11 Financial services
| (28103)
16011/06
COM(06) 729
| Commission Communication concerning the review of Directive 94/19/EC on deposit guarantee schemes
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| Legal base | — |
| Document originated | 27 November 2006
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| Deposited in Parliament | 5 December 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 15 December 2006
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
11.1 Deposit Guarantee Schemes (DGS) are a safety net for depositors,
so that, if a credit institution fails, they would be able to
recover at least part of their bank deposits. Directive 94/19/EC
requires Member States to ensure that there are one or more schemes
in their territory.
The document
11.2 In this Communication the Commission presents its conclusions
following a review of the functioning of the Directive and responding
to concerns expressed by interested parties. The Commission concludes
that many improvements to DGS can best be achieved in the short
term without the need to change the existing Directive. It says
a convincing case has still to be established as to whether a
more fundamental change to the existing regulatory framework would
be necessary in the longer term and whether the expected benefits
would outweigh the costs. The Commission accepts that there is
insufficient evidence of tangible progress on broader safety net
issues at the moment to be able to undertake changes aimed at
addressing some of the more specific and fundamental shortcomings
of the Directive. Legislative change will depend on ongoing work
in other connected areas and on sufficient support from Member
States and interested parties — in particular a clearer
picture is needed of the division of supervisory responsibilities
and, if necessary, more consistency in burden-sharing approaches
in the event of a cross-border Community banking crisis.
11.3 The Communication considers eleven matters:
· definition
of deposits, surveying the savings products covered by the Directive's
broad definition;
· co-insurance,
that is depositors bearing a percentage of losses themselves,
for example the UK Financial Services Compensation Scheme pays
for deposits, 100% of the first £2,000 and 90% of the next
£33,000, to a maximum of £31,500;
· "de
minimis" clause, where very small deposits would not be reimbursed
because the administrative costs would exceed the amount of reimbursement;
· "topping
up" arrangements — that is where a bank operates cross-border,
and its home scheme does not offer sufficient protection for the
foreign market, it would be necessary to increase the level of
depositor protection it offers through membership of the host
country's DGS;
· exchange
of information requirements;
· risk
based contributions to DGS;
· transferability
or refundability of DGS contributions on moving schemes;
· consumer
information and advertising;
· deadline
for reimbursement of deposits;
· pan-European
or regional DGS; and
· statistical
obligations.
The Commission says, in an annex to the Communication,
that it intends in the short term non-legislative activity in
relation to the first, fourth, fifth, sixth, eighth and ninth
of these issues. The annex also sets a timetable for longer term
activity in assessing whether any further legislative proposals
might be necessary.
The Government's view
11.4 The Economic Secretary to the Treasury (Ed Balls)
comments that the Communication makes no legislative proposals,
and where it does suggest regulatory changes, they are pragmatic
and, in line with better regulation, non-legislative. He says
that the Government's policy on Deposit Guarantee Schemes was
set out in its October 2005 document A Framework for Guarantee
Schemes In the EU: A Discussion Paper.[34]
It has proposed a framework for action towards guarantee schemes
at Community and Member State level:
· strengthening
financial services supervision
— strengthening the supervisory framework, improving cooperation
between financial supervisors in different countries and enhancing
the crisis management framework;
· designing
appropriate guarantee schemes —
providing adequate sectoral coverage, determining the scope of
protection, determining adequate levels of protection and balancing
the objective of ensuring appropriate consumer compensation while
maintaining efficient and competitive markets; and
· effective
operation of guarantee schemes —
ensuring effective governance of schemes, delivering compensation
quickly and enhancing consumer awareness.
11.5 The Minister says that:
· adopting
this framework would help to ensure effective, efficient consumer
protection throughout the Community;
· common
core standards of protection for all Community consumers provide
an important contribution to the future integration of financial
markets in the Community; but
· beyond
these Member States should be free to determine issues such as
additional levels of consumer protection and the funding of their
guarantee schemes; and
· it is
vital that the outcome is fully consistent with the Community's
future strategy on financial services policy and work on enhancing
supervisory cooperation.
The Minister adds that greater dialogue and coordination
across work on banking, insurance and investor compensation schemes
is necessary to ensure the coherent and consistent application
of principles across the Community guarantee scheme framework.
Conclusion
11.6 Effective Deposit Guarantee Schemes are important
for the protection of depositors and we note both the Commission's
efforts to refine the present regulatory framework, commendably
without immediate recourse to legislative proposals, and the Government's
own suggestions in this regard. We clear the present document,
but will wish to scrutinise closely any legislative proposals
that might emerge eventually.
34 See http://www.fsa.gov.uk/pubs/other/eu_framework.pdf. Back
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