Brussels, 12/07/2010 (Agence Europe) - Strengthening consumer protection and boosting consumers' trust in financial services - this is the aim of the two proposals for amending existing European rules, presented by the European Commission on Monday 12 July, on the eve of the Ecofin Council which will debate proposals on financial supervision. The first measure intends to enhance protection of account holders (EUROPE 10163); the second measure targets small investors (EUROPE 10171). On Monday the Commission also launched a public consultation exercise on how to improve protection for insurance policyholders. Commenting on this new package of measures, presented as a response to the economic and financial crisis, the European commissioner for the internal market and services informed the press that “we are building and consolidating trust on all fronts”. The commissioner explained that the measures proposed were part of the regulation agenda presented on 2 June and which had been approved by all the institutions concerned, including the European Council. Michel Barnier stated: “We will present the elements of consolidation and confidence brick by brick … The proposals we are putting forward are one of the elements in an overall programme we are gradually implementing … in an extremely determined way”. He also explained that the Commission would come up with further proposals in September with regard to regulating derivatives and short selling.
Better protected savings Since 1994, Directive (94/19/EC) ensures that all member states have in place a safety net for bank account holders. 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 of having co-insurance in place (i.e. a system in which account holders are not fully repaid, but are to bear a certain percentage of their lost sum - even when the lost amount is lower than the coverage limit). For the Commission these measures have a number of shortcomings. It is therefore proposing: - to change the minimum guarantee level to €100,000 before the end of the year so as to ensure that 95% of bank account holders in the EU will get their savings back in the event that their bank collapses. All businesses (irrespective of their size) and all currencies will be covered. The deposits of financial establishments of public entities, structured investment products and debt instruments will be excluded; - for bank account holders to be reimbursed within 7 days, compared to a period of several weeks or months currently; - fewer administrative formalities. For example, in the event of someone residing in Portugal and holding an account with a bank with headquarters in Sweden, the Portuguese regime would reimburse him or her under its own initiative and serve as a contact point in the event of the collapse of the bank. The Swedish regime would then reimburse the Portuguese guarantee system. The Commission stresses that this would be “a great improvement on the current situation, whereby all correspondence must go via the guarantee system of the country in which the headquarters of the bank are established”; - for bank account holders to be better informed of the cover and functioning of their deposit guarantee system; - to guarantee a more solid funding of the existing guarantee systems by means of a four-stage procedure: firstly, substantial ex ante funding, to ensure appropriate reserves. Secondly, this funding could, if necessary, be topped up by ex post contributions. Thirdly, if this is still not enough, the guarantee systems could borrow a limited amount from other systems (“mutual loans”). Lastly, as a last resort, other funding measures could be taken if needed. The dues will be paid by the banks, as is currently the case. They will, however, be calculated more fairly, as they will be in proportion to the relative risk of each bank. Most of these proposals could enter into force by 2012 or 2013.
Better-protected investments - A 1997 directive (97/9/EC) gives investors using investment services in Europe the right to compensation when their investment company cannot return their assets to them, for example in the event of fraud, negligence, mistakes or problems in its system. This is not protection against investment risks as such. There are currently 39 compensation systems for investors throughout the EU. Further to many complaints received regarding the inability of these systems to cope with requests for compensation, the Commission proposes: to raise the minimum level of compensation for investors to €50,000 (compared to €20,000 per investor currently); - to ensure that investors are compensated no later than 9 months after the collapse of their investment company; - for investors to be better informed of the scale of the cover for their assets (the investment risk, in other words a loss of stock-exchange value, would not be covered by the directive); - responsible funding for the long-term guarantee regimes. The Commission has laid down a minimum target level to be achieved by the full pre-funding. The compensation systems would be able to borrow a limited amount from other systems and other funding mechanisms as a last resort (“mutual loan”). The dues will be paid by the investment companies; - extended protection: investors are currently still not protected in the event that their investment company uses a third-party depository which is unable to pay back their assets. Similarly, the holders of stakes in investment funds can suffer losses in the event of the bankruptcy of a depository or sub-depository of the fund. The Madoff case in 2008 provides a recent example of this. The Commission proposes extending cover to this kind of situation. It is of the opinion that all of these provisions will be able to enter into force by the end of 2012.
Improving the protection of people using insurance services - The insurance guarantee regimes offer a last resort to consumers in the event that their insurance companies are unable to fulfil their contractual commitments; they protect them from the risk that their request for compensation will not be paid in the event of the bankruptcy of their insurance company. These regimes will be able to pay compensation to a consumer or take over an insurance contract, for example by facilitating the transfer of policies to a solvent insurer or to the guarantee regime itself. No European legislation exists on the guarantee regimes for the insurance sector. Currently, 12 member states have set in place at least one insurance guarantee regime to cover life and/or non-life insurance. The protection on offer and the eligibility criteria, together with the intervention and funding modes, differ between regimes. In the White Paper it adopted on Monday, the Commission proposes a number of different options to ensure that consumers will enjoy a fair and full level of protection throughout the EU and that the taxpayers will not have to pick up the tab if an insurance company goes bust. Amongst other things, it recommends the adoption of a directive to ensure that all member states set an insurance guarantee regime in place, in line with a minimum set of obligations. The White Paper on insurance guarantee regimes can be consulted online (http: //ec.europa.eu/internal_market/insurance/guarantee_fr.htm) and all interested parties are invited to submit their comments and other suggestions on the proposals they contain by 30 November 2010. (O.L./transl.fl)