Commission proposes package to boost consumer protection and confidence
in financial services
As part of its work creating a safer and sounder financial system,
preventing a future crisis and restoring consumer confidence, the European
Commission has proposed changes to existing European rules to further improve
protection for bank account holders and retail investors.
For bank account holders, the measures adopted today mean that in case their
bank failed, they would receive their money back faster (within 7 days),
increased coverage (up to 100,000 euro – 81,040 GBP) and better information on
how and when they are protected.
For investors who use investment services, the Commission proposes faster
compensation if an investment firm fails to return the investor's assets due to
fraud, administrative malpractice or operational errors, while the level of
compensation is to go up from 20,000 euro (16,208 GBP) to 50,000 euro (40,520
Investors will also receive better information on when the compensation
scheme would apply and get better protection against fraudulent
misappropriations where their assets are held by a third party - such as in the
recent Madoff affair.
Internal Market and Services Commissioner Michel Barnier said: "The
adoption of today's package marks the Commission's latest endeavour to bring
transparency and responsibility to Europe's financial system in order to
prevent and manage future crises. European consumers deserve better. They need
reassurance that their savings, investments or insurance policies are protected
no matter where in Europe they are based."
He added: "To make this a reality, I now call upon the European
Parliament and the Council to make rapid progress in approving today's
In addition, the Commission has launched a public consultation on options to
improve protection for insurance policy holders, including the possibility of
setting up Insurance Guarantee Schemes in all member states.
The proposals are fully in line with the EU's commitments under the G20.
Protecting your savings
The recent financial crisis illustrated once more how banks are susceptible
to the risk of "bank runs" – i.e. when bank account holders believe
that their savings are not safe and try to withdraw them all at the same time.
Since 1994, a Directive (94/19/EC) ensures that all member states have in place
a safety net for bank account holders. If a bank is closed down, national
Deposit Guarantee Schemes are to reimburse account holders of the bank up to a
certain coverage level.
When the financial crisis hit in 2008, some quick-fix amendments were made,
notably to increase the coverage level to 100,000 euro (in two steps) and to
abandon the possibility to have co-insurance in place (i.e. that bank account
holders are not fully repaid, but are to bear a certain percentage of their
lost sum - even when the lost amount would be lower than the coverage limit).
However, as other shortcomings were detected in existing schemes, the
Commission now comes forward with a proposal to fully amend the 1994 Directive
and ensure that all lessons are learned from the crisis.
The key elements of the proposal are as follows:
• Better Coverage : the
upgrade to 100,000 euro by the end of this year is now confirmed. This means
that 95% of all bank account holders in the EU will get all their savings back
if their bank fails. Coverage now includes small, medium and large companies as
well as all currencies. Excluded are all deposits of financial institutions and
public authorities, structured investment products and debt certificates.
• Faster payouts : bank
account holders will be reimbursed within seven days. This will be a major
improvement as today many account holders wait weeks, even months, before
getting their money back. In order to facilitate such a short payout, managers
of Deposit Guarantee Schemes will have to be informed early about problems at
banks by supervisory authorities. Banks will have to specify in their books
whether deposits are protected or not.
• Less red tape : for
example, if you live in Portugal and have your account at a failing bank whose
headquarters are based in Sweden, the Portuguese scheme would repay you on its
own initiative and act as your contact point. The Swedish scheme would then
reimburse the Portuguese scheme. This would be a strong improvement over the
current situation, where all correspondence has to be done via the scheme of
the country where the bank's headquarters are located. The new approach will
mean less bureaucracy and faster payouts.
• Better information :
bank account holders will be better informed on the coverage and functioning of
their scheme by a new easy to understand standard template and on their account
• Long-term and responsible
financing : concerns have been expressed that existing Deposit
Guarantee Schemes are not well funded. Today's proposals will ensure that they
are now more soundly financed following a four-step approach. First, solid
ex-ante financing provides for a solid reserve. Second, if necessary, this can
be supplemented by additional ex-post contributions. Third, if this is still
insufficient, schemes can borrow a limited amount from other schemes
("mutual borrowing"). Fourth, as the last resort, other funding
arrangements would have to be made as a contingency. Contributions will, as is
currently the case, be borne by banks. However, they will be calculated in a
fairer way since they will be adjusted to the risks posed by individual
Not only will Europeans have better protection for their savings, but they
can now also choose the best savings product in any EU country without worrying
about differences in protection. Banks will benefit from the proposal since
they could offer competitive products throughout the EU without being hampered
by such differences. Moreover, taxpayers benefit from a better financing of
schemes – rendering state intervention much less likely.
Most improvements could already come in effect by 2012 and 2013 and would
apply in all EU member states as well as in Norway, Iceland and Liechtenstein,
once incorporated in the European Economic Area Agreement.