Brussels, 12 July 2010
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 today proposed changes to existing European rules to further improve protection for bank account holders and retail investors. Furthermore, 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. 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) 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 to € 50 000. 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. The proposals, fully in line with the EU's commitments under the G20, are now passed to the European Parliament and the Council of Ministers for consideration.
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. To make this a reality, I now call upon the European Parliament and the Council to make rapid progress in approving today's package."
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 (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:
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.
See also MEMO/10/318
Protecting your investments
Since 1997, the Investor Compensation Scheme Directive (97/9/EC) has protected investors who use investment services in Europe by providing compensation in cases where an investment firm is unable to return assets belonging to an investor. This might occur for example where there is fraud or negligence at a firm or where there are errors or problems in the firm's systems. It is not a protection against investment risks at such. There are now 39 investor compensation schemes in place in the EU's 27 Member States.
In recent years, the Commission has received numerous complaints about the Directive's application in some Member States. These complaints have concerned issues such as schemes having insufficient funding to pay out claims or lengthy delays in paying out claims.
Today's proposal is intended to ensure that the rules on investor protection are more efficient, that there is a level playing field concerning the type of financial instruments that are protected and that there is appropriate funding and the necessary arrangements to make sure that investors are compensated.
The key elements of the proposal are as follows:
Most improvements could already come in effect by end 2012 and would apply to all EU Member States as well as Norway, Iceland and Liechtenstein, once incorporated in the European Economic Area Agreement.
See also MEMO/10/319
Improving protection for insurance policy holders
Insurance Guarantee Schemes (IGS) provide last-resort protection to consumers when insurers are unable to fulfil their contract commitment, offering protection against the risk that claims will not be met if an insurance company is closed down.
IGS can offer protection by paying compensation to consumers, or by securing the continuation of their insurance contract through, for example, facilitating the transfer of policies to a solvent insurer or the guarantee scheme itself. As opposed to the banking and securities sectors, there is no European legislation on guarantee schemes in the insurance sector today. Currently, 12 Member States operate one or more IGS which cover life and/or non-life insurance policies. They not only vary in terms of protection and eligibility, but also on when they are to intervene or how they are to be funded for example.
In the White Paper that was adopted today, the Commission sets out different options to ensure a fair and comprehensive level of consumer protection in the EU as well as to guard against the need for taxpayers to foot the bill in case an insurance company is to collapse. In particular, it proposes introducing a directive to ensure insurance guarantee schemes exist in all Member States and comply with a minimum set of requirements. The White Paper on Insurance Guarantee Schemes is up for consultation and all interested parties are invited to submit their comments and further input by 30 November 2010.
See also Memo/10/320
Deposit Guarantee Schemes:
Investor Compensation Schemes:
Insurance Guarantee Schemes: