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Brussels, 19 February 1997

Financial services: Commissioner Monti welcomes adoption of investor compensation Directive

Adoption of the Directive on Investor Compensation Schemes by the European Parliament and the EU's Council of Ministers has been welcomed by Financial Services Commissioner Mario Monti. The Directive requires Member States to ensure that minimum safeguards are in place to compensate investors (essentially for smaller investors) in the case of failure of an investment firm (bank or non-bank), where the firm proves unable to refund to investors the money or securities belonging to them. The Directive does not provide for compensation for losses incurred as a result of customers' investments losing market value. Mr Monti commented that "this long awaited measure will substantially reinforce the Single Market for securities trading by serving to increase investors' confidence".

Minimum level of compensation

The Directive requires Member States to ensure that at least 90 % of each investor's claims are met by the compensation scheme. Member States may set a ceiling on the level of compensation but such a ceiling cannot be less than ECU 20,000 (or ECU 15,000 until 31 December 1999 in Member States where the ceiling is currently below ECU 20,000). The Directive leaves Member States totally free to decide about both the internal organisation of the scheme and the way it is financed.

Home country control

The Directive requires the supervisory authorities of the investment firm's home country to be responsible for the investor compensation arrangements, even in cases where firms are established and/or offering services in several Member States. This serves to reinforce the 'home country control' principle which is the basis for the single licence for investment firms (provided by the Investment Services Directive - 93/22/EEC - and by the Second Banking Directive - 89/646/EEC).

Other important features of the Directive are the so-called "top-up" and "export-ban" clauses. The "top-up clause" gives branches of investment firms established in a host Member State the right to join the host country's scheme if it provides a higher level of compensation than their home country's scheme. The "export-ban" clause means that branches of investment firms established in a host Member State are not allowed to provide a higher level of compensation than is provided by the host country's scheme. The "export-ban" clause is due to be reviewed before 31 December 1999.

The Directive must be implemented by Member States by the autumn of 1998, the precise deadline depending on when the text is published in the EC's Official Journal.

The initial proposal for a Directive on investor compensation schemes was put forward by the Commission in 1993 in response to a specific request from the Council of Ministers when the Investment Services Directive was adopted.

The investor compensation Directive has been modelled on and is consistent with the deposit-guarantee schemes Directive (94/19/EC), which sets minimum rules for compensation of customers of credit institutions that fail. The need for consistency between the two Directives is essential in the case of banks acting as investment firms because banks will be allowed to comply with both Directives by belonging to a single compensation scheme.

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