OPINION OF THE EUROPEAN MONETARY INSTITUTE
on a consultation from the Council of the European Communities under Article 109f (6) of the Treaty
establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI;
on an amended Commission proposal for a European Parliament and Council Directive on investor
compensation schemes.
CON/95/5
1. The present consultation was initiated on 16th February 1995 by the Council of the
European Communities which, for this purpose, transmitted to the EMI the relevant
documents concerning the Commission amended proposal COM 585 final.
2. The main objective of the proposal is to require that each member state has an investor
compensation scheme providing at least a certain minimum level of compensation in the
event that an investment firm is unable to meet its obligations to its investor clients.  The
schemes would cover investment services provided by non-bank investment firms and
investment services provided by credit institutions, to the extent that the latter are not
covered by a deposit guarantee scheme which complies with the requirements of the
Deposit Guarantee Directive (94/19/EC).  The schemes would also be aimed, primarily, at
retail investors and small and medium sized enterprises and may exclude from cover other
categories of investors.
3. The EMI’s competence to deliver an opinion in this consultation is based on Article 109f
(2) and (6), first paragraph, of the Treaty as some of the provisions of the proposal have
the potential to affect the stability of the financial markets.
4. The EMI is aware that a case is pending before the European Court of Justice in relation
to the Deposit Guarantee Directive (94/19/EC).  The EMI notes that the proposal for a
directive on investor compensation schemes shares many of the features of 94/19/EC, and
indeed the amended proposal currently before the EMI for consultation has been modified
to ensure that its mechanics follow closely the mechanics of 94/19/EC.  Thus, the result of
the case relating to the Deposit Guarantee Directive might have implications for the
current proposal.  The EMI has not analysed the legal issues put forward in the case
pending before the European Court of Justice.  Its opinion is strictly limited to issues
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relating to its field of competence and should in no way be understood as an opinion on the
legal questions raised or which may be raised in that case.
5. The EMI considers that a comprehensive regime of investor compensation schemes for
smaller investors will enhance investor confidence within the retail investor market.
Consequently, the stability of this important sector of the financial markets is likely to
improve, particularly during times when, otherwise, investor confidence would be
adversely impacted, for example due to the failure of an individual investment firm.  The
EMI therefore believes that the proposed directive is a valuable measure for fostering the
stability of the financial system and supports the basic structure of the proposal.  In
particular, the EMI agrees that this proposal should be aligned with and mutually coherent
with Directive 94/19/EC on deposit guarantee schemes.
Comments which are made by the EMI on the amended proposal are therefore aimed at
ensuring that the cover provided for investors will, when combined with arrangements put
in place to implement Directive 94/19/EC, be comprehensive within the apparent intended
scope of the proposal.  The comments made are, therefore, relatively detailed in nature.
6. Article 1 (2) of the pro posal defines “Investment business” by reference to Article 1 (1)
of the Investment Services Directive (93/22/EC) together with the service referred to in
point 1 of Section C of the Annex to the Investment Services Directive (“safe keeping and
administration in relation to one or more of the instruments listed in Section B”).  The EMI
would make one specific observation relating to this definition.
To fall within the scope of the Investment Services Directive, and therefore within the
intended scope of this proposal, foreign exchange services within item 7 of Section C of
the Annex must be supplied in connection with services provided under Section A of the
Annex.  Therefore sums which an investment firm holds in connection with the provision
of these linked foreign exchange services should, logically, be classed as “...money owed
to investors or belonging to investors...” and therefore fall within the terms of the proposal
by virtue of Article 2 (2), second paragraph.
The EMI assumes that it is the in tention of the proposal that sums held in connection with
the provision of those linked foreign exchange services will be included within the scope of
the proposed directive, and welcomes this objective.
7. The EMI notes with approval the intention to ma ke the directive on investor compensation
contiguous with Directive 94/19/EC.  The EMI also notes that the manner in which claims
are to be attributed between schemes under this Directive and those under Directive
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94/14/EC shall be a matter for determination by the relevant member state (Article 2 (3)).
It is assumed that the provisions in Articles 9 and 10, requiring sufficient information to be
made available to investors to allow claims to be pursued, would cover these attribution
arrangements and, again, the EMI would support such an intent.
8. The EMI notes that the Council reached political agreement on this proposal on 22nd May
1995 and that a Common position is expected within the course of the next few months.
9. A dissenting opinion of the Deu tsche Bundesbank is attached as an Annex to this opinion.
28th July 1995
ANNEX
DISSENTING OPINION ATTACHED TO THE EMI OPINION ON THE COMMISSION
PROPOSAL FOR A EUROPEAN PARLIAMENT AND COUNCIL
DIRECTIVE ON INVESTOR COMPENSATION SCHEMES
Dissenting opinion of the Deutsche Bundesbank
The Deutsche Bundesbank considers that the question as to whether stability of the financial system
will be improved by the Directive on Investor Compensation Schemes cannot be answered without
considering the principles which have been incorporated into the proposal from the Directive on
Deposit Guarantee Schemes (94/19/EC), which is currently the subject of proceedings before the
European Court of Justice. The Deutsche Bundesbank therefore considers that making any substantive
comment on the proposal for a Directive on Investor Compensation Schemes would inevitably involve
making statements on the legal issues raised in those court proceedings. Therefore the Deutsche
Bundesbank wishes only to state that it welcomes the harmonisation towards which the Directive on
Deposit Guarantee Schemes (94/19/EC) strives.  It also considers that, as any amendment of Directive
94/19/EC resulting from the judgement of the European Court of Justice will require to be incorporated
into the Directive on Investor Compensation Schemes, the formal adoption of a common position on
this Directive should be postponed until the European Court of Justice has reached a decision in the
proceedings relating to Directive 94/19/EC.