pecuniary loss in a covered transaction. Investors should be wary of anyone promising recovery for an upfront fee; the SFC has warned about scams impersonating the ICF.

Products and transactions in scope

The Fund covers specified losses relating to products traded on Hong Kong Exchanges and Clearing markets, including eligible securities traded on SEHK and futures contracts traded on HKFE. For defaults on or after 1 January 2020, coverage also includes specified securities traded on the Shanghai Stock Exchange or Shenzhen Stock Exchange where the purchase or sale order is permitted to be routed through the Northbound Stock Connect link. Scope is not the same as “any investment sold by a Hong Kong firm.” An over-the-counter private investment, an overseas product, a bank deposit, or a non-exchange transaction should not be assumed covered. Check the SFC’s current ICF FAQ and the statutory compensation rules for the exact category and default date.

Compensation limits depend on date and category

The limit for defaults occurring on or before 31 December 2019 is generally HK$150,000 per claimant for each default case, subject to the claims rules. For defaults on or after 1 January 2020, the limit is HK$500,000 per claimant for a single default in the covered securities category and separately HK$500,000 for covered futures contracts. That does not mean every investor can claim HK$1 million for one undifferentiated loss. The categories and the default event matter. The SFC’s FAQ gives examples of how securities and futures amounts are calculated, and joint account holders are treated per claimant under the stated rules. Always identify the date of default before applying a cap; the trade date or the date the customer discovered the loss may not be the relevant date.

How the claim is assessed

A claimant should identify the defaulting intermediary, the covered product and transaction, the amount owed or lost, and supporting records. Useful documents can include account statements, contract notes, deposit records, correspondence, identity documents, and evidence of a claim against the intermediary. The ICC assesses claims under the SFO and the Investor Compensation Rules and may request additional information. It also decides whether the alleged event is a covered default and whether the claimed loss is within scope. A claimant should provide complete, truthful information and keep copies of all submissions. If the Fund’s available assets are insufficient to meet all valid claims, the statutory claims rules provide for allocation and later payment where funds become available.

Who is not eligible

The SFC identifies categories that cannot claim, including licensed corporations, authorized financial institutions, certain exchange and clearing entities, authorized ATS providers, insurers, managers or operators of authorized collective investment schemes, certain associates or employees of the defaulting intermediary, governments, and persons acting as trustees or custodians for listed excluded persons. These exclusions reflect the Fund’s purpose as an investor safety net rather than protection for regulated firms and specified related parties. Eligibility should be checked for the actual claimant, not only the beneficial owner or account name. Joint accounts also require careful claimant-by-claimant analysis.

What the Fund does not cover

The ICF does not cover losses caused merely by share-price fluctuations, poor investment performance, or scams by unlicensed entities. It is not a deposit-insurance scheme, a product guarantee, or a substitute for due diligence. The SFC’s May 2026 warning describes scams targeting investors who already suffered losses and falsely claiming access to ICF compensation. Investors should not pay an upfront fee to an alleged recovery agent or send funds to unlock an award. Claims should be made through official ICC and SFC channels. For exams, the key contrast is between a covered intermediary default in a covered exchange-traded product and ordinary investment loss or an unlicensed fraud.

Scenario method and records

A compensation question is easiest to solve in sequence: identify the claimant; identify the intermediary and whether it falls within the scheme; identify the product and whether the transaction is covered; determine whether the event is a statutory default; establish the pecuniary loss; determine the default date; then apply the category-specific cap and exclusions. Keep the securities and futures calculations separate. Do not use an old HK$150,000 figure for a post-2020 default without checking the newer limits, and do not apply the HK$500,000 cap to every financial product. The ICC—not the broker’s marketing material—determines an individual claim.

How to analyze an exam scenario

Start with the legal entity, product, transaction, and event. Identify the statute or exchange rule that applies, then test each element and exception against the facts. Keep separate concepts separate: an internal policy, an SFC guideline, an Exchange rule, and a statutory duty may have different legal status and scope. Record the dates and persons involved before reaching a conclusion.