EFDI Paper: DGS Coverage of Client Fund Deposits and Beneficiary Accounts
Dear Colleagues,
We are very happy to share with you our next EFDI paper on "DGS Coverage of Client Fund Deposits and Beneficiary Accounts" approved by the EU Committee in Amsterdam on 25th October 2024.
This is a very relevant topic that is currently being tackled by the CMDI EU Bank Crisis Management and Deposit Insurance Framework (CMDI).
The paper analyses: (i) the client funds’ deposits (CFD) as defined in the CMDI where the account holder is a financial institution other than a credit institution (bank), such as an investment firm, a payment institution, an e-money institution or an asset management company; and (ii) client beneficiary accounts (CBA) which are the accounts maintained at an institution of the financial sector that do not explicitly fit into the CMDI CFD definition as the cases where the account holders are not financial institutions.
The objective of this paper is to analyse the current approach of Deposit Guarantee Schemes (DGS) with regard to the coverage of CFD and CBA as well as beneficiary accounts and outline the EFDI members’ response to the CMDI proposal. Among other important conclusions, DGS express support for providing coverage to such client fund deposits accounts, however, it is generally supported that the DGS coverage shall not be limited only to the cases where the account holder falls under the financial institution definition but also to the rest of beneficiary accounts. In particular, the majority of EFDI members argue that in principle similar coverage must be available to all client funds irrespective of who the account holder is.
EFDI Members express a preference for repaying covered deposits of client funds to the owner of the account but welcome the flexibility introduced via the CMDI proposal for Member States to choose to repay covered deposits to the owner of the account or the ultimate beneficiary of the account.
Regarding the question of whether there is a need for European Banking Authority (EBA) Regulatory Technnical Standars (RTS) or Guidelines (GLs), most members welcome or do not object some form of guidance by the EBA, with a majority of DGS defending generally a more flexible tool, as the GLs.
Finally, the paper also explores topics raised by some DGS, as the possibility to protect CFDs by means of a right of separation, and the issue of whether the see-through approach and eligibility could be adapted for the case of ultimate beneficiaries, as compared to direct depositors.
We would like to thank all D3I Members and, in particular, Loucas Arminiotis (Deposit Guarantee Scheme - Cyprus), Christiana Argyridou-Dimitriou (Deposit Guarantee Scheme - Cyprus), Renata Kadlecova (Deposit Guarantee Scheme - Czech Republic), and Peter Nagy (Deposit Guarantee Scheme - Hungary).