Considerations on COM(2010)371 - Amendment of Directive 97/9/EC on investor-compensation schemes - Main contents
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| dossier | COM(2010)371 - Amendment of Directive 97/9/EC on investor-compensation schemes. |
|---|---|
| document | COM(2010)371  |
| date | July 12, 2010 |
(2) It is necessary to amend Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes[32] in order to maintain confidence in the financial system and to better protect investors in view of the developments in the legal framework of the Union, the evolution in the financial markets and the problems experienced in the application of that Directive in Member States in cases of inability of investment firms to return assets held on behalf of clients.
(3) At the time of its adoption, Directive 97/9/EC complemented Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field[33] to ensure that each Member State would set up an investor-compensation system to guarantee a harmonized minimum level of protection, at least for small investors, in the event of an investment firm being unable to meet its obligations to its clients. When Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC[34] repealed Directive 93/22/EEC, it introduced a new list of investment services and activities in order to encompass the full range of investor-oriented activities and to provide for the degree of harmonisation needed to offer investors a high level of protection and to allow investment firms to provide services throughout the Union. Therefore, it is necessary to align Directive 97/9/EC with Directive 2004/39/EC in order to ensure that the provision of all investment services and activities continue to be adequately covered under schemes.
(4) At the time of its adoption, Directive 97/9/EC took into account the coverage and the functioning of deposit-guarantee schemes as regulated under Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes[35]. Consequently, it is appropriate to continue taking into account any modifications of Directive 94/19/EC.
(5) Investors may not be aware of any limits of investment firms' authorisations, thus it is necessary to protect them in situations in which investment firms act in breach of their authorisation notably by holding client assets or providing services to a particular type of client contrary to the conditions of their authorisation. Therefore, schemes should cover clients' assets which are de facto held by investment firms in connection with any investment business.
(6) Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive[36] allows investment firms to deposit financial instruments held on behalf of clients into accounts opened with a third party. The third party is not necessarily subject to specific regulation and supervision. Notwithstanding compliance with the conditions under Directive 2006/73/EC, failure of the third party may affect investors' rights if that party is not able to return the financial instruments to the investment firm. In order to strengthen investor confidence, it is appropriate to extend compensation under Directive 97/9/EC, without prejudice to applicable national liability regimes, to the inability of an investment firm to return client financial instruments due to the failure of a third party where the financial instruments have been deposited by the investment firm or by its custodians.
(7) Directive 2006/73/EC requires investment firms to place any client funds they receive into one or more accounts opened with a third party. The third party entities are limited to a central bank, a credit institution or a bank authorised in a third country or a qualifying money market fund. The strict regime ensured by Directive 2006/73/EC make it unnecessary to extend the schemes coverage to the failure of the third party where funds have been deposited.
(8) As the compensation coverage under Directive 94/19/EC is now higher than the one under this Directive, it is necessary to provide the highest protection to investors in cases where both Directives 94/19/EC and 97/9/EC could cover assets held by banks . Therefore, in those cases, the investor should be compensated under Directive 94/19/EC.
(9) In order to be able to recover the funds paid for compensation, schemes making payments to compensate investors for failure of a depositary or a third party should have the right of subrogation to the rights of the investor, investment firm or undertakings for collective investment in transferable securities (hereinafter referred to as 'UCITS') in liquidation proceedings for amounts equal to their payments. This Directive should not be intended to diminish the responsibility of investment firms or UCITS to recover assets from a depositary or custodian.
(10) Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)[37] requires the UCITS' assets to be safe kept by a depositary. If the depositary or one of its sub-custodians defaults and is unable to return the financial instruments held in custody , this affects the value of the UCITS units or shares. In order to increase protection in this situation, unit and share holders in UCITS should benefit from the same level of protection as if they were investing directly into the financial instruments concerned, should the entity holding the financial instruments become unable to return them. Unit holders and share holders in UCITS should receive compensation for the loss of value of the UCITS. At the same time, they should be able to keep the UCITS units or shares in order to preserve their right to redeem them when they consider this is adequate.
(11) Directive 97/9/EC already excludes from any compensation under investor-compensation schemes claims arising out of transactions where a criminal conviction has been obtained for money laundering within the meaning of Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing[38]. It is also appropriate to exclude any claim for compensation where the assets concerned result from conduct prohibited under Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse)[39] in which the claimant has been involved.
(12) The minimum level of compensation was established in 1997 and has not been modified since then. This level should be increased to EUR 50 000 in order to take into account developments in the financial markets and in the Union legislative framework. This amount takes into account the effects of inflation in the Union and the need to better align the level of compensation with the average value of investments held by retail clients in the Member States. In order to increase the protection provided to investors, it is necessary to remove the existing option for Member States to limit or exclude from cover funds in currencies other that those of the Member States.
(13) In order to ensure investors receive the compensation provided for under this Directive and a comparable level of investor protection across Member States, it is necessary to introduce common rules governing the funding of the schemes. The schemes should be financed in proportion to their liabilities. An appropriate level of pre-funding should be ensured and the schemes should have in place adequate arrangements to assess and reach their target funding level prior to the occurrence of any loss event relevant under Directive 97/9/EC. A common minimum target fund level should be reached within a ten-year period.
(14) Where necessary, exceptional call for contributions to the members of the scheme or access to borrowing sources, such as from commercial banks or public institutions on commercial grounds, should ensure a timely coverage of any needs which is not covered by the funds collected from members prior to the occurrence of loss events.
(15) The functioning of the schemes is currently highly differentiated in Member States and this Directive aims at introducing further harmonisation while leaving some flexibility to Member States as to the detailed organisation of the schemes. The Commission should be empowered to adopt delegated acts on certain essential features of the functioning of schemes in accordance with Article 290 of the Treaty. In particular the delegated acts should be adopted in respect of the method to determine the potential liabilities of the schemes, the alternative funding arrangements that schemes must have in place to be able, where necessary, to obtain short term funding, the criteria to determine the contributions by entities covered by the schemes and the factors to be considered in assessing the ability of additional contributions to not jeopardise the stability of the financial system of a Member States. In order to determine the conditions of application of the provisions concerning the financing of the schemes, the European Securities and Markets Authority established by Regulation …/… of the European Parliament and of the Council [ESMA][40] should develop technical standards relative to the details to be made public by the schemes.
(16) In order to ensure that investors receive compensation in due time a last resort borrowing mechanism among national schemes in the Union should be established. The system should include the possibility for schemes to borrow funds from other schemes in the exceptional case they face a temporary lack of funding. For this purpose, a portion of ex-ante funding in each scheme should be available for lending to other schemes.
(17) The borrowing mechanism should not impinge any fiscal responsibility of the Member States. The borrowing schemes should be able to make recourse to the borrowing possibility provided for in this directive after exhausting the funds collected to reach the target fund level and the additional calls for contribution to their members. While respecting the supervision of investor-compensation schemes by Member States, ESMA should contribute to the achievement of the objective of making it easier for investment firms and UCITS to pursue their activities while at the same time ensuring effective protection for investors. To that end, ESMA should confirm that the conditions of borrowing between investor-compensation schemes laid down in this Directive are fulfilled and state, within the strict limits set by this Directive, the amounts to be lent by each scheme, the initial interest rate as well as the duration of the loan. In this respect, ESMA should also collect information on investor-compensation schemes, in particular on the amount of covered monies and financial instruments in each scheme, confirmed by competent authorities. It should inform the other investor-compensation schemes about their obligation to lend.
(18) In order to simplify the lending process, if more than one scheme is established in a Member State, the Member State shall designate one scheme acting as the lending scheme of that Member State and inform the European Securities and Markets Authority accordingly. Borrowing should be limited to the coverage of compensation deriving from Directive 97/9/EC.
(19) It is necessary to ensure that the overall funds available for lending may be used to satisfy a plurality of requests from borrowing schemes. For this purpose, no loan should exceed a pre-determined threshold of funds available for lending.
(20) In order to accelerate the compensation process, the determination by a competent authority of the fact that an investment firm is not able to meet its obligations arising out of investors' claims should be made as soon as possible.
(21) The procedures necessary to establish the eligibility and the amount of compensation claim, often depending on national administrative and insolvency laws, may cause long delays in the payments to investors. In order to make payment delays shorter, it is necessary to ensure that, in systems or situations where the eligibility and the amount of the claim depends on insolvency or judicial procedures regarding the entities failing to meet their obligations, the schemes should be able to participate in those procedures. In addition, the obligation to grant a provisional payout of partial compensation should be provided for in the case of delays longer than twelve months in order to allow investors to receive a portion of the compensation claimed. Mechanisms to return the money to the schemes in case it is established that the claim was not eligible should be envisaged.
(22) Directive 97/9/EC allows Member States to exclude professional and institutional investors from cover but the relevant list is not aligned with the classification of clients of investment firms under Directive 2004/39/EC. In order to ensure consistency between Directives 97/9/EC and 2004/39/EC, to simplify the assessment for compensation schemes and to limit the possible exclusion, in the case of enterprises, only to large undertakings, Directive 97/9/EC should refer to investors who are considered as professional clients according to Directive 2004/39/EC.
(23) The Commission should be empowered to adopt delegated acts in accordance with Article 290 of the Treaty. In particular, the delegated acts should be adopted in respect of the determination of the method to calculate the target fund level to be established by the schemes and to modify this target fund level, the percentage of the determined ceiling of the funds available for lending between national compensation schemes, the procedure to deal with investors' claims and the technical criteria to calculate the loss of value of a UCITS in the circumstances covered by this Directive. The Commission should also be empowered to amend, by means of delegated acts, the percentage of funds available for lending taking into account the developments in the financial markets.
(24) Directive 97/9/EC should therefore be amended accordingly.