How are client’s assets and cash deposits protected?
Banking & Finance
In general, there is no specific legislation in Israel that regulates the status of clients' assets in the event of an insolvency exist.
In addition to the BoI authority to guarantee certain deposits or liabilities as mentioned under question 22 below, we note that in recent years the BoI is considering the advantages and disadvantages of a deposit insurance mechanism and the need and possibility of implementing it in Israel.
As for securities held by clients, there are certain laws and directives, including the rules and bylaws of Tel Aviv Stock Exchange (TASE) and of the Tel Aviv Stock Exchange Clearing House, which mainly address the issue of custody services which guarantee certain separation between assets of the clients and assets of the bank.
Since under the Bylaws a TASE member viewed as holding securities for its client in trust, then under the concept of Israeli Trust Laws, it seems that those securities are not considered as part of the assets of the TASE member i.e. the bank.
The National Deposit Insurance Fund (NDIF) (in Hungarian: Országos Betétbiztosítási Alap) operates as deposit protector institution in Hungary. The credit institutions are required to join the NDIF and pay a joining fee, furthermore accomplish regular- or extraordinary annual payment. If a credit institution becomes insolvent, NDIF pays compensation for its depositors within 20 working days. The upper limit of payment is defined by law to be EUR 100,000, the payment is made in Hungarian forints calculated at the foreign currency rate valid on the day preceding the start date of compensation.
For any client - both natural and legal persons - of Latvian banks, in accordance with the Deposit Guarantee Law of the Republic of Latvia, guaranteed payment of indemnity for all types of deposits in all currencies is guaranteed up to EUR 100,000 in each bank or credit union (all accounts together if there are multiple accounts in one bank). The guaranteed remuneration covers both deposits and current account balances, salary accounts, savings accounts etc. In certain cases, the amount of the guaranteed remuneration may exceed EUR 100,000.
In respect of protection of clients’ assets and cash deposits, Lithuania follows EU approach and has implemented Directive No. 2014/49/EU on Deposit Guarantee Schemes. Lithuania has an explicit deposit insurance scheme regulated by the Law on Insurance of Deposits and Liabilities to Investors of Lithuania. The deposit insurance scheme is managed by a separate state company “Deposit and Investment Insurance” established by the Lithuanian Government. The state company “Deposit and Investment Insurance” administers the insurance of deposits held by residents in banks, non-EU bank branches and credit unions. It is responsible for the collection of contributions paid by insured institutions and the distribution of funds via a paying agent in case of an insured event.
The deposit insurance scheme is mandatory for all credit institutions (banks and credit unions) established in Lithuania as well as to the branches of banks from non-EU countries if the level of their respective depositor protection is lower in their home country.
The cash deposits of clients are guaranteed by the Bank Guarantee Fund up to EUR 100,000 (per bank, regardless of how many bank accounts are held in a given bank). The guarantee does not apply to cash deposits belonging to banks, financial institutions, investment firms, the State Treasury, etc.
In line with EU Directive 2014/49/EU on deposit guarantee schemes, the client’s deposits are protected by the National Fund for Bank Deposits (NFBD). Currently, NFBD is the only deposit guarantee scheme functioning in Romania. NFBD guarantees client deposits within the limit of EUR 100,000/depositor/financial institution. In the case of individuals, the protection may be extended to EUR 200,000 for a period of twelve months for special categories of deposits (e.g. deposits made following the sale of residential assets). The NFBD is funded primarily by the contribution of the banks whose deposits are guaranteed by NFBD.
With regard to the client’s monetary funds and/or financial instruments held by the bank as an investment firm, in addition to the safeguard imposed by MIFID II (currently in progress of implementation in Romania), the Romanian Investors Compensation Fund (RICF) compensates the investors, in the cases where the bank becomes unable to return the assets to the investors. The compensation is limited to EUR 20,000 and does not apply to professional and institutional investors. RICF is funded by the contribution of the investment firms.
The deposits placed with various banks are insured by the Deposit Insurance Credit and Guarantee Corporation (DICGC), which is a subsidiary of the RBI and is governed by the Deposits Insurance and Credit Guarantee Corporation Act 1961. The DICGC insures all deposits such as savings, fixed, current, recurring, etc, except the following:
- deposits of foreign governments;
- deposits of central and state governments;
- inter-bank deposits;
- deposits of the state land development banks with state cooperative banks;
- any amount due on account of any deposit received outside India; and
- any amount that is specifically exempted with prior RBI approval.
Each depositor of a bank is insured up to a maximum amount of INR 100,000. The premium for such deposit insurance is borne by the relevant bank.
The pending FRDI Bill propose to replace the current standalone DICGC framework with an integrated deposit insurance mechanism.
Japanese banks mandatorily participate in the deposit insurance system operated by DICJ pursuant to the Deposit Insurance Act, under which the maximum amount of protection is 10 million yen per customer of one bank. This maximum does not apply to non-interest-bearing deposits repayable on demand and mainly used for payment purposes, which are protected without any maximum. Note that deposits not denominated in Japanese yen, negotiable certificates of deposit, and deposits with foreign banks’ branches in Japan are not protected under the deposit insurance system.
Client’s assets are subject to the Investor Compensation Scheme Regulations (S.L. 370.09). Generally speaking, the Investor Compensation Scheme is triggered when an institution stops trading or becomes insolvent, and covers 90% of an institution’s net liability to an investor in respect of investments which qualify for compensation, subject to a maximum payment to any one person of €20,000.
Cash deposits are subject to the Depositor Compensation Scheme Regulations (S.L. 371.09). If a deposit is unavailable because a credit institution is unable to meet its financial obligations, depositors are repaid by the Depositor Compensation Scheme, in accordance with these Regulations. This repayment covers a maximum of €100,000 for the aggregate deposits of each depositor, provided that a higher compensation of up to €500,000 may be payable in the case of a temporary high balance.
The CBN’s Consumer Protection Guideline requires banks to ensure the protection of consumer assets by adopting appropriate measures. These measures include maintaining an insurance policy with the NDIC and observing the CBN’s Prudential Guidelines on risk mitigation and others. The NDIC offers an insurance coverage for all deposits of licensed deposit taking institutions, except for insider deposits, counterclaims from a person who maintains both a deposit and a loan account, the former serving as a collateral for the loan; and other deposits excluded by the authority from time to time. The maximum claim was previously N50,000 per depositor per insured bank, but same was increased pursuant to section 20 of the NDIC Act which provides that a depositor shall receive from the NDIC a maximum amount of N200,000 from the Deposit Insurance Fund of licensed banks or N100,000.00 from the Deposit Insurance Fund of other licensed deposit taking financial institutions in the event of the revocation of operating licence of that bank or other deposit taking financial institution.
Norwegian banks are required by law to be member of the Norwegian Banks' Guarantee Fund (Bankenes Sikringsfond). This deposit guarantee scheme covers deposits up to NOK 2 million per depositor per member bank. In addition the Norwegian Banks' Guarantee Fund may provide various support measures to banks experiencing economic difficulties.
Banks with their registered office in other EEA states that have a Norwegian branch, and accepts deposits from the public through such branch, are eligible for membership in the Norwegian deposit guarantee scheme, subject to further conditions.
With the implementation of the Directive 2014/49/EU on deposit guarantee schemes the Norwegian deposit guarantee scheme will be amended and the cover will be reduced for some types of deposits. The Norwegian implementing rules are expected to be in place in 2018.
Cash deposits are protected by the Deposit Guarantee Fund, and it guarantees the repayment of the overall value of the cash credit balances of each deposit holder, up to a limit of EUR 100,000.00 per credit institution.
With regard to financial instruments, the investor’s assets are protected by the Investor Compensation Scheme that guarantees the repayment of the credits linked to investment operations, up to a limit of EUR 25,000.00.
Under the QCB Law, there are certain measures that must be taken by the banks in Qatar to protect the client’s deposits.
The Qatar Central Bank plays may ask deposit-taking financial institutions to keep reserves with it at specific ratios and limits and sizes equal to the size, type and maturity of their deposits. The ratios of reserve shall be equal for all deposit-taking financial institutions and for each type of deposit or the total deposits.
The required reserves shall be kept in the form of cash balances of the financial institutions at the QCB and shall be calculated in the manner specified by the Bank.
The Bank may determine reserve ratios suitable for the activity of Islamic and specialized banks and other financial institutions that are subject to the control and supervision of the Bank in a manner commensurate with their nature.
No reserves shall be subject to mortgage or seizure or any commitment to guarantee them.
Where financial institutions that are subject to the QCB's oversight and supervision fail to retain the required reserves at the specified limits and ratios, the QCB may impose financial penalties not exceeding five times the interest rate or the advertised yield for each day that such failure continues.
All banks shall retain all records and documents relating to its business in an appropriate manner and place within the State. The QCB may determine the duration for keeping such documents.
The types of records and information that should be kept by the financial institution and the rules, conditions and regulations necessary for its registration shall be specified by a decision of the QCB.
Depositor protection in Switzerland is based on a three-tiered system:
- As a first step, privileged deposits (up to CHF 100,000 per customer) are immediately paid out from the liquid assets of the failed bank.
- If the institution’s liquidity does not suffice to cover all the privileged bank deposits as per step one above, the system-wide self-regulatory depositor protection scheme is used as a second measure to protect privileged deposits, provided that such privileged deposits are booked in Switzerland.
- And as a third measure to protect deposits, privileged deposits are treated preferentially, i.e., in the event of bankruptcy, these deposits are treated as second creditor class claims and will thus be satisfied after certain claims in the first class (e.g., claims of employees) but before general creditors in the third class. Claims with respect to deposits exceeding the privileged amount are ranked in the third class of creditors and participate pro rata in the proceeds of realisation of the bank`s assets to any other unprivileged creditors.
Unlike cash deposits in bank accounts, assets in custody accounts such as shares, units in collective investment schemes and other securities are client property and, in the event of bankruptcy, all such assets are immediately separated from the bank`s assets and then released to clients owning such assets or to a custodian designated by them.
According to the Banking Law, (i) savings deposits and (ii) participation funds owned by real persons deposited with deposit and participation banks shall be insured by the SDIF. As such, pursuant to the Regulation on Deposits and Participation Funds Subject to Insurance and Premiums to be Collected by the Savings Deposit Insurance Fund (the “Insurance Regulation”), for each real person, an amount up to TL 100,000 held in the savings deposit and participation accounts shall be insured, whether in TL, foreign currency or precious metal, provided that such accounts are (i) opened in the name of a real person, (ii) maintained with a Turkish branch of the credit institution operating in Turkey and (iii) not subject to any commercial transactions other than cheque issuance. The SDIF shall pay the parts of deposits and participation funds subject to insurance and maintained with banks of which operation licenses are revoked, from its own resources, to the extent that such accounts are authenticated without raising any doubt.
Certain excessive interest/profit share amounts (compared to the average interest/profit share amounts) in such accounts shall not be subject to the insurance; regardless of the above-mentioned limits. Additionally, certain deposits, participation funds and other accounts (i.e. accounts (i) owned by the respective credit institution’s controlling shareholders and top-level management, (ii) which comprise of proceeds of crime; and (iii) maintained with credit institutions incorporated in Turkey only to conduct offshore banking activities) shall be excluded from the insurance coverage.
Furthermore, as per Article 82 of the Capital Market Law, if it is determined that an investment institution (a) is unable to fulfil its (i) cash payment or (ii) capital market instruments delivery obligations arising from its capital markets activities or (b) will not be able to fulfil the same within a short period of time, the CMB shall decide to compensate investors upon the BRSA’s opinion to that regard as a pre-requisite. Investors shall apply to the Investor Compensation Center with the documents evidencing their right of ownership over the cash and capital market instruments held by the respective investment institution as Article 84 of the Capital Markets Law and the maximum compensation amount to be paid to each investor shall be TL 143,604.
The Act on Deposit Guarantee Schemes and Investor Compensation (“ESAEG”) implements the Directive on Deposit Guarantee Schemes (Directive 2014/49/EU) and regulates the protection of deposits and credit balances including interest on accounts and savings. The ESAEG provides for a single protection scheme instead of the current five schemes of different trade associations. As of 2019, a single fund shall be established at the Austrian Economic Chambers for deposit protection purposes.
The objective of the Guaranteeing of Deposits in Banks Fund is to contribute to the stability and credibility of the Bulgarian financial system by protection of deposits and payment of covered deposits, effective resolution of banks and investment firms, and optimal protection of creditors' interests in insolvency proceedings.
The fund guarantees full repayment of the amounts of one person's deposits in one bank regardless of their number and amount, up to the amount of BGN 196,000.
In order to protect the assets and cash of the clients, COMF created the Liquidity Fund and Private Insurance Fund Corporation (Corporación de Seguro de Depósitos, Fondo de Liquidez y Fondo de Seguros Privados). This Corporation is a public body governed by public law. It is not considered as a financial entity.
Its board is composed of three members, a delegate of the President of the Republic, who will preside it; the Minister of Finance of Economy; and the Minister of the Economic Policy (nowadays repealed). The chairman of the Superintendence of Banks, the Superintendence of Companies, the Superintendence of Popular and Solidarity Economy and the Central Bank are able to participate in the meetings of the Board with right to be heard but not vote.
All the funds that are deposit in a bank are protected with the Deposit Insurance for an amount of USD 32k by account. The deposit in financial entities of the Popular and Solidarity Economy will vary depending of the segment that are cataloged, and will go from USD 1k to USD 32k.
Financial Services (Deposit Guarantee Scheme) Act 2009 of Ireland (as amended) and the European Un-ion (Deposit Guarantee Schemes) Regulations 2015 (SI 516/2015) provide for the national deposit guar-antee scheme (DGS). DGS is administered by the CBI and is funded by the credit institutions covered by the scheme. DGS protects:
(a) eligible depositors in the event of a credit institution being unable to pay deposits;
(b) up to €100,000 per person per credit institution; and
(c) current accounts, deposit accounts and share accounts in credit institutions.
First, in order to ensure the effective application of the resolution tools, resolution funds have been set up which are financed by contributions from the institutions.
In addition, in the event of a straightforward liquidation, the Deposit Guarantee and Resolution Fund (FGDR) is used to reimburse depositors, holders of securities and beneficiaries of guarantees.
In the event of a resolution, the deposit guarantee scheme, which subrogates to the rights of covered depositors, is not required to make a contribution greater than the amount of losses it would have had to bear if the institution had been wound up under normal insolvency proceedings, or greater than 0.4% of the total amount of covered deposits held by its members.
In the event of a liquidation, the deposit guarantee scheme is used for the following purposes:
- to reimburse depositors up to a maximum of EUR 100,000 per person and per establish-ment, within seven business days;
- to compensate investors up to a maximum of EUR 70,000 per person and per establishment in respect of any securities (shares, bonds, shares in UCITS) or other financial instruments that cannot be returned to them;
- to act in place of the bank if the latter is no longer able to honour the sureties or guarantees it has provided.
In France, the role of the deposit guarantee scheme is carried out by the Deposit Guarantee and Resolu-tion Fund (FGDR).
Regarding the protection of clients assets, the bank acting as custody account-keeper must exercise due care in the safekeeping and accurate recording of securities. In particular, when it holds securities for its customers, it must keep the securities held on own account strictly separate from those kept for its customers. To this end, it must have at least two accounts open for each security with the central securi-ties depository. This is called the account segregation rule.
The financial intermediary may never use its customers’ securities without their express prior consent. This rule is intended to ensure that customers’ securities may be promptly transferred to a healthy finan-cial intermediary in the event that the original intermediary fails.
In the event of the failure of a custody account-keeper that fraudulently used its customers’ securities without their agreement, a guarantee mechanism compensate investors if they cannot obtain their securi-ties in the limit of €70,000 per investor.
In accordance with the European directive 2014/49/EU, Belgium has implemented a deposit guarantee scheme (Book VIII of the Banking Act). In the event a credit institution would go bankrupt, the deposits held by that bank would be guaranteed up to EUR 100,000, per client, per financial institution.
Furthermore, in the event of bankruptcy of a credit institution holding financial instruments, the owners of said held financial instruments will be protected. This protection applies to financial instruments that the client has deposited with his bank or brokerage firm. If, after deficiency of the custodian, the client can no longer recover these instruments deposited in custody, a protection scheme can be invoked for any loss. This protection for financial instruments mirrors the deposit guarantee scheme in most ways, except that it is capped at EUR 20,000, per client, per credit institution (the cap was set lower due to the abundance of other stringent regulation which provides additional guarantees in the context of financial instruments (e.g. MiFID II)). The specificities can be found in the Royal Decree of 16 March 2009 on the protection of deposits and life insurance by the Guarantee Fund for Financial Services.
According to the directive 2014/49/EU all member states must ensure that all depositors, whether individuals or companies, have their deposits protected up to an amount of EUR 100 000 per bank by the guarantee scheme of which their bank is a member. All banks must become members of such a scheme. The member banks pay contributions based on their risk profile and other factors. The guarantee scheme accumulates the contributions in a fund. Where a bank fails and deposits become unavailable, the guarantee schemes must be in a position to reimburse depositors holding any type of deposit protected under the directive.
According to the CIA a credit institution shall invest its assets such that the satisfaction of justified claims of creditors, i.e. the liquidity, is guaranteed at all times. For that purpose, a credit institution shall maintain the necessary ratio of liquid assets and current liabilities. A credit institution is required to have a strategy, policy, procedures and systems for identification, measurement, management and monitoring of the liquidity risk at different predictable periods, including intraday periods in order to ensure the existence of an adequate liquidity buffer.
The Hellenic Deposit and Investment Guarantee Fund ('HDIGF') was established in order to protect clients' assets and cash deposits from bank failures. The purpose of the HDIGF is to compensate depositors and/or investors, in the event the credit institutions falling within its scope are unable to fulfill their obligations vis-à-vis the latter.
The HDIGF guarantees the amount of €100,000 in respect of the aggregate deposits per depositor at a given credit institution; such threshold applies irrespective of the number of deposits, their location and the currency in which they are held.
Germany has implemented the European Deposit Protection Directive (2014/49/EU), and consequently a statutory protection of deposits up to an amount of EUR 100,000 applies. In addition separate voluntary deposit protection schemes exist among private banks, savings banks and cooperative banks, respectively. For example the voluntary protection scheme of the private banks (Einlagensicherungsfonds) is designed to protect all deposits of private individuals with a specific bank up to an amount of 20% of the equity (haftendes Eigenkapital) of a bank which equals at least EUR 1 million per customer. Different protection levels for professional market participants and public entities apply.
Deposits maintained with US branches of insured depository institutions are insured by the FDIC up to the maximum deposit insurance amount, which is $250,000 per depositor, per FDIC-insured institution, per ownership category. In addition, deposits are treated as a preferred unsecured claim senior to general claims of creditors.
Except for funds that have been self-deposited, which are deposits treated as described in the previous paragraph, financial assets held with a bank as trustee or custodian in safekeeping are not subject to claims of the bank’s creditors.
With the adoption of the General Financial Consumer Protection Framework under Law 1328 of 2009, the Superintendence of Finance establishes the rights and obligations of banks regarding financial consumers. If a bank does not compel with the requirements established in such legal framework, the Superintendence of Finance can impose certain sanctions to the bank or/and the people involved in the operation and carry out an investigation of the financial entity. Some of these consumer rights are receiving secure and quality products and services, receiving clear and trustworthy publicity and information, expecting a due diligence from the bank in its operations, presenting at any time petitions to the bank or the authorities, among others.
On the other hand, as stated in question one, FOGAFIN is responsible for protecting the financial consumer’s savings accounts and generating mechanism to minimize the impacts of a financial crisis. One of these mechanism is a security deposit made by registered entities, such as banks, financial corporations, finance companies, National Savings Funds and companies specialized in deposits and electronic payments, that protects savers depositors for an amount of even COP$50,000,000. This reserve is composed by a premium payment made by the registered entities of 0,3% of the total secured deposits.
Deposits at deposit banks are protected by the deposit guarantee scheme of EU Directive 2014/49 as implemented by Finnish Act on the Financial Stability Authority (1195/2014). Client deposits are awarded a maximum deposit protection of EUR 100,000 at the relevant credit institution. Exceptions to the maximum deposit protection apply with respect to proceeds from real estate transactions relating to private residential properties.
The deposit protection scheme is guaranteed by the Deposit Guarantee Fund, which is financed by deposit guarantee contributions raised from credit institutions. The individual contributions are determined on the basis of the amount of each credit institution’s covered deposits and risk level. The target level of the Deposit Guarantee Fund is an amount equivalent to 0.8% of the total amount of covered deposits. If the assets of the Deposit Guarantee Fund are insufficient for the payment of compensation, the Financial Stability Authority may obligate deposit banks to pay an additional annual contribution or lend assets to the Deposit Guarantee Fund.
The UK offers protection of deposits up to £85,000 per person per firm, administered by the Financial Services Compensation Scheme (FSCS). This body is responsible for ensuring that compensation is paid to insured depositors and other eligible claimants to cover amounts due from failed banks and in other appropriate cases. The FSCS is independent from, but accountable to, both the FCA and the PRA.
The FCA also has extensive rules on client asset protection which apply to firms holding client assets. These rules require client assets to be segregated and reconciled within set time periods.