On Friday 1st March, the European Banking Authority (EBA) reiterated the European rules that will apply in respect of guaranteeing bank deposits entrusted to branches of British banks established in the European Union in the event of the United Kingdom leaving Europe without an agreement having been reached with the EU.
“The objective of this opinion is to ensure that depositors are protected and fully aware of any potential changes to the guarantee arrangements that may affect them”, the authority stated in its document.
Since the sovereign debt crisis, deposits in the EU have been guaranteed up to €100,000 in the event of a bank failing.
Subject to confirmation, the Bank of England will no longer have to protect branches of British banks based in the EU through the UK deposit guarantee scheme. This means that depositors with their savings in these branches “will lose their protection, unless these branches join a national deposit guarantee scheme”.
In order to ensure equal treatment, the branches in question should therefore be required to join a national deposit guarantee scheme in accordance with national law; this should happen in sufficient time for the necessary steps to be taken at the time of Brexit, believes the EBA.
The European authority has specified that, in the event of a branch of a bank becoming a subsidiary, the problem would not arise.
The opinion also emphasises the importance of clear information being given to consumers. Several scenarios may therefore arise: - if the branch of the bank is already aware of the national deposit guarantee scheme of which it will become a member, consumers should be informed at least one month before the end of the affiliation to the current scheme; - if the branch of the bank is not aware of the national deposit guarantee scheme of which it will become a member, the time limit may be less than one month.
The authority has advised that, “where depositors are no longer protected by a national deposit guarantee scheme, the EBA recommends that [...] conditions should be created that would allow depositors to withdraw or transfer their eligible deposits to another credit institution, without incurring any penalty, their eligible deposits, including all accrued interest and benefits”.
If a UK branch of a bank joins a deposit guarantee scheme in the EU, it should receive the equivalent of one year’s contributions from that branch if the change of affiliation takes place along with Brexit. If the change of affiliation takes place after Brexit, such a transfer will not be required, as, in the event of a no-deal Brexit and in the absence of transitional arrangements, the directive (2014/49/EC) governing national deposit guarantee schemes will no longer apply in the United Kingdom.
The EBA's opinion can be viewed at: http://bit.ly/2BZZBHF. (Original version in French by Mathieu Bion)