EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 12.7.2010 
SEC(2010) 845 
  
COMMISSION STAFF WORKING DOCUMENT 
IMPACT ASSESSMENT  
 
 
Accompanying document to the 
   
Proposal for a  
 
DIRECTIVE OF THE EUROPEAN P ARLIAMENT AND OF THE COUNCIL  
 
amending Directive 1997/9/EC on investor-compensation schemes  
  
{COM(2010) 371} 
{SEC(2010) 846}  
 
EN 2   EN TABLE OF CONTENTS 
1. Introduction................................................................................................................ .. 3 
2. Procedure ................................................................................................................... .. 6 
3. Problem Definition....................................................................................................... 9 4. The baseline scenario, subsid iarity and proportionality............................................. 24 
5. Objectives.................................................................................................................. . 26 
6. Policy options............................................................................................................. 2 9 
7. Comparing the options ............................................................................................... 32 8. Analysis of impacts.................................................................................................... 57 9. Monitoring and Evaluation ........................................................................................ 66 Annex I – Outcome of the call for evidence ............................................................................ 68 ANNEX II – questions sent to inve stor compensation schemes.............................................. 71 
ANNEX III – operation of compensation schemes.................................................................. 79 Annex IV – Summary of the views expressed by industry and investor associations at the 
meeting held on 3
rd September 2009........................................................................ 111 
annex V – the average amount held by investme nt firms on behalf of retail investors ......... 116 
ANNEX vi – Description of signi ficant compensation cases ................................................ 118 
ANNEX VII – data on complaints about investment advice ................................................. 120 
Annex VIII – ICSD Problem tree........................................................................................... 121 Annex IX – Summary of the meeting with na tional investor comp ensation schemes on 9
th 
February 2010 .......................................................................................................... 122 
Annex X – Impact of the intr oduction of general funding principles upon investment firms126 
Annex XI – Glossary of acronyms......................................................................................... 131 Annex XII – Estimation of administrative burden................................................................. 133 
 
EN 3   EN 1. INTRODUCTION  
The Directive 97/9/EC on Investor-Compensation Schemes (ICSD1) was adopted in 
1997 to complement the Investment Services Directive2 (ISD). The ISD has since 
been replaced by the Markets in Fina ncial Instruments Directive (MiFID). 3 The 
ICSD provides for clients receiving invest ment services from investment firms 
(including credit institutions ) to be compensated in spec ific circumstances where the 
firm is unable to return money or financia l instruments that it holds on the client's 
behalf. The Directive applies to intermedia ries providing investment services. It does 
not apply to insurance unde rtakings, pension funds or  other types of funds. 
1.1. Objective of the Directive  
The ICSD's main objective is to assist the proper functioning of a single market for 
investment services and encourage the use of  investment services across the EU.  By 
providing for a minimum level of harmonisatio n of compensation schemes, it aims to 
eliminate competitive distortions that could arise and prejudice the operation of the internal market if Member  States were to impose their own compensation scheme 
requirements on passporting firms
4. The investor protec tion it provides also 
encourages retail clients to use investment services acro ss the EU with confidence 
that they will receive a cert ain minimum level of protection.5 
The ICSD only contains the minimum ha rmonisation necessary to achieve its 
objectives. Many topics, such as the le gal form, the organisation and scheme 
funding, are currently left  to the discretion of the Member States. 
1.2. Situations in which the Direct ive provides for compensation 
The ICSD protects clients when they entr ust money or financial instruments to an 
investment firm. Clients must be compensated by schemes in two limited situations derived from reasons directly related to the financial circumstances of the firm: 
1) if a firm is unable to repay money ow ed or belonging to a client and held on 
the client's behalf in connecti on with investment services; or 
2) if a firm is unable to return to a clie nt a financial instrume nt belonging to the 
client and held, administered or  managed on the client's behalf. 
6 
                                                 
1 Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-
compensation schemes, OJ L 084, 26/03/1997 P. 0022 - 0031 
2 Council Directive 93/22/EEC of 10 May 1993 on invest ment services in the securities field; OJ L 197, 
6.8.1993 
3 Directive 2004/39/EC,  OJ L 145, 30.4.2004 
4 Investment firms are able to use the MiFID passpo rt to provide services to customers in other EU 
member states. These services are regu lated by the home Member State.  
5 Recitals 4 and 5 of the ICSD. 
6   MiFID investment services where an investment firm may hold client money or financial 
instruments for a client include wh ere it is executing client orders, receiving and transmitting orders for 
 
EN 4   EN Claims under the Directive will typically ar ise due to fraud or other administrative 
malpractice within the firm or due to firm default derived from errors, negligence or 
problems in the firms' systems and controls.  
1.3. The Directive does not compensate fo r losses due to investment risk 
The ICSD does not compensate investors fo r "investment risk" (the risk that an 
investment will result in a loss) e.g. if a sh are or unit declines in value or there is 
default in payment of a bond. A variety of  potential risks are inherent in any 
investment decision. An investment may suffer loss due to the underlying assets 
falling in value, the market falling, a c ounterparty or depositary failure, problems 
with the business of  a company or entity that issu ed the investment or for any 
number of other reasons. 
Investing in financial instruments by its na ture involves investment risk. It is not 
appropriate for investors to be compensated for this risk or to try to legislate to 
eliminate the risk. Compensating investors for losses due to investment risk would 
create moral hazard issues and involve si gnificant cost. Further, it is difficult to 
justify compensating for one type of investment or risk without setting a precedent that should be extended to all othe r types of investments or risks. 
While it is not appropriate due to the expense and for moral hazard reasons to 
compensate investors for losses due to i nvestment risk, various other Directives 
include protective measures designed to ensure that investor s understand the risks 
involved in an investment and receive advi ce or portfolio management services that 
match their individual risk appetite. For example: 
• the prospectus and the summary in th e prospectus must identify and warn 
investors of the risks associated with an investment;
7 
• when providing investment advice or  portfolio management services, 
investment firms are required under MiFID to ensure that investments 
recommended are suitable for the client;8  
• investment firms must ensure that a ppropriate information is provided to 
clients so that they are reasonably able to understand the natu re and risk of any 
investment being offered and can take an investment decision on an informed 
basis.9 
But it is important to note that these measures are not designed to eliminate 
investment risk or compensa te investors for this risk. 
                                                                                                                                                         
a client, providing discretionary portfolio management services or in connection with providing 
investment advice. 
7   Article 5 of Directive 2003/71/EC 
8   Article 19.4 of Commission Directive 2004/39/EC 
9   Article 19.3 of Commission Directive 2004/39/EC 
 
EN 5   EN 1.4. Safety net 
Compensation schemes only provide a last reso rt safety net for clients of investment 
firms if other important safeguards fa il. Compensation schemes cannot be the 
principal means of protecting i nvestors but a last resort me asure that applies when all 
of the main protections fail.  
MiFID is the principal means by which clie nts receiving invest ment services are 
protected against risks arising from the firm holding their assets. For example, it 
imposes detailed requirements on investment firms relating to their systems and controls and the holding of money and fina ncial instruments for clients (segregation 
of assets, who may hold client  funds, use of custodians etc)
10. These are the principal 
regulatory protections intended to protect clie nts against the risk of their assets being 
lost or stolen or being clai med by creditors in the event of  the firm's insolvency. In 
theory, if firms always complied with the detailed MiFID requirements then the need for compensation should rarely arise. Bu t the ICSD (like the other compensation 
directives) recognises that in practice full compliance with regulatory requirements 
cannot always be guaranteed. 
1.5. Retail investor focus 
The ICSD focuses on compensating retail in vestors. There are references throughout 
the Directive to protecting "small investors"
11 and also the amount of compensation 
(currently € 20,000) is targeted to their situat ions. This is consistent with principles 
underlying the MiFID12 (and before that the ISD) whic h provide the highest level of 
protection to retail investors.  Professional investors are presumed to have greater 
knowledge and resources and therefore to be  better able to unders tand the nature of 
the investment services they receive, to ba rgain to protect their own interests and if 
necessary to take action to enforce their rights. 13 
1.6. Different objectives of deposit and insurance compensation schemes 
Other types of compensation schemes (such as banking and insurance schemes) also 
provide a certain level of investor protect ion but have different  underlying objectives 
to investor compensation schemes under the ICSD. 
The Deposit-guarantee schemes directive (DGSD)14, setting up the deposit-guarantee 
schemes, has an important banking stability objective. It provides for depositors to be 
compensated up to a specified limit if the bank is not in a position to pay back the 
                                                 
10 Article 18 of 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 (OJ L 241, 2.9.2006, p. 26) 
11 Recitals 4, 5 and 11 and Article 4 of Commission Directive 97/9/EC 
12 Article 19 of MiFID 
13 A review of MiFID is scheduled to take place in 20 10. During that review if necessary issues relating to 
protection of non-retail investors will be considered, in  particular at the level of distribution channels 
and conduct of business rules. 
14 Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-
guarantee schemes, OJ L 135 , 31/05/1994 P. 0005 - 0014 
 
EN 6   EN money. It does so because banks are susceptible to the risk of a run if depositors 
believe that their deposits are not safe and try to withdraw deposits at the same time. 
It aims to prevent bank runs and protect  the stability of the financial system. 
Insurance schemes provide last resort pr otection to consumers when insurers are 
unable to fulfil their contractual commitment,  offering protection against the risk that 
claims will not be met in the event of a fa ilure of an insurer. Apart from protecting 
policy holders from losses, the schemes a ddress concerns about the wider market 
impacts (e.g. policyholders lo sing confidence in the insurance market as a whole). 
1.7. Reasons for the review 
Ten years after the ICSD entered into fo rce, and immediately after the financial 
crisis, it is the right time to review the functioning of the ICSD. There is no evidence 
to suggest that the financia l crisis contributed to more  compensation claims from 
schemes under the ICSD. However, in recent years, DG MARKT has received 
investor complaints about the application of  the ICSD in a number of important cases 
involving large investor losses.15 The complaints are principally related to the 
coverage and funding of schemes and delays  in obtaining compen sation. The review 
of the ICSD is also an important elemen t, together with the review of the DGSD16 
and the examination of protection for insu rance policy holders, of the Commission's 
policy to strengthen the EU re gulatory framework for financia l services as set out in 
the Communication on "Dri ving European recovery"17 in response to the recent 
financial crisis. It also considers the obj ective set at G-20 leve l of addressing any 
loopholes in the regulatory and supervisor y system and the objective of restoring 
investor confidence in the financial system. 
The Commission has reviewed the ICSD a nd is putting forward proposals aimed at 
improving its application, increasing its effi ciency and enhancing investor protection. 
This document is the impact assessment accompanying the proposal for the review of 
the ICSD; it does not pre-judge the final form of any decision to be taken by the 
European Commission.   
2. PROCEDURE  
The ICSD review and its impact assessment have been prepared in accordance with 
the Commission's approach to applying the bett er regulation principles. The initiative 
is the result of an extens ive and continuous dialogue a nd consultation with all major 
stakeholders, including securities regulator s, market participants, national investor 
compensation-schemes and consumers. The analysis will follow the principle of 
proportionality and will offer an in-dep th qualitative and, where possible, a 
quantitative assessment of the impacts. The impact assessment work will then draw 
on:  
                                                 
15 See for example Annex V and VI which set out details of the Amis case in Austria and the Phoenix case 
in Germany which involved claims totalling €145 million and €674 million respectively. 
16 http://ec.europa.eu/internal_market/bank/guarantee/index_en.htm 
17 Commission Communication for the Spring European Council "Driving European recovery" 
COM(2009) 114 final of 4.3.2009 
 
EN 7   EN – analysis of contributions submitted during a call for evidence 
launched from 9th February to 8th April 200918  (a brief summary of the responses 
received is set out in Annex 1); 
– analysis of the answer s to the questionnaire sent to industry and 
European Securities Markets Expert Group (ESME)19  and discussion at an ESME 
meeting;  
– analysis of the answers to the questionnaires20 sent to the national 
Investor-Compensation Schemes;  
– internal research (including dialogues with stakeholders, 
examination of other relevant EU direct ives, further analysis based on published 
studies, articles and relevant literature, close monitoring of market developments); 
– views from industry and investor  associations expressed at a 
targeted hearing on 3rd September 2009 organised by th e Commission services in 
order to allow a number of EU industry a nd investor associations to express their 
views on the review of the ICSD (see Annex IV for a su mmary of the discussion); 
– regular or ad hoc meetings and discussions with the European 
Securities Committee (ESC)21 and market participants; 
– a meeting with national investor compensation schemes on 9th 
February 2010 (see Annex IX for a summary of the meeting); 
– findings of a study by OXERA whic h was commissioned in order 
to evaluate the application of the Di rective. The study, titled "Description and 
assessment of the national investor compensation schemes established in 
accordance with Directive 1997/9/EC" (February 2005)22 was commissioned by 
the European Commission. It examines the impact of certain aspects of the ICSD on EU financial markets.  
                                                
 
18 The Commission services received 70 contributi ons. The non-confidential contributions can be 
consulted in the Commission website. 
 http://ec.europa.eu/internal_market/consulta tions/2009/investor_compensation_en.htm 
19  ESME is an advisory body to the Commission, composed of securities markets practitioners and 
experts. It was established by the Commission in April 2006 and operates on the basis of the Commission Decision 2006/288/EC of 30 March 2006 setting up a European Securities Markets Expert 
Group to provide legal and economic advice on the ap plication of the EU Securities Directives (OJ L 
106, 19.4.2006, p14-17). 
20  See Annex II. 
21 The European Securities Committee (ESC) fulfils both comitology and advisory functions in the 
securities field. It is composed of high level represen tatives from the Member States and is chaired by a 
representative of the Commission. Discussions were held at meetings of the ESC on 14 November 
2008, 11 February 2009 and 15 July 2009. 
22 The study is available at http://ec.europa.eu/dgs/internal_market/docs/evaluation/national-investor-
rep2005.pdf  . The opinions expressed in the Study by OXERA do not necessarily reflect the position of 
the European Commission. OXERA is a private firm th at was contracted by th e European Commission 
to undertake the study. The statements and opinions expressed in the study are the responsibility of the firm. The European Commission does not endorse the OXERA report, but uses it as a source of 
information for the review of the Investor-compensation schemes Directive.  
 
EN 8   EN  
2.1. Steering Group  
The Steering Group for this Impact Assessment was formed by representatives of a 
number of services of the European Commission, namely the Directorate General 
Internal Market and Serv ices, the Directorate Gene ral Economic and Financial 
Affairs, the Directorate General for Health  and Consumers, the Legal Service and the 
Secretariat General.  This Group met four  times, on 29 June, 29 July, 11 September 
and 21 January 2010. The members' contributions have been taken into account in the content and shape of this impact assessment
23.   
2.2. Impact Assessment Board  
DG MARKT services met the Impact Assessment Board on 10 March 2010.  The 
Board analysed this Impact Assessment and delivered its opinion on 12 March 2010.  
During this meeting the Board member s provided DG MARKT services with 
comments to improve the content of the Impact Assessment that led to some modifications of this final draft.  These are the most relevant ones:  
- to better substantiate the various probl ems arising from insufficient harmonisation 
of the operation, coverage and the leve l of protection offered by investor 
compensation schemes and explaining why those issues cannot be sufficiently 
addressed at Member States level; 
- to provide more detailed a ssessment of the cost of the proposed measures, how they 
would be distributed by Member States  and firms and how many investors would 
benefit from the changes; and 
- to provide more detailed justificati on as to why the proposed measures are 
proportionate and assess whether non-legisl ative action could address the problems 
sufficiently. 
After considering the improved draft, the Impact Assessment Board delivered its 
final opinion on 3 June 2010. This Impact  Assessment was update d to take into 
account the additional comments  from the Board, notably: 
- to clarify the costs of the proposed measures, and how many investors would 
benefit from the proposed changes; 
- to justify better why the proposed measures regarding the funding and  the cross-
border solidarity principle are considered to be proportionate and to present clearly 
the positions of Member States on each of the preferred options, and 
- to justify better the durati ons of the proposed transiti on periods for the preferred 
options concerned. 
                                                
 
23 In accordance with the rules for th e elaboration of impact assessments the minutes of the last meeting of 
the steering group have been submitted to the Impact Assessment Board together with this impact 
assessment. 
 
EN 9   EN 3. PROBLEM DEFINITION  
Recently there has been evidence of issu es which if not addressed could be 
detrimental to investor compensation in the EU and to confidence in the use of investment firms.  
It is important to stress that the number of firm failures that have triggered the 
operation of investor compensation schemes has been relatively low. Of the EU-15 
Member States, 9 of them experien ced firm failures between 1999 and 2004
24. The 
total number of failures excluding the UK25 over that period amounted to 37, with 
most of the cases generating a small numb er of claims (See Annex III for further 
details concerning the opera tion of compensation sche mes). Of the EU-10 new 
Member States only the Czech Republic a nd Hungary had experienced compensation 
cases over this period, with  respectively 6 and 13 cas es. Since 2004, there are ten 
schemes which have dealt with compensa tion cases, the most important case being 
the "Phoenix case" in Germany and the "AMIS case" in Austria. 26 
There is no evidence to suggest that th e financial crisis contributed to more 
compensation cases in the EU. Investor c onfidence however is important for well 
functioning markets. Despite the low num ber of compensation cases, investor 
compensation schemes and their effective functioning is essential in order to 
maintain investor confidence in the use of investment firms.  
First, the efficiency of th e compensation schemes and the certainty of the conditions 
for compensation might need to be improved to match up to investors' expectations 
of being quickly compensated for losses ar ising from the provision of investment 
services. Second, the current le vel of discretion given to Me mber States needs to be 
considered from the perspective of the obj ective of creating a single market and a 
level playing field for investment serv ices throughout the EU. Third, to reduce 
potential gaps in the regulatory system it is  necessary to consider whether custodians, 
UCITS depositaries and money market funds should be covered by a compensation/guarantee scheme following a number of recent events that have 
highlighted investor protect ion concerns in these areas. Finally, changes in the 
regulatory framework of the DGSD are to be assessed to take into  account some of 
its elements in this review. 
Therefore, the impact assessment report will examine different options aiming at 
addressing the concerns expr essed by investors and othe r stakeholders and improving 
effectiveness of the operation of the ICSD . The problems identified can broadly be 
divided in four groups: (i) problems experien ced in the functioning of the ICSD, (ii) 
inadequacy of the ICSD due to changes in the financial services industry or 
regulatory landscape since the ICSD is app lied (this includes MiFID replacing the 
ISD and the emergence of new investment services), (iii) reducing gaps in the 
regulatory system and (iv) reducing dispari ties between the protection of clients of 
                                                
 
24 The period covered by the Oxera study. 
25  The high number of cases in the UK can be attributed to the significantly broader scope of the UK 
scheme which covers unpaid claims by a retail investor against an investment firm for negligent investment advice and poor investment management.  
26  For a summary of these cases see Annex VI. 
 
EN 10   EN investment firms and banking depositors (e.g. a deposit with a bank  will be protected 
for an amount up to €100 000, but client monies  held by an invest ment firm will only 
be protected for up to €20 000).  
These four groups of problems have been t ackled in this impact  assessment bearing 
in mind the importance of enhancing investor  protection, particular ly in the context 
of the current financial crisis. The prob lem tree is to be found in Annex VII.  
3.1. Problems experienced in th e functioning of the ICSD 
There are situations where there is evidence that in practice the IC SD is not operating 
efficiently in fulfilling its objectives. 
3.1.1.  Funding of schemes 
Funding of schemes is currently left to nati onal law. Only recital 23 sets some basic 
principles stating that the cost of fina ncing schemes must be  borne by investment 
firms themselves. Also that the financing capacities of such schemes must be in 
proportion to their liabilities,  although this must not jeopa rdize the stability of the 
financial system of the Member State concerned.  
Although compensation schemes are generally  funded by way of contributions from 
participating firms, there are important differences regarding: 
− the moment contributions are collected ( ex ante  or ex post , in respect of the 
occurrence of any loss events),  
− the management of the schemes (includi ng the existence of  any “prudential” 
criteria for the management of contributions collected ex ante ),  
− the degree to which funds are pool ed across participating firms,  
− the way contributions  are calculated,  
− whether there are any limits on the amount that may be collected from firms in a 
given period, and 
− the existence of different funding a rrangements (such as borrowing power, any 
State contributions, the use of fines imposed on firms). 
The firm's contributions can either be coll ected to build a reserve in anticipation of 
future losses (ex-ante funding) or when  needed to cover compensation costs of 
failures that have occurred (ex-post funding). Pre-funding helps to smooth 
contributions over time and makes sure futu re insolvent firms w ould contribute to the 
funding of the claims they would generate. It also contributes to rapid and smooth 
payment of compensation costs by building up a reserve of readily available funds to 
compensate investors. Although ex-a nte funding helps to smoothen out the 
contributions over time and enables funds to compensate investors rapidly, to 
determine the appropriate le vel of ex-ante funding is in herently difficult as the 
potential claims/losses are highly volatile  and difficult to predict (practical 
difficulties in operating a system of pre-fundi ng). As a result, the fund will always be 
in a situation of surplus or deficit. This also means a lost cost of opportunity for 
investment firms as they have to lock funds  in a fund for future compensation costs.  
 
EN 11   EN As demonstrated in Annex III, even between schemes which are ex ante funded the 
coverage ratio, i.e. the ratio  between the ex ante fundi ng and the total monies and 
securities held by investment firms on behalf of retail investors, can vary 
significantly. Based on the data provided by the schemes, we were able to assess the 
coverage ratio for six of them (see table page 83-84 "Funds available"). The coverage 
based on the total monies and securities ranged from 0.02% for Poland to 0.32% for Slovakia. The coverage ratio based on the total covered monies and securities
27 could 
be assessed for 8 schemes and ranged from 0.14% for Hungary to 2.01% for 
Slovakia. 
The ICSD thus leaves too much flexibility  to Member States concerning the actual 
level of funding of the schemes: there is no clear method to identify what should be the level of ex-ante funding. There are no pr ovisions to adequately mitigate the risk 
of a scheme not being able to meet its obligations.  
Sound funding arrangements are critical to the effectiveness of compensation 
schemes in achieving the ICSD's objectiv es. Funding can affect the ability of 
schemes to meet their obligations under the ICSD, how rapidly clients can be 
compensated, and the contributions required from firms in the event of losses. As 
currently only few schemes are funded adequately with a rigorous methodology to 
assess the funds needed to compensate for a given amount of losses
28, investor 
confidence in a scheme or in investment firms in a Member State can be compromised after firm failures. 
A good illustration of these funding diffi culties is the Irish scheme which 
experienced a large compensation case in  2001. The size of the compensation claims 
was such that it exceeded the scheme's ava ilable funds. The scheme managed to raise 
additional contributions spread  over several years. If it ha d levied these contributions 
in a single year it might have been problema tic for some of the participating firms. In 
the light of the substantial claims arising from this and other compensation cases, the 
Irish scheme ("ICCL"
29) reviewed twice (in 2004 and in 2007) its funding 
arrangements. Both reviews were carried out  because the scheme funding levels were 
assessed to be inadequate.  
There is more recent eviden ce that in some States, due to problems of funding, the 
national investor-compensation scheme was close to being insolvent. For example, 
following the Phoenix case30 in Germany, which involved claims up to € 674 million, 
                                                 
27  Amount of securities and monies up  to the maximum compensation limit. 
28 The OXERA study noted at pages 89 and 90 that: 
 "….although funding difficulties have been reported in some instances, to date no 
compensation scheme has experienced a significan t shortfall of funds that would have prevented it 
from making payments to investors. However, this does not necessarily imply that scheme funding can be considered adequate going forward. Few EU compensation schemes have undertaken a rigorous 
assessment of the adequacy of their funding arrangements in light of potential loss exposures. …  For 
example, schemes that operate an ex ante funding system indicated that they had either set ex ante premia on an ad hoc basis  or had used simple rules of thumb  to determine a target size for their 
standing funds. Similarly most ex post schemes had not analysed their potential exposures  to firm 
defaults or the implications of these exposures for required firm contributions."
  
29  Investor Compensation Company Limited, http://www.investorcompensation.ie/index.php   
30  See Annex VI for a summary of the case. 
 
EN 12   EN an urgent measure of last resort giving public funds  to the nati onal investor-
compensation scheme was introduced in or der to avoid the f und being unable to 
payout partial compensation payments after th e affiliated firms contested the legality 
of special contributions and refused payments31. The Phoenix case was an extreme 
case relating to the failure of a large investment firm but similar extreme cases could again occur in the future. A nother example is Austria where the scheme funds would 
be insufficient to cover the claims ar ising from the AMIS case (around € 145 
million).
32 The AMIS case was not an extreme one-off case. It was caused by the 
failure of a mid-sized investment firm. In light of these events the Austrian 
legislation was recently amended to improve  the funding of the scheme. The ex-post 
funding mechanism was replaced by ex ante funding supplemented by surplus contributions if necessary. In addition th e fund can call upon a State guarantee if 
needed.   
The broad discretion under the ICSD about how to fund schemes and differences in 
the way funding is organised by individual  Member States creates a number of 
potential problems. It can undermine invest or protection and investor confidence in 
the use of investment firms (if investors ar e not confident that there will be adequate 
funding in place to pay their claims if there is  a default). It can also affect the proper 
functioning of the internal market if th e likelihood of investor  protection, and the 
contributions required from firms, va ry significantly across Member States 
depending on the adequacy of individual fundi ng arrangements. It also increases the 
risk of regulatory arbitrage. Investors mi ght decide to invest via investment firms 
located in Member States where compensati on schemes have the highest level of ex 
ante funding. Annex III describes the cu rrent position regarding funding of the 
different schemes in Member States. 
Moreover, if investor confiden ce is to be nurtured and fina ncial markets are to thrive 
to offer citizens alternative ways to invest th eir savings to be used in the future, it is 
necessary to create a robust legal and re gulatory framework, including a healthy 
system of investor compensation schemes.  
3.1.2.  Payout delays 
The trigger for the payment of compensati on under the Directive is where either: 
1) the relevant competent authority determ ines that an investment firm appears, 
for the time being, for reasons directly re lated to its financia l circumstances, to 
be unable to meet its obligations arisin g out of investors' claims and has no 
early prospect of being able to do so; or 
2) a judicial authority makes a ruling, for re asons directly related to an investment 
firm's financial circumstances, which ha s the effect of su spending investors' 
ability to make claims against it. 
33 
                                                 
31  Press release to be found in: h ttp://www.e-d-w.de/en/P hoenix-Stand.html   
32  See Annex VI for a summary of the case  
33  Article 2(2) of the ICSD 
 
EN 13   EN Article 9(2) of the ICSD establishes a st rict deadline for reimbursement (as soon as 
possible and at the latest within three mont hs). But, this deadline only runs once the 
"eligibility and the amount of the claim" ha ve been established. That is, it is not 
linked to the date of the tr igger events set out above. 
The deadlines for establishi ng the "eligibility and the amount of the claim" are 
determined by national law. In practice, re sponsibility for checki ng the eligibility of 
each claim and its amount usually lies with either the liquidator of the insolvent firm 
or the insolvency Court or the scheme itself. 
The Oxera study noted that processing claims can take considerably  longer than the 
limits set. Payouts can potentia lly take several ye ars, especially if insolvency is 
prolonged through court proceedings in whic h the conclusions of the insolvency 
administrator are contested.34 For example, in Germany, the compensation scheme 
determined in March 2005 that the Phoeni x investment firm was unable to pay out 
investor's claims. Four years later the sc heme was not yet able to establish the 
amount and eligibility of the individual cl aims because of various court proceedings. 
To start compensating investors, the scheme initiated partial compensation payments in February 2009 (4 years afte r the occurrence of the fail ure). The disbursement of 
these partial compensation payments is expected to be completed in two and a half 
years. 
So in practice there can be a considerable  delay before an i nvestor receives any 
compensation. This undermines investor prot ection and investor confidence. It also 
might discourage investors to place mone y in investments which would have a 
negative impact on the effi cient flow of capital in the financial system.  
3.1.3.  Lack of investor awareness about th e scope and coverage of schemes 
Article 10 of the ICSD requires Member States  to ensure that investment firms make 
available to actual and potential investors information about the relevant investor 
compensation scheme including the amount and scope of cover. Information must be 
made available in a readily comprehensible  manner. It also provides that Member 
States should lay down rules limiting the use of such information in advertising. In 
addition, the Directive Implem enting MiFID also requires investment firms holding 
clients' assets to provide clients with summary details of a ny relevant investor 
compensation or deposit guarantee sc heme which applies to the firm
35. 
Responses to the call for evidence and comme nts received during the public hearing 
indicate concerns that i nvestors are not adequately informed about  the potential 
coverage of the investor-compensation scheme. For example, investors are not necessarily aware that the ICSD does not compensate losses if an investment 
declines in value or becomes worthless due to the failure of a f und or issuer, or due 
to a decline in the stock market or the value of underlying i nvestments or other 
investment risks. Also, con cerns were raised about lack  of awareness by investors 
about how the ICSD applies in cross border situations. Moreover, a specific case in 
                                                
 
34 Oxera study pages 47 to 62 
35 Article 30(1)(g) of directive 2006/73/EC. 
 
EN 14   EN Portugal36 made evident that investors are not always aware of the level of protection 
they could receive when investing in a sp ecific product (i.e. wh ether it is covered by 
the DGS or the ICS).   
The Austrian AMIS case highlighted the probl em of lack of investor awareness about 
the scope and coverage of schemes. Follo wing the AMIS case, Austrian legislation37 
was amended to include additional disclosure  obligations. Austrian investment firms 
must now expressly inform investors that they are prohibited from holding client 
assets. 
3.1.4.  Technical issues about firm coverage and exclus ion of claims involving market abuse 
A number of technical issues have aris en about whether firms that have limited 
authorisations are covered under the ICSD. Th e first is the case of a firm being only 
authorised to provide the MiFID investment service of operating a multilateral trading facility (MTF)
38. The second situation is the cas e of an authorisation which 
prohibits a firm from holding client asse ts or dealing with retail clients.   
The AMIS case in Austria clear ly illustrates the latter case. The firms in that case 
were not allowed to hold clients assets a nd/or money and were not members of the 
investor compensation scheme. Following thei r insolvency the Austrian ICS denied 
compensation to investors. The scheme position was challenged before an Austrian 
Court which obliged the scheme to compensate investors. The Austrian scheme has 
appealed against this judgment.  
Concerning the first case, MTFs rarely hold client assets and their clients (i.e. the 
users of the market) would rarely be retail clients, so this problem is rather theoretical. But the review pr ovides a chance to clarify the application of the ICSD to 
MTFs and other investment services under Mi FID. This review is also an opportunity 
to clarify the position of an  investor dealing with a fi rm whose activities are limited 
by the detailed terms of its authorisation.  
A further technical issue is whether the IC SD should explicitly exclude any claim for 
compensation where the investor has engaged in market abuse. Ar ticle 9(3) of the 
ICSD excludes claims where a criminal  conviction has been obtained for money 
laundering
39but not claims by investors who ha ve engaged in market abuse.  
3.2. Inadequacy of the ICSD due to subseque nt changes in the financial services 
industry and the EU regulatory landscape 
Changes in financial markets (e.g. invest ment advice becoming a more important 
investment service, greater use of custodians, the emergence of multilateral trading facilities) and changes in the EU regulatory landscape (e.g. MiFID replacing the ISD, 
                                                
 
36 Case concerning the distribution of some investment products by the Banco Privado Portugues 
37 Bundesgesetz über die Beaufsichtigung von Wertpapierdienstleistungen (Wertpapieraufsichtsgesetz 
2007 – WAG 2007), §75-78 
38 An MTF is a trading platform that brings together multiple buying and selling interests. Operating an 
MTF is an investment service under Annex I of MiFID. 
39 Money laundering is defined in Article 1 of Council Directive 91/308/EEC of 10 June 1991 on 
prevention of the use of the financial system for the purpose of money laundering. 
 
EN 15   EN problems that arose during the financial cris is concerning the treatment of custodians 
and money market funds) have  raised issues about whethe r the ICSD's coverage is 
too narrow and whether greater clarit y is required in certain areas.  
3.2.1.  Non-coverage of civil claims for breach  of conduct of bus iness obligations 
The ICSD currently only requires compensation to be paid for losses if an investment 
firm fails to repay money or return financ ial instruments held on a client's behalf.40 
Other losses, due for example to a decline in  the value of the investment or negligent 
investment advice by the firm, are not compensated under the ICSD. 
Investors may have a civil claim against a firm for damages that arise from a breach 
of statutory or fiduciary duties. For exam ple, if an investment firm gives poor 
investment advice or is involved in misselli ng an investment to a client, the client 
may be able to bring a civ il claim against the firm for a breach of MiFID conduct of 
business requirements.41 But, even if the investor ha s established such a claim for 
damages, the investor may still suffer loss if  the investment firm fails before the 
claim is paid and does not have adequate a ssets to pay the claim. The ICSD does not 
cover such an outstanding i nvestor claim in the event of the firm's insolvency. 
The UK has extended its scheme to cover ou tstanding investor claims for breach of 
conduct of business requirements against a firm that becomes insolvent. As a 
consequence the UK scheme has a significan tly higher number of claims than other 
schemes. Most of those claims relate to a failure by an investment firm that has given 
unsuitable investment advice42.  
Since the ICSD commenced, investment advi ce has become an investment service 
under MiFID43. MiFID sets out detailed new re quirements designed to prevent 
inappropriate investment advice. As inve stment advice becomes a more important 
and widespread investment service in the EU there is an increased risk of civil claims 
by investors against firms for misselli ng of investments or poor advice. 
Compensating investors for such claims is only an issue if th e firm defaults and it is 
unable to pay the claims. Annex VII sets out  figures on complaints about investment 
advice in certain Member States. 
The ICSD is a minimum harmonisation Dire ctive so Member States can choose to 
cover cases other than those required under the Directive.44 The issue is whether 
coverage for claims relating to investment  advice should remain optional in order to 
                                                 
40 Recital 8 and Article 2(2) of the ICSD. 
41 Article 19 of MiFID 
42 For example the Oxera study at page 94 sets out a table showing that between 1999 and January 2005 
there had been just over 1600 failures covered by the UK scheme (almost all arising from claims for 
negligent advice) while there had only been 36 in to tal in the remainder of the EU schemes (from fraud, 
mismanagement or third party default) 
43 Annex I.A of MiFID 
44 The Stock Exchange Guarantee Scheme in Portugal covers losses beyond what is required in the ICSD. 
The relevant Scheme covers any losses suffered by a non-qualified investor that arise from the non-
compliance by the members of the regulated market operated by Euronext Lisbon of its duties as a 
financial intermediary with capacity to trade in said  market. It also covers losses suffered by non 
qualified investors as a result of the breach of the duties of the participants of the settlement system 
operated by Interbolsa. No compensation has been paid as of today. 
 
EN 16   EN take into account specifici ties in market structures or whether the ICSD should be 
amended to make it mandatory.  
3.2.2.  No coverage for non-retail clients 
The ICSD focuses on protecting "small investors"45. Non-retail clients46 can be 
excluded from coverage, unless the national scheme decides to cover losses of such 
clients47. Several schemes have elected to cover some non-retail clients.48 In a few 
recent high profile cases, local authorities, charities and high net worth individuals have suffered losses related to deposits in failed banks or investments in failed 
funds.
49 50 While the facts of these cases would not in any case have come within the 
scope of the ICSD, they do raise the broade r issue of whether it is appropriate from 
an investor protection and confidence perspe ctive to limit the scope of the ICSD to 
compensating small investors. As mentione d in section 1.5, unde r the MiFID review 
we will assess whether any further protection is  necessary for institutional investors 
under conduct of business requirements.   
A related issue is whether for the purposes of consistency with other Directives the 
definition of "retail client" in the ICSD should be ali gned with the current MiFID 
definition of "retail client".51 The MiFID definition also covers a broader range of 
SMEs than the current ICSD definition.52 
3.3. Gaps in the regulatory system 
3.3.1.  Failure of a third party custodian 
Under MiFID, financial instruments can  be held in two different ways:  
 By the investment firm itself holding  financial instruments for a client53. In that 
situation, if the financial instruments are kept "in connecti on with investment 
business" provided by the investment firm and ca nnot be returned by the 
investment firm to its client, then the client is protected under the ICSD and can 
recover his loss through the compensation scheme. 
                                                 
45 See for example the reference to small investors in recital 4 of the ICSD. 
46 A list of such investors is set out in Annex 1 of the ICSD. 
47 Recital 17, Article 4 (2) and Annex I of the ICSD. The list of non-retail clients who can be excluded 
includes professional and institutional investors, regional authorities and large companies. 
48 For example, Austria, the Czech Republic, Denmar k, Finland, France, Germany, Hungary, Italy, 
Lithuania, Poland, Portugal, Spain, Sweden and the UK extend coverage to some degree to certain non-
retail investors, although the extent of this extra coverage and who is covered varies significantly between Member States. 
49 For example, in the UK it is estimated that 123 local authorities had deposited an estimated £919.6 
million in Icelandic Banks and 48 charities lost a co mbined total of £86.6 million in deposits with 
Icelandic Banks.  See Part 4 of the fifth report of the UK Treasury Select Committee prepared on 4 
April 2009.  
50 A number of high net worth individuals and charitie s suffered losses directly  or indirectly through 
exposure to investments in funds controlled by Bernard Madoff. 
51 The term "retail client" is defined in Article 4.1(12) of MiFID. 
52 Annex II paragraph 1.2 of MiFID is the relevant provision that defines which SME's may be 
professional or retail clients for the purposes of MiFID. 
53 Ancillary services pursuant to Annex I of MiFID 
 
EN 17   EN  By the financial instruments being held by a custodian (a "third party custodian") 
usually selected by the firm54. The third party custodian  used by the investment 
firm may either be another entity in the same group55 or a third party service 
provider56. Alternatively, the client in certain Member States may himself select a 
third party custodian to keep  his financial instruments57. 
Investors may therefore not only be exposed to the failure of th e firm, but also the 
potential failure of a custodian58. In a case where a third party custodian59 is not able 
to return the financial instruments to its c lient, the client will not be able to benefit 
from any compensation payment by the compensation scheme established under the ICSD. This is because under the current scope of the ICSD, compensation schemes 
are only available to investor s whose financial instrument s have been lost by (the) 
investment firm "for reasons directly re lated to an investment firm's financial 
circumstances"
60.  
MiFID addresses this risk in  part by providing that where financial instruments are to 
be held for a retail investor by a third part y, the firm must inform the client of the 
responsibility of the firm unde r applicable laws for the act s or omissions of the third 
party and of the consequences for the clie nt if the third party becomes insolvent. 
Further, the firm must provide the retail client with a prominent warning of the 
risks.61 Still, there is under the ICSD a diffe rence in the level of protection provided 
for investors who have purch ased a financial instrume nt, depending on whether the 
firm itself or a third party cu stodian holds their assets.  
The use of third party custodi ans is relatively common (for example, as investors 
increasingly look to take advantage of investment opportunities outside the EU). 
Also, sometimes investment services groups are organised in a way where 
investment services, such as brokerage  and custody services  are handled by two 
separate entities.   
                                                 
54 Article 17 MiFID implementing Directive places cond itions upon which such cu stodian may be selected 
55 This is more typically the case in continental Europe where often the group member is a credit 
institution. 
56 The third party may or may not be an authorised investment firm. Typically if it is based in Europe it 
will be regulated, but in certain overseas jurisdictions  when holding assets in that jurisdiction, the third 
party may be unregulated. 
57 This is the case when the client himself deposits  his assets with a third party and authorises the 
investment firm to operate on his behalf the account held with such third party (e.g. the commonly used 
model for portfolio management in Germany, “proxy” model vs. “trust” model). 
58 The Oxera study at page 98 noted that, in research carried out for the UK FSA in 2001/2 that financial 
risks associated with defaults can lead to potentially large client money losses but these occur infrequently. It then went on to state that the default of a third party is therefor e the risk with the largest 
potential impact – larger than the default of the inve stment firm itself. Most client money balances are 
held with UK banks, and the risk of these banks de faulting is small. The risk of default of non-bank 
third parties, in particular those based overseas, was evaluated as being more likely to occur. 
59 It should be noted that third party custodians do not necessarily need to be authorised under MiFID and 
even if they are MiFID investment  firms this would not usually affect the position under the ICSD as 
there is not a direct client relationshi p between the custodian and the investor. 
60 Article 2(2) of the ICSD 
61 Article 32 of Commission Directive 2006/73/EC 
 
EN 18   EN The situation is even more complex as diffe rent civil law regimes apply in different 
Member States. In some Member States investment firms are responsible for the assets entrusted to them, irrespective of th eir diligence in sel ecting custodians. In 
other Member States, investment firms are not  responsible towards clients if they can 
demonstrate they adopted due car e in selecting custodians.  
3.3.2.  Non coverage of UCITS investors for the loss of  the assets of a UCITS fund in case of 
bankruptcy of the UCITS depositary (o r bankruptcy of a sub-custodian)   
The UCITS Directive specifies requirements  relating to collective investment funds 
(UCITS) and their management companies
62. Specifically, it requ ires the fund's 
assets to be safe kept by a custodian sepa rate from the fund manager (the so-called 
'depositary').63 
The management of a UCITS is not a MiFI D service. As result, the ICSD does not 
cover UCITS and their units' holders in cas e a UCITS, via its depositary, loses its 
assets. This is due to the following reasons:  
• The ICSD was originally intended to comp lement the ISD and enhance the single 
market for investment services only . These do not include UCITS management.  
• The ICSD only protects investors against th e custody risk, where a firm is not able 
to return the financial instruments to its client. If UCITS assets are lost, the value 
of the shares or units of the UCITS will become worthless or diminish but will not 
be lost.  The investors will lose the value of their investment in the UCITS but the shares and units will still exist.  The IC SD does not intend to cover investors' 
losses due to investment risk which results in the value of shares or units becoming worthless.  
Issues related to the loss of UCITS assets (partially due to a sub custodian default) 
have recently arisen in the Madoff fraud.
64 Apart from investing funds in the Madoff 
scheme, some UCITS had also transferre d all their assets on sub custody through 
Madoff entities. When these sub-custodian entities defaulted, the UCITS were not able to recover their assets. As a result, the UCITS units and shares lost their value.  UCITS investors suffered because the value of their units and shares had become 
worthless, not because these shares and units had been lost
65.  
However, it may be argued that the issue is of a similar nature to the problem 
presented under point 3.2.3 and that any solu tion adopted for failure  of a third party 
custodian in the case of investment fi rms providing investme nt services (e.g. 
individual portfolio management) should also be extended to  cover a UCITS unit 
                                                 
62 Directive 85/611/EEC on the coordination of laws, re gulations and administrative provisions relating to 
undertakings for collective investment in transferable securities 
63 Articles 7 to 10 of Directive 85/611/EEC.  
64 A UCITS fund must have a depositary to hold fund assets. The depositary can either hold the assets 
itself or use a sub-custodian. 
65  The Madoff case has revealed an important gap between the protection offered to UCITs compared to 
MiFID investors, because the ICSD  does not cover losses suffered by  a UCITs unit holder caused by a 
loss of UCITs assets subsequent to the default of a depositor or its sub custodians. 
 
EN 19   EN holder in the case of loss of assets subsequent  to the default of a depositary or its sub-
custodian.  
This situation can be highly detrimental to  UCITS investors and the confidence they 
may place in the UCIT label, in particular if  they feel that a direct investment in 
financial instruments provi des a higher degree of prot ection than an indirect 
investment in the same financia l instruments through a UCITS fund66. 
According to EFAMA67, total assets under manageme nt by European investment 
funds amounted to €7 trillion as of end 2009. The UCITS funds accounted for 75% 
of the European fund market with €5 tr illion assets under management. In 2008 
EFAMA assessed the proportion of retail pa rticipation in all investment funds, 
including UCITS funds, to 37%. This means that circa €2 trillion of UCITS assets 
are in the hands of retail investors.  
This is in line with the study commissi oned by the Commission on "the EU market 
for consumer long-term retail savings vehicle"68. This study pinpointed investment 
funds, both UCITS and non-UCITS, as the thir d long term saving vehicle in order of 
importance for European households after lif e and pension funds, and other deposits.  
Investment funds represented 16% of the total savings of Europeans in 1999 (€1.8 
trillion) and 13% in  2005 (€1.9 trillion). 
Based on EFAMA data as of end 2008, there are around 35 500 UCITS funds in 
Europe. Based on the assumptions that th ere are 2 000 unit holders per UCITS fund69 
and that 37% of these unit holders are retail  investors, the estima ted amount invested 
per retail unit holder is circa €72 00070. 
                                                 
66 To address the vulnerabilities that have emerged from the depositary sector, the Commission recently 
consulted on issues relating to role of the UCITS depositaries, also in the light of the Madoff fraud. It is 
likely that this will result in specific amendments to the UCITS framework to strengthen the existing legislation in order to clarify what their duties an d liability are. The public consultation, closed on 15 
September 2009, is part of a comprehensive review of the existing European regulatory principles 
which are applicable to UCITS depositaries.  
67 European Fund and Asset Management Association: 
http://www.efama.org/images/ stories/efama_quarterly_sta tistical_release_q4_20091.pdf   
68 BME Consulting, the EU market for consumer long-term retail savings vehicle, 15 November 2007: 
http://ec.europa.eu/internal_market/fin ances/docs/cross-sector/study_en.pdf 
69  Based on EFAMA statistics, some Member States  (DK, DE, ES and SLO) report the number of unit-
holders in all investment funds domiciled in their c ountries. Estimated number of UCITS unit-holders in 
these countries was calculated taki ng into account the pr oportion of UCITS funds to all investment 
funds in these countries. Based on  these estimates, it was possible to calculate potential average number 
of unit-holders per UCITS fund in these countrie s. Taken together, the average number of UCITS 
investors per UCITS fund is approximately 2.000 investors. It needs to be highlighted however that this 
figure is most likely an upper estimate since it could be reasonably expected that UCITS funds will have a much higher number of investors on average than 2.000.  
70  It needs to be highlighted however that €72.000 is most likely an upper estimate since it could be 
reasonably expected that UCITS funds will have a much higher number of investors on average than 
2.000. If we were to double the average number of unit-holders per UCITS to 4.000, then the estimated 
average amount held by a unit-holder would be around €40.000. 
 
EN 20   EN There are 560 UCITS depositaries in Europe based on data collected by the 
Commission in 200471. 
3.3.3.   Money market funds 
A "money market fund" is a fund that mark ets itself as highly liquid and invests in 
short term debt instruments.72  
Information from industry associations suggest s that a large major ity of investors in 
money market funds are institutional invest ors (e.g. 90% in France) and most of the 
remainder are high net worth individuals. So retail investors are not significant in 
terms of being the overall holders of units in these funds.73 Money market funds are 
popular with institutional and some reta il investors who view them as being 
relatively low risk investments and almost as safe as bank deposits.74 This perception 
is reinforced to some extent by Article  18 of implementing Directive 2006/73/EC 
which allows investment firms to place clients' funds into an account opened, inter alia, with a "qualifying mone y market fund" as defined in the MIFID implementing 
Directive.
75 
During the financial crisis, some mone y market funds in the EU and the US76  
experienced difficulties leading to concerns about the risks associated with them and 
a rapid increase in inve stor redemption requests.77 It became clear that some of these 
funds may have involved hi gher risk than the "money market" label might have 
suggested, for example, by investing in instru ments with longer term maturity, due to 
a lack of harmonised approach and definiti on of what a money market fund is across 
the EU.78 As a consequence, many money mark et funds were faced with a sharp 
decrease in their portfolio va lue, and were not able to reimburse investors with the 
initial value of their investment. 
                                                 
71 COM(2004) 207 final – Regulation of UCITS depositaries in the Member States: review and possible 
developments 
72 Short term debt instruments include, for example, certificates of deposits, time deposits, commercial 
paper, asset-backed securities, repos and floating rate securities. 
73 Based on information provided by the European Fund and Asset Management Association in a letter 
dated 15 July 2009. 
74 At the end of 2008, European money market funds had €1,350 Billion under management.  
75 Article 18(2) of Directive 2006/73/EC mentions th e conditions to be fulfilled to be a "qualifying money 
market fund". 
76 The Reserve Primary Fund was the first money-market fund to expose investors to losses in 14 years. 
The fund had to write down its exposure to Lehman commercial paper which forced the net value of its 
assets below $1 a share. Money market fund shares traditionally trade at $ 1 a share (stable share price). 
This led to a run on other money market funds with investors asking for early redemptions of their 
holdings. As a result the US government via the US Tr easury had to guarantee th e shares of investors in 
money market funds. 
77 During the week of September 15, 2008, investors withdrew approximately $300 billion from US prime 
(taxable) money market funds, or 14 percent of the as sets held in those funds. In Europe €70 billion of 
the funds under management were redeemed in a few weeks following the bankruptcy of Lehman Brothers (EFAMA Annual Report 2008-2009 pg 9; 
http://www.efama.org/index.ph p?option=com_docman&task=cat_view&gid=86&Itemid=-99
 ). In the 
fall of 2008, 4 funds were closed and 12 temporarily suspended redemptions for a short period. 
78 The risks associated with money market funds can vary significantly from fund to fund. "Enhanced" 
money market funds seek higher yields than the more "conservative" money market funds and invest in 
longer-dated instruments and more volatile instruments such as asset-backed securities and derivatives. 
 
EN 21   EN Various initiatives have been undertaken to address the problem. For instance, in the 
US, federal authorities created a temporar y guarantee program to support the value of 
the U.S. money market funds units79 and ensure those funds could access enough 
liquidity to reimburse their unit holders at par.80 This program closed in September 
2009 without having to compensate for any losses. More recently, the SEC has launched a consultation to strengthen its ru les and define the instruments which are 
eligible in a US money market funds portfolio.
 81  
Similar initiatives have been undertake n in the EU. In October 2008, the ECB 
broadened the scope of eligible collateral in liquidity lending transactions to ease 
liquidity tensions on the short term m oney markets. In July 2009, the EFAMA and 
IMMFA came forward with a new proposal  for a European classification and 
definition for money market funds. 82 CESR is consulting on a common definition of 
a money market fund in Europe.83It is possible that this ma y result in a strengthening 
of the requirements under the UCITS Direct ive that apply to money market funds. 
Consistently with the overarching principle that investment risk has to be borne by 
investors, the ICSD does not cover i nvestment losses aris ing from financial 
instruments, including money market funds. However, it has been suggested that, in 
the light of the specificities of these funds, in addition to the described initiatives, it 
may also be appropriate to widen the sc ope of the ICSD to compensate retail 
investors in money market funds for a ny investment losses they may incur. 
3.4. Reducing disparities between the protectio n of clients of investment firms and 
banking depositors 
3.4.1.  Minimum level of compensation 
Article 4 of the ICSD harm onizes the minimum level of compensation (€20 000) for 
each investor.84When the ICSD was introduced, it was considered sufficient to align 
this level with the one set under the Depos it Guarantee Scheme Directive (€20 000 at 
the time).  
There are now concerns that the level might be too low.  The compensation limit of 
€20 000 was never adjusted to reflect inflati on or the increased exposure of European 
investors to financial instruments sin ce the ICSD commenced. Furthermore, the 
Deposit Guarantee Schemes Directive (DGSD) was recently amended to provide for at least €50 000 per investor per investment firm, increas ing to a fixed level of €100 
                                                
 
79 Press release to be found in: http://www.treasury.gov/offices/domestic-finance/key-initiatives/money-
market-fund.shtml   
80 In September 2008 the US Federal Reserve set up a liquidity facility to help restore liquidity to the 
ABCP markets and thereby to allow money market funds to sell their illiquid assets to release them 
from liquidity pressure they faced from unit holder's redemption requests. See http://www.frbdiscountwindow.org/mmmf.cfm?hdrID=14#f1
  
81 Press release to be found in: http://www.sec.gov/rules/proposed/2009/ic-28807.pdf   
82 Proposal for a definition of money market funds by EFAMA to be found in: 
http://www.efama.org/images/stories/09-4056_eur opean_mmf_definition_paper_version_9_july.pdf   
83 CESR Consultation Paper – A common definition of European Money Market Funds (20th  O c t o b e r  
2009) 
84 Although Member States can opt to restrict th e compensation amount to 90% of the claim, on the 
principle that the investor should bear a proportion of the loss (the "co-insurance" principle). 
 
EN 22   EN 000.85 These measures were taken because the different level of coverage of the 
schemes in the Member States led to di stortion of competition and to regulatory 
arbitrage by investors, who were in so me cases moving their deposits from one 
Member State to another. The same c ould happen for Invest or Compensation 
Schemes. However it should be mentioned that the level of regulatory arbitrage by 
investors in securities may be  less likely than for depositors  as the risks addressed by 
the ICSD (i.e. failure by a firm due to fra ud or systems problems to return assets to a 
client) are quite difficult to anticipate. Also  it is possible that investment firms could 
consider it more reasonable to establish th emselves in Member States where the level 
of protection is higher, as they could provide better confidence to potential investors 
who are subject to such a regime. 
Although the ICSD and the DGSD address diffe rent risks, the discrepancy between 
them may create a number of problems. Fi rstly, where cash is held by a bank, it can 
in some cases be difficult to distinguish between cash held for investment purposes 
and cash held as deposits. The ICSD86allows Member States to determine whether 
such claims should be regarded as inve stment claims (and th erefore fall under the 
ICSD with a €20 000 limit) or as deposits  (and fall under the DGSD with a €100 000 
limit). 
A significant discrepancy between the thresholds could create a competitive 
distortion by encouraging investors to inve st in deposits (with the higher protection 
under the DGSD) rather than in investments using an investment firm. This was one 
of the reasons why in Spain the compen sation levels both under the ICSD and the 
DGSD were aligned. 
The low minimum level of compensation under  the ICSD also creates the risk of 
cross border discrepancies. For example, so me Member States have introduced much 
higher limits (e.g. Spain €100 000, the UK £50,000 and France €70 000) while many 
others still maintain the minimum leve l of €20 000. The differences may encourage 
clients to seek out firms operating cross border from Member States with a higher 
level of protection. As an example investor s might move their s ecurities within their 
home country from a national investment firm  to the branch of an investment firm 
from another Member State where the comp ensation limit is higher. Investors might 
also move their securities from one Memb er State to another Member State where 
higher compensation limits are in place. Although such behaviour was not experienced during the crisis, this situati on potentially undermines  the purpose of the 
ICSD which was to ensure the proper func tioning of a single market for investment 
services and to eliminate competitive distortions.  
Finally, if evidence shows that investor s typically hold in excess of €20 000 in 
investment accounts, then the current limit may compromise investor protection and 
undermine investor confidence in the use of investment services under MiFID. 
There is very limited data available at the national investor compensation schemes 
about the average amount held by investment firms on behalf of retail clients. Most 
                                                
 
85 See Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009 amending 
Directive 94/19/EC on deposit-guarantee schemes as regards the coverage level and the payout delay. 
86 Article 2.3 of the ICSD 
 
EN 23   EN of the schemes do not have any informati on about the number of  securities accounts 
held by retail clients or the number of reta il clients as highlighted in table "Estimate 
of securities and monies held by investment  firms" of Annex II I. Average securities 
and monies held per retail securities account  were available for 6 Member States, 5 
of them being new EU-12 Member States and Portugal. Among the 5 new EU-12 Member States, Poland had the highest aver age with an amount of €43 000 while the 
other 4 new EU Member States had signi ficantly lower averages ranging from €8 
000 in Latvia to €26 000 in Hungary. Portuga l's average of €44 000 was very close to 
the Polish average. It should be noted that  the countries for which data are available 
are among the 10 countries with the lo west Gross Domestic Product (GDP)
87 per 
capita among the EU-27  
As the average amount of financial instru ments held per invest or or securities 
account is most of the time not  available at the national sc heme level, we calculated 
the average amount of securities held  per household based on the household's 
financial accounts published by Eurostat. This  data only provides an  estimate and 
therefore needs to be treate d with some care. The averag e amount of securities held 
per household across all EU countries am ounts to €21 000. The average for EU-15 
countries amounts to €31 000. The median88 being very close to respectively €28 000 
for EU-15 and €21 000 for EU-27.  
The study commissioned by the Commission on  "the EU market for consumer long-
term retail savings vehicle"89 also sheds some light on the amount and type of 
securities held by retail i nvestors. This report draws on the Eurostat data in 1999-
2005 and a survey of investor attitudes in 8 Member States90. The importance of 
direct and indirect savings in securities by households  has generally increased in 
developed countries although this trend is m itigated for the EU countries and varies 
by type of securities. It should be noted that savings behaviour varies enormously 
between Member States, and that the % of hous eholds investing in securities is still 
sometimes limited depending on the Member St ate and the type of  securities (bonds, 
quoted shares, investment funds).  
Retail bonds holdings grew at a 4% a nnual rate over the period 1999-2005 although 
according to their consumer survey, fixe d income products are the least well-known 
long term savings products to European households. Only 48 % of retail investors are 
familiar with them and a mere 7% actually hold them. An important aspect of retail bond investments is the fact that the aver age balances held by consumers are quite 
substantial. According to the consumer su rvey, the average amount invested in bonds 
per consumer is €173 000 in the Netherla nds, €106 000 euro in France, over €87 000 
in Italy, €43 000 in Germany, €29 000 in Spain, €19 000 in Sweden and €18 000 in 
the UK. With respect to equities, they only took into account the category "quoted 
                                                
 
87  Source: Eurostat, GDP per capita in Purchasing Power Standards (PPS) (EU-27 = 100), year 2008 
88 The median is the middle value in a distribution, above and below which lie an equal number of values. 
In certain cases, the median can be a good way to determine an approximate av erage, especially when 
dealing with a set of numbers that could otherwise be skewed by outliers, 
89 BME Consulting, the EU market for consumer long-term retail savings vehicle, 15 November 2007: 
http://ec.europa.eu/internal_market/fin ances/docs/cross-sector/study_en.pdf 
90 The survey drew on a representative sample of 1 000 respondents in the selected  8 Member States  (UK, 
Germany, Italy, France, Spain, the Netherlands, Sweden, Poland). The interviews were conducted in the 
summer of 2007. 
 
EN 24   EN shares" from Eurostat data. The value of quoted stocks in the hands of European 
households experienced a significant decl ine of 18% over the period 1999-2005. This 
can be explained by the significant declin e in share prices between 1999 and 2002 
and a partial disinterest of retail investor s reflecting a higher risk sensitivity (the 
share of households with share owners hip in 1999 was 16.3% as compared to a 
14.2% in 2005). Investment funds are a pop ular investment vehicle with retail 
investors but were also adversely aff ected by the stock market downturn of 2001-
2002 with a cumulative average growth rate of 1.17% over the period 1999-2005. 
According to the results of their consumer  survey, the popularity of investment funds 
varies significantly between Member Stat es: 29% of households  in Germany have 
them in their portfolios. By contrast, the corresponding figure in France and the UK 
is only 6 and 4%. Based on data from the consumer survey households in the countries where investment funds are most  popular tend to invest between €30 000 
and €50 000 while their French and UK counterparts invest over €120 000.   
3.4.2.  Co-insurance 
Article 4(4) of the ICSD allows Member States to limit the coverage of the 
compensation to a specified percentage (equa l to or exceeding 90%) of an investor's 
claim. This means that a client can be required to bear a proportion of the loss 
(within the compensation limit). The option is commonly referred to as a "co-
insurance principle". The reason for this op tion in the ICSD is to encourage investors 
to take some care in choosing investment firms. 
91 
The option of imposing the co-insurance principle arguably reduces the level of 
investor protection provided under the ICSD  and increases the differences between 
the thresholds in different Member St ates. The DGSD included a co-insurance 
principle but it was recently abolished as part of the amendment increasing the coverage level.  
Only a minority of Member States (F inland, Germany, Hungary, Ireland, Latvia, 
Malta and Poland) have adopted and/or ma intained the co-insurance principle and 
cover 90% of the claim up to €20 000. The UK scheme removed the co-insurance principle at the beginning of 2009. 
The issue is whether it is appropriate to retain in the Directive the option for Member 
States to impose a co-insurance principle, as  the application of this principle reduces 
investor protection and inve stors cannot reasonably be e xpected to be able to 
distinguish and choose between good and bad investment firms. 
4. T
HE BASELINE SCENARIO , SUBSIDIARITY AND PROPORTIONALITY  
If no action is taken at EU level, that  is, under a dynamic baseline scenario, the 
problems defined in section 3 would rema in without a response. Market based 
financing is playing an importa nt role in the financing of  European large and medium 
sized enterprises and in the allocation of European savings. Orderly, transparent and 
effectively regulated financial markets can serve as an important motor for wealth-
                                                 
91 See recital 13 of the Directive. 
 
EN 25   EN creation. Investors need to feel that th ere are enough guarantees in the securities 
markets to invest  their savings in financ ial instruments instead of in a bank deposit. 
In Europe, corporate borrowers have turned  to financial markets as an alternative 
source of finance to bank -lending. Increased supply is matched by a ready demand as 
investors turn to market-based investment s as a means of bolstering risk-adjusted 
returns on savings and making pr ovision for their retirement. 
MiFID has facilitated the integration across the EU of markets in financial 
instruments. However, in order to allow fo r effective cross-borde r interaction of all 
potential buy and sell interest s it is necessary to create  the necessary safeguards for 
investors to maintain confidence in these markets. A robust legal and regulatory framework is crucial if inve stor confidence and liquidity are to be nurtured and 
financial markets are to thrive. Financia l markets can survive periodic bouts of 
volatility, cyclical corrections or underperformance of individual stocks. They will not survive the erosion of i nvestor confidence if intermediaries/investment firms fail 
to discharge their fiduciary obligations to th e end-investor or if in the case of failure 
due to fraud of an investment firm they  cannot recover their investments. It is 
necessary to create the appropriate guara ntees for an equal level of investor 
protection throughout the EU. To avoid di vergences/fragmenta tion of investor 
protection and any potential di stortion of competition, the level of protection should 
be harmonised as much as possible at EU level.  
Investor confidence across Europe: imbalan ces in the way cons umers and investors 
see the EU financial market have broader im plications in terms of financial stability, 
monetary policy (e.g. difficulties in Greece affect the Euro and create tensions 
among EU Member States because trust in the Euro is being damaged) and on the 
real economy in general (e.g. if people lose their savings or  their investments there is 
no sufficient consumption to boost the real economy). 
If there is no action at EU level, not al l Member States will modify their investor 
compensation arrangements; as we have see n, only those Member States which have 
suffered a real problem with the funding of  the schemes in a specific case have 
introduced changes to reinforce the schemes. To take action only after major firm failure is not good enough to protect invest ors. A major firm failure implies a huge 
loss of confidence on the markets by investors. If there is no real safety net to protect 
investors, they will have no incentives at all to invest in securities markets. Therefore, we consider that simply relyi ng on the response of a Member State after a 
major problem with a national compensation sc heme is not an adequate way to create 
investor confidence in markets. 
For instance, the regulation ex clusively at national level of the funding of  schemes 
and payout delays would continue to result in differences in the ability of national 
schemes to react to firm defaults both in terms of rapidity and extent of 
compensation; the lack of clarity a bout the coverage under the compensation 
schemes would cause unjustified differences in  the treatment of investors in different 
Member States; the absence of a comm on and effective regime for providing 
information to investors about scheme coverage might lead to a different 
understanding of coverage conditions among investors; the full harmonisation in the 
coverage of Deposit Guarantee Schemes at EU level without a parallel assessment 
 
EN 26   EN concerning the Investor Compensation Sc hemes would not appear justifiable, 
especially in the light of the initi al alignment of the two Directives. 
Therefore, the problems detected in sec tion 3 cannot be efficiently addressed at 
Member States level as they stem from existing EU legislation and can only be addressed through changes in EU legislation.  
At EU level we should try to  avoid as much as possible the recurrence of extreme 
situations which have triggered changes in  national legislation. The review of the 
ICSD aims at improving the proper functioni ng of a single market for investment 
services, increasing investor protection and investor confid ence in the EU. Further, it 
is necessary to take into account the objec tive set at G-20 level of addressing any 
loopholes in the regulatory  and supervisory system 
In recent years, the harmonisation of the regulatory framework in the securities 
sector has significantly increased. Under th is harmonised framework for investment 
services, it is not justifiable from an inve stor perspective that investment firms are 
treated differently in different member States  when they fail to return clients assets.  
Further, the measures adopted at EU le vel in the banking sector (and notably the 
increase of coverage of th e Deposit Guarantee Schemes) have created differences in 
the level of protection provided to invest ors to whom investment services are 
provided and banking depositors. These levels  were initially aligned. A consistent 
approach is important to avoid competi tive distortion in the various markets.  
The amendment of the ICSD proposed by the European Comm ission respects the 
principle of subsidiarity a nd proportionality. There are issu es such as the calculation 
of the contributions to the schemes by firms and the management of the schemes which have not been the source  of identified problems; therefore, they should be left 
to the Member States. Moreover, the exchan ge of best practices  between the schemes 
might be a good tool to suppor t the application of the new principles to be introduced 
in the Directive. The current impact as sessment will examine the possibility for 
ESMA to produce technical standards for some specific application issues.  
All solutions have been drafted bearing in  mind cost-efficiency; the calculations and 
estimates that are brought forward in section 8 and Annex V advocate that the 
objectives in terms of investor protection are fully respected. The analysis of the impact of the solutions on stakeholders pr esented in section 8 s hows that the changes 
proposed by the European Commission ar e likely to have positive impact on 
investors and intermediaries. 
5. O
BJECTIVES  
The general objectives of the review of the ICSD are: 
a) to ensure the ICSD provides a sufficien t level of investor protection to clients 
using investment firms; 
b) to improve the proper functioning of  the ICSD and of a single market for 
investment services across the EU in a cost-effective way;  
 
EN 27   EN c) to renew investor confidence in the use of  investment firms, especially in a context 
in which confidence might be a ffected by the financial crisis; 
d) to ensure there are no ga ps in the regulatory system; 
e) to ensure that changes to compensation/guarantee schemes Directives do not lead 
to unjustifiable differences in the prot ection provided for different types of 
investments or services in the EU. 
   With these objectives in mind, the review of  the ICSD aims more specifically at (i) 
improving the functioning of the ICSD to ensu re that it provides sufficient investor 
protection for clients of firms and confidence in the use of investment services; (ii) 
updating the ICSD in areas where it has become inadequate due to changes in the financial services industry a nd in the regulatory landscape; (iii) reducing gaps in the 
regulatory system and (iv) ensuring th at recent amendments to the DGSD (upon 
which the ICSD was initially modelled) do not result in unjustified differences in the protection provided to depositors  and i nvestors using investment firms.   
5.1. Ensuring that the functioning of th e ICSD provides sufficient investor 
protection 
This general objective can be specified in  the following operational objectives:  
– Establishing detailed criteria or principl es for ensuring that investor-compensation 
schemes are properly funded, in order to ensure that different funding 
arrangements do not become a factor that alters competition between firms 
established in different Member States an d to improve the ability of schemes to 
fulfil fully and rapidly their obligations to investors; 
– Put in place appropriate payout modalities aiming at reducing the payout delays to 
allow investors to be compensated promptly; 
– Improving investor awareness of the scope  and coverage of schemes by informing 
existing and potential invest ors of the investor comp ensation scheme conditions; 
– Improving investor protection by clarifying that the right to compensation is not 
dependent on whether an investment firm is complying with detailed terms of its 
authorisation so that investors dealing with  a firm are protected irrespective of any 
technicalities relating to th e firm's authorisation; 
– Excluding claims for compensation under the Directive by persons who have 
engaged in market abuse in order to promote investor confidence and market integrity. 
5.2. Update the ICSD in areas where it has b ecome inadequate due to changes in the 
financial services industry and in the regulatory landscape to ensure 
appropriate coverage and increase efficiency of protection 
The following operational objectives should be fulfilled:  
 
EN 28   EN – To protect investors from negligent inve stment advice by considering whether the 
scope of the ICSD should be extended to  failure by a firm to pay claims by a 
client for breach of conduct of business obligations;  
– Considering whether to increase the protection of non-retail investors by 
extending the scope of the ICSD to provi de for compensation to be payable to 
non-retail clients; 
– To ensure the protection of SME's as investors is consistent within the financial 
markets legislation by aligni ng the ICSD with the MiFID of retail investors which 
covers a broader range of SMEs; 
– Clarifying when the ICSD s hould apply to new MiFID serv ices such as operating 
a multilateral trading facility (MTF) or to  firms that are not authorised to hold 
client assets or to deal with retail client s, in order to avoid different application in 
Member States that may result in differe nt levels of investor protection and 
different treatment of firms operating in the EU; 
5.3. Reducing gaps in the regulatory system 
In particular, the following operational objectives should be fulfilled: 
– Improving investor protection by assessing wh at is the most suitable means to 
protect investors from the failure of a th ird party custodian appointed by the firm 
to hold client assets (i.e. where the defau lt of a third party results in the firm not 
being able to return a ssets to the client); 
– Improving investor protection by assessing wh at is the most suitable means to 
protect UCITS unit holders from the fa ilure of a UCITS depositary or sub-
custodian; 
– Improving investor protection by assessing wh at is the most suitable means of 
protecting money market unit holders from a loss of value of units in such a fund; 
5.4. Ensuring that recent amendments to th e Deposit Guarantee Scheme Directive 
do not result in unjustified differen ces in protection for investors 
In particular, the following operational objectives should be fulfilled:  
– Increasing the minimum level of compensa tion payable under the ICSD so that it 
approaches or is aligned with the leve l of compensation for bank deposits under 
the DGSD in order to improve investor  protection by fixing an appropriate 
compensation amount  and to provide fo r a more level playing field between 
banking and investment products;  
– Improving investor protection and confidence by deleting the option of Member 
States being able to introduce a co-insuran ce principle (that is, the principle that 
clients be required to bear a proportion of any loss) so that clients receive full coverage within the compensation limit. 
 
EN 29   EN 6. POLICY OPTIONS  
With the intention to meet  the objectives set out in the previous section, the 
Commission services have anal ysed different policy options. The first section reflects 
the most relevant policy options that have been considered in relation to 
improvement of the functioning of the ICSD. The second section contains the list of 
policy options that have been analysed in relation to the update of  the ICSD in areas 
where it has become inadequate or no l onger provides sufficient investor protection. 
The third section contains the list of op tions examined to reduce gaps in the 
regulatory system. The fourth section reflect s the most relevant policy options that 
have been considered in re lation to the alignment betw een the ICSD and the DGSD. 
6.1. Policy options for improving the functioning of the ICSD.   
6.1.1.  Policy options relating to funding of  investor-compensation schemes   
(1) Option 1 – No action at EU level on this issue.    
(2) Option 2 –  Harmonise how schemes should be funded..    
(3) Option 3 – Introduce a solidarity prin ciple between the national schemes.   
(4) Option 4 – Create a pan-European scheme.    
6.1.2.  Policy options relating to reducing payout delays 
(1) Option 1 – No action at EU level.  
(2) Option 2 – Link the deadline fo r payouts to the trigger events.   
(3) Option 3 – Introduce an obligation for schemes to provisionally pay 
partial compensation if the payout del ay exceeds a specified time period.  
6.1.3.  Policy options relating to lack of awareness by investors about the scope of the ICSD 
(1) Option 1 – No action at EU level.  
(2) Option 2 – Amend the MiFI D and any other sectoral directives in order to 
introduce a further level of disclosure. 
(3) Option 3 – Amend the ICSD to require firms to disclose to investors in 
clear and simple terms what is covered and what is not covered by schemes (e.g. investment risk is not usually covered).    
6.1.4.  Policy options relating to coverage of fir ms operating MTFs and firms acting outside 
their permission 
(1) Option 1 – No action at EU level. 
(2) Option 2 -  Clarify that firms which are no t authorised to hold clients 
assets are not covered under the ICSD. 
 
EN 30   EN (3) Option 3 – Clarify that if firms do in fact hold client assets (irrespective 
of restrictions on their permission or the nature of their investment 
service) then clients should be enti tled to compensation under the ICSD 
if the firm defaults.   
6.1.5.  Policy options relating to excludi ng claims involving market abuse 
(1) Option 1 – No action at EU level.  
(2) Option 2 – Amend the ICSD to expressly exclude claims for 
compensation by persons who have engaged in market abuse.  
(3) Option 3 – Leave it to Member States to decide whether transactions 
 where market abuse was involved are to be excluded from compensation.  
 
6.2. Policy options in areas where the ICSD is no longer adequate due to changes in 
the financial services industry or in the regulatory landscape 
6.2.1.  Policy options relating to coverage for clai ms where there has been a breach of 
conduct of business obligations.  
(1) Option 1 – No action at EU level.   
(2) Option 2 – Extend compensation to cover unpaid claims for any breach 
of conduct of business requirements  against a firm that defaults.   
(3) Option 3 – Extend compensation to cover unpaid claims for a limited set 
of breach of conduct of business requirements.  
6.2.2.  Policy options relating to co verage for non-retail clients 
(1) Option 1 – No action at EU level. 
(2) Option 2 – Extend compensation to clai ms relating to non-retail clients.  
(3) Option 3 – Extend compensation to certain non-retail clients (e.g. local 
authorities or large corporates).  
6.2.3.  Policy options relating to aligning the cl assification of clients with the MiFID 
definitions 
 (1)   Option 1 - No action at EU level. 
(2)   Option 2 - Introduce a new classification of clients under the ICSD based 
on pure quantitative criteria 
(3) Option 3 – Align the ICSD with th e MiFID as to the classification of 
clients. 
 
EN 31   EN 6.3. Policy options for reducing gaps in the regulatory system 
6.3.1.  Policy options relating to non-coverage fo r failure of a thir d party custodian 
(1) Option 1 – No action at EU level.  
(2) Option 2 –  Provide in MiFID that firms should  be strictly liable to a client 
for any failure of a custodian they appoint. 
(3) Option 3 – Extend compensation to investors for claims relating to the 
failure of a firm to return financial instruments due to failure of a third 
party custodian.  
6.3.2.  Policy options relating for th e loss of the assets of a UCITS fund in case of 
bankruptcy of the UCITS depositary (o r bankruptcy of a sub-custodian).   
(1) Option 1 – No action at EU level. 
(2) Options 2 – Extend compensation within  ICSD to UCITS funds for assets 
that have been lost by a depositary (or sub-custodian).  
(3) Option 3 –  Amend UCITS directive to strengthen safeguards that apply 
to depositaries and sub-custodians.  
(4) Option 4 – Extend compensation  to UCITS holders where their 
investments have lost their initial value  as a result of the loss of assets by 
a UCITS depositary or its sub-custodian. 
6.3.3.  Policy options relating to non-coverage of money market funds 
(1) Option 1 – No action at EU level.   
(2) Option 2 – Introduce new requirements  in the UCITS directive to define 
"money market funds" and strengthe n requirements for such funds.   
(3) Option 3 - Extend compensation under th e ICSD to loss of value of units 
of "MiFID qualifying money market funds".   
6.4. Policy options for maintain some alignm ent between the ICSD and the DGSD.  
6.4.1.  Policy options relating to the minimum level of compensation under the directive  
(1) Option 1 – No action at EU level.  
(2) Option 2 – Amend the ICSD and rep licate the coverage adopted under 
the DGSD.      
(3) Option 3 – Amend the ICSD to increase the minimum level of 
compensation to €50 000, but allow individual Member States to specify a higher limit (minimum harmonisatio n of the coverage level).  
 
EN 32   EN (4) Option 4 - Amend the ICSD to increase  the level of compensation to €50 
000 and require all Member States to  apply this fixed level of 
compensation (maximum harmonisatio n of the coverage level with a 
grandfathering clause for the Mem ber States with a higher limit). 
6.4.2.  Policy options relating to the co-insurance principle 
(1) Option 1 – No action at EU level.  
(2) Option 2 - Modify the co-insurance principle 
(3) Option 3 – Remove the po ssibility of co-insurance.   
7. COMPARING THE OPTIONS  
This section discusses the advantages a nd disadvantages of the different policy 
options against the following criteria: 
– Investor protection and confidence: th e option proposed should maintain and, 
when necessary, enhance the level of i nvestor protection achieved by the ICSD 
and the level of investor confidence in the use of investment services. 
– Level playing field: the extent to which the option reduces unjustified differences 
in the protection provided fo r different types of invest ments or services in the 
EU.92 
– Cost-Effectiveness: the extent to which the option achieves the sought objectives 
and facilitates the operation of EU securi ties markets in a cost effective way.  
The options are measured against the a bove-mentioned pre-defined criteria in the 
tables below.  Each scenario is rated be tween "---" (very negative), 0 (neutral) and 
"+++" (very positive).  In some cases not al l criteria are applicable to the issues 
under analysis. The assessment highlights, also graphically, the policy option which is best placed to reach the objectives outlined  in section 5 and therefore the preferred 
one. 
7.1. Policy options for improving the functioning of the ICSD.   
7.1.1.  Policy options in re lation to funding of investor -compensation schemes   
(1) Option 1 – No action at EU level on this issue.   Retaining the status quo 
would mean that individual Member St ates schemes would retain complete 
discretion as to how to f und their investor-compensat ion schemes. This would 
have the consequences se t out in section 3.1.1 rega rding investor protection 
(i.e. if funding is not ade quate in a Member State it  can undermine investor 
protection and investor confid ence in investment services ). It could also affect 
the proper functioning of the single market for investment services if different 
                                                
 
92 The subsequent comparative tables of policy options will identify the context of level playing field with 
regard to each policy option group. 
 
EN 33   EN approaches to funding result in signifi cant differences in the likelihood of a 
scheme being able to meet its obligations. The timing and level of contributions by firms would also conti nue to vary betwee n Member States 
depending on the extent to which an individual scheme re quires pre-funding 
or contributions after a default. So this  option is not likely to be effective.  
(2) Option 2 – Harmonise how schemes should be funded.  This option should 
result in more harmonisation of funding of schemes. This policy option would require the introduction of pr inciples and some more prescriptive rules for the 
funding of investor-compensation schemes.  
A prescriptive model (if based on s ound methodology) might significantly 
reduce the risk of any scheme having in adequate funding to meet its directive 
obligations in the event of a default. So it would improve investor protection 
and investor confidence in investment  services. It would also provide a 
greater degree of harmonisation than prin ciples which is a pre-requisite to the 
proposal to introduce a solidarity princi ple between the national schemes (see 
Option 3). 
The model would include the following:  compensation schemes should have 
in place adequate systems to determine the potential liabilities of schemes; 
schemes should be adequately financed in proportion to their liabilities; a 
target fund level should be established by each scheme to meet the potential liabilities , being a percentage of th e size of the activities covered by the 
members of the scheme and should be adequately pre-funding; adequate alternative funding arrangements, incl uding borrowing f acilities from 
commercial banks or public instituti ons if based on commercial grounds, 
should be in place; the cost of financ ing schemes should be ultimately borne 
in relation to investment business by the investment firms or third party 
custodians covered by the scheme and to a similar extent in relation to UCITS 
activities, by UCITS or their depositari es or third parties who are covered by 
the scheme. The target fund level shoul d be reached within a transitional 
period of 10 years to take into account the current differences at national level 
and allow ex post funded schemes (eight  Member States have ex post funded 
schemes and 4 Member States have schemes with a mix of ex ante and ex post funding – See Annex III) to build up progressively their ex ante funding level without jeopardising the financial health of their contributing firms. 
 
It would not be possible to achieve the same outcome through non-binding 
instruments, such as a recommenda tion by the Commission, as different 
schemes could adopt different funding principles and the same level of 
funding of the schemes would not be guaranteed in all Member States.  
Contributions to the call for evidence a nd the views of industry and investor 
associations supported the introduction of general principles leaving the 
details to Member States. Also some compensation schemes are in favour of 
the introduction of pre-funding a nd more transparent systems. 
A detailed prescriptive approach to funding would not  allow as much 
flexibility to adapt to differences in ma rkets in different Member States. Also 
 
EN 34   EN the range of investment services and firms covered by the Directive may 
make it less amenable to detailed prescription compared with for example the DGSD (which covers a specific type of investment offered by a specific type 
of institution).  
  Although this option would result in a heavier burden for compensation 
schemes and firms than a purely principl e-based approach, this more detailed 
approach would lead to much greater degree of harmonisation of schemes and 
would also reduce the risks of a sc heme having inadequate funding. As a 
consequence, it would result in higher consumer protection and would lead to 
greater confidence when investors us e investment services. The future 
European authority (ESMA) – to be set up under the framework of the new European supervisory infrastructure
93 –, will be entitled to produce binding 
standards to be endorsed by the Commission in some areas in order to ensure 
a coherent application of the Directive. 
This option is considered to be more effective than taking no action at EU 
level. Based on the answers received  from  a limited number of Member 
States to the call for evidence94, some of them were not convinced about the 
need to introduce general funding principles95.. 
(3) Option 3 – Introduce a solidarity prin ciple between the national schemes.  
This policy option could be in addition to option 2. It might emphasize the 
role of a European system of nationa l schemes by providing that, as a last 
resort, funds from schemes in other Memb er States could be lent to a scheme 
that has insufficient funds to meet its responsibilities unde r the ICSD. This 
would be a measure that provides scheme s with an alternative back up source 
of funding (although only on a temporar y basis). Indeed compensation 
schemes might have a temporary liquidity  problem in the case of the failure 
of a very large investment firm. The ex ante target fund level will be built up to cope with a mid-size failure, but not with a one-off extreme case. The proposed cross-border solidarity principl e would be a cost effective way to 
address these temporary and rather ex ceptional liquidity problems, while at 
the same time ensuring the industry will co ntribute to the compensation costs. 
This would provide greater protection to investors and promote investor 
confidence in investment services as they would know that funds for 
compensation might as a last resort  be provided from a network of 
compensation schemes in other Member States if an individual scheme had 
insufficient funding. 
Together with the establishment of c onsistent funding principles and rules 
between Member States (option 2), it might facilitate a closer relationship 
and better on-going coordi nation between national schemes and would act as 
                                                
 
93 Legislative proposals adopted by the Commission on 23.9.2009: COM(2009) 499 final, COM(2009) 
500 final, COM(2009) 501 final, COM(2009) 502 final and COM(2009) 503 final. 
94  Eight Member States contributed to the call for evidence: Czech Republic, Es tonia, Finland, France, 
Germany, Hungary, Netherlands, United Kingdom. 
95  France, Hungary, Netherlands, United Kingdom were not in favour of such a measure. 
 
EN 35   EN an incentive to develop more harmonised practices and working procedures. 
In the meantime it would limit a possible risk of moral hazard between undersized and better funded schemes on the basis of the necessary 
repayment (mid-term) obligation. In a ny case, a level of technical detail 
should ensure that each scheme must  ring fence and have available for 
lending a certain amount, established on the basis of common criteria. 
For investment firms, the borrowing pow er of the schemes would give more 
flexibility in the collecti on of funds in the case of  huge loss events, allowing 
a more balanced distribution during the time. Indeed, without proper 
borrowing arrangements, the scheme in need would be obliged to collect the necessary funds from its member firms in a relatively short period of time. 
The borrowing power would be limited to  the loss-events covered by the 
ICSD and would not extend to any furthe r coverage granted at national level. 
Within the pre-funded portion of sche me funding it would be necessary to 
specify the amount ("common pot") th at must be available under the 
solidarity principle for lending to ot her schemes to prevent the lending 
scheme from endangering its financial capability. 
Such a network of nationa l schemes would be only possible if required by a 
binding Community instrument. Moreover, the development of the system of 
national schemes would be consistent w ith the proposed syst em of European 
supervision, in particular with th e creation of the European Securities 
Markets Authority. Because of its political implications, at this stage this option is considered as the preferred one in combination with option 2 above, as option 2 is a prerequisite to option 3. These options would also be consistent with a gradual approach towards option 4 (creation of a pan-
European scheme). 
(4) Option 4 – Creation of a pan-European scheme.   This policy option 
implies the setting up of a single Comm unity scheme, to administer a fund 
and pay out compensation to  investors under the ICSD. 
This option would add to investor prot ection and confidence in terms of the 
funding of the single scheme  (as there would be conf idence that there was a 
larger pool of funding). It would improve the functioning of the single 
market for investment services (by removing current differences between 
schemes in different Member States).  It would also be a cost-effective 
solution due to the economies of scale generated by the operation of a single scheme. 
But such a proposal is unlikely at this poi nt in time to be realistic. The ICSD 
only sets minimum standards and ther e are still significant differences 
between Member States on issues such as coverage, the level of compensation, the process for determin ing the eligibility  of claims and 
funding of schemes.  Setting a pa n-EU scheme would require a new 
regulatory framework, which would involve political and economic 
 
EN 36   EN challenges, including the assessment of  impacts on national fiscal policies, 
going beyond the ordinary review of the current ICSD.  
This option may be a longer term option but in the short term a greater 
degree of harmonisation and elimination of national differences is necessary. 
The proposed combination of options 2 a nd 3 would in any case be a step in 
paving the way towards this longer term option.  
 
 Investor protection and 
confidence Level playing 
field  Cost-
Effectiveness  
No action at EU level 0 0 0 
Harmonise how schemes should be funded +++ ++ - 
Introduce a solidarity principle between the national schemes +++ + + 
Creation of a pan-European fund  +++ ++ -- 
 
7.1.2.  Policy options relating to reducing payout delays 
(1) Option 1 – No action at EU level.  Under this option,  the current situation 
would remain unchanged. That is, the time limit could be taken as applying 
from when the claim has been processed and the amount of the claim has been established (not when the firm is d eclared in default) . This would mean 
potentially long delays in the paymen t of compensation, depending on national 
administrative and insolvency laws. Th is has the serious consequences for 
investor protection and confidence in i nvestment services set out in section 
3.1.2. It also would leave existing disc repancies between payout times across 
Member States. Compensation schemes have  expressed views in favour of this 
option.  
(2) Option 2 – Link the deadline fo r payouts to the trigger events.   This policy 
 option would require the time limit (e.g. of three months) to apply from the 
date on which the firm is declared to be in default (rather than when the claim is established). This op tion would not interfere w ith but would operate in 
parallel with national insolvency laws.  
Under this option the result to be ach ieved would be spec ified (i.e. a claim 
must be paid out within a specified pe riod after the trigger event) but it would 
be left to Member States to determ ine how this outcome is best achieved
96. 
                                                 
96   There are a few Member States where the time li mit of 3 to 6 months starts to run from the date 
the financial regulator has ascertained the scheme's payment obligation (Finland, France), from when an investor has submitted a compensation claim (Netherlands), or from the date the inaccessibility of the 
funds has been ascertained (Slovakia). 
 
EN 37   EN This option would be beneficial in term s of investor protection and confidence 
in investment services as investors would have greate r confidence that a claim 
must be processed within a specified pe riod from the trigge r event. It would 
also reduce significant differences in payout times between Member States. 
A potential difficulty is that there may be cases where due to  fraud or system 
problems within a firm, records are missing or are incomplete. In such cases it may be difficult to accurately verify  the eligibility and amount of a claim 
within the specified period.   
 (3) Option 3 – Introduce obligation for schemes to provisionally pay partial 
compensation if payout delay ex ceeds a specified time period. This policy 
option would entitle investors to receiv e a partial compensation from a scheme 
if the payout delay exceeds a given time period. This time period would be amended to start running from the date on  which the firm is declared to be in 
default (as under option 2). Bu t, if the scheme is not able to make a full pay out 
during this period, it will be required to make provisional partial payment based on an initial assessment of the claim. The level of the partial payment would need to be prescribed. The bala nce would be paid out later once the 
claim had been fully verified. 
This option combines the approach unde r option 2 but allows the scheme to 
make a partial payment where it cannot make a final determination of the claim within the specified period. It would in crease investor prot ection and investor 
confidence as investors woul d at least receive part of  their claim promptly. It 
would also reduce differences between Member States in payout times.  
Arguments might arise as for option 2 a bout the difficulty for the scheme in 
verifying a claim if there are no records.  Schemes would also need the ability 
to recover amounts provisionally paid ou t if it was subseq uently discovered 
that the claim was not in fact valid. But these difficulties are outweighed by the 
need for investors to receive full or pa rtial compensation within a reasonable 
period. Failure to provide such payouts within a reasonable period risks 
undermining the objectives set by the Direc tive. This solution is to be included 
in a binding instrument in order to make it effective and guarantee the rights of 
investors and of the schemes. Investor associations have expressed clear views 
in favour of this option. The schemes' ma in concern with this  option is that in 
case of too large partial compensati on payments, reclaiming money from 
investors is a very sensitive and expensive process. A number of Member States
97 having responded to the call fo r evidence have also expressed 
implementation concerns about this option – at least as long as details are not 
known. 
 Investor protection and 
confidence Level playing 
field  Cost-
Effectiveness  
No action at EU level 0 0 0 
                                                 
97  Czech Republic, Estonia, France, Germany, Hungary, Netherlands, and the United Kingdom 
 
EN 38   EN Link the deadline for payouts to the 
trigger events +++ + 0 
Require provisional payout of partial 
compensation  +++ + + 
 
7.1.3.  Policy options relating to lack of investo r awareness about the scope and coverage 
of the ICSD 
(1) Option 1 – No action at EU level.  Under this policy option, no further action 
would be taken. Reliance would be placed on the adequacy of existing 
requirements in the ICSD and MiFID (for  clients to be informed about the 
amount and scope of cover under the ICSD) and on how they are being 
implemented. The consequences in sec tion 3.1.3 would remain. That is, despite 
the existing requirements, there are c oncerns that retail investors are not 
sufficiently aware of the existence of the ICSD, what it covers and does not 
cover and how it applies in cross border situations. There is therefore a risk 
that the ICSD does not provide the nece ssary investor prot ection and the level 
of investor confidence in investment serv ices that it was intended to provide.  
(2)  Option 2 – Amend the MiFID and any ot her sectoral directives in order to 
introduce a further level of disclosure.  Under this option, a further level of 
detail would be added in the sectoral directives where the coverage under the 
ICSD applies. In the case of investment services and activities, the MiFID would be the relevant sect oral directive. In the case of UCITS, the UCITS 
directive would be modified. This appro ach is not the most efficient because it 
would fragment in different legal texts the disclosure requirement.  
(3) Option 3 – Amend the ICSD to require firms to disclose to investors in 
clear and simple terms what is covered and what is not covered by 
schemes (e.g. investment risk is not usually covered).  Under this policy 
option the existing obligation for invest ment firms to provide information 
about compensation schemes to new clients would be supplemented by 
requiring further detail to be provided about what is  and is not compensated 
under the ICSD and how it ap plies in cross border s ituations. Specifically it 
would require them to explain that cert ain losses (e.g. due to investment risks) 
are not subject to the payment of  compensation under the ICSD.  
 This option would seem to be the most effective provided that disclosure is 
clear and easy for the investor to understand. Moreover, there is a large 
consensus between industry, investor associations and compensation schemes 
about the fact that disclosure requir ements should be strengthened. For the 
sake of consistency, the ICSD seems th e most suitable directive to provide 
further details about the coverage. The reinforcement of the legal requirements 
could be accompanied by non-binding actions  such as the development of best 
practices by the firms. 
 
 Investor protection and 
confidence Level playing 
field Cost-
Effectiveness  
 
EN 39   EN No action at EU level 0 0 0 
Provide further detail in the sectoral 
directives (such as MiFID) + + +  
Provide further detail in the 
ICSD  + + ++  
 
7.1.4.  Policy options relating to coverage of firms operating an MTF and firms acting 
contrary to the terms of their authorisation 
(1) Option 1 – No action at EU level.  This policy option would maintain the 
current uncertainty and poten tial lack of coverage fo r investors. It may also 
result in different approaches  in individual Member States. 
For example in a situation where a firm doe s in fact hold client assets or deals 
with retail investors (despite the terms of its authorisation) and the assets are 
lost, for example through fraud by an em ployee of the firm, the investor may 
not be entitled to any compensation in  some States. This would compromise 
investor protection an d investor confidence. It is also arguably unrealistic to 
expect retail investors to be aware of th e precise terms of a firm's authorisation 
and whether or not they are being breached  by the firm. Further, it is unfair that 
the retail investor should be deprived  of investor protection under the ICSD 
where it is the firm that has not co mplied with detailed conditions of its 
authorisation.  
Issues relating to whether operation of an MTF should be covered by the ICSD 
are probably less important and more th eoretical, given that MTFs usually do 
not hold client assets and MTF users are unlikely to be retail clients. 
This option would result in a continued lack of clarity and perhaps some legal 
uncertainty.  
(2) Option 2 – Clarify that firms which are not authorised to hold clients 
assets are not covered under the ICSD. This policy option would involve 
establishing that some investment serv ices providers, although subject to an 
authorisation and supervisory regime, are not covered under the ICSD. The 
rational for this option would be that sin ce, in legal terms, some intermediaries 
cannot find themselves in the situati on covered by the ICSD, they should not 
be covered under the directive. This opti on would leave to investors the burden 
of checking the legal terms of the firms'  authorisation; in addition they would 
leave them exposed to the ri sk that - de facto and in violation of the firm's 
authorisation – it could hold clients assets or deal with  a retail client without 
being covered by the ICSD.  
(3) Option 3 – Clarify that if firms do in  fact hold client assets (irrespective of 
restrictions on their authorisation or  the nature of their investment 
service) then clients should be entitl ed to compensation under the ICSD if 
the firm defaults.   This policy option would i nvolve clarifying in the ICSD 
 
EN 40   EN that a claim for compensation can be made by a client if in fact the investment 
firm holds moneys or financ ial instruments on behalf of a retail client and fails 
to return them. This would be irrespec tive of whether the firm is doing so in 
contravention of any limitation on the fi rm's authorisation (e.g. preventing it 
from holding client assets or from dealing with retail clients) and irrespective of the legal nature of the investment service it provi des (e.g. if it is operating a 
MTF). This option would provide great er clarity and legal certainty and 
provide some increase in investor protect ion and investor confidence. It would 
enable retail investors to assume that  they are covered by the ICSD without 
checking detailed conditions on a firm's  authorisation. The issue of whether 
contributions are required from such firms would be left to the discretion of each individual scheme (as it is currently the case). 
 This option would provide greater clarit y and promote confidence in the use of 
investment services. It would also resu lt in more consistency across Member 
States in the application of the ICSD which would assist the proper functioning 
of the ICSD and the passport; for this to happen the extension of the coverage 
by the schemes is to be introduced in a binding instrument to  ensure the level 
playing field in the EU. This op tion was generally supported by many 
stakeholders in the cont ributions to the call for evidence. Among the Member 
States having contributed to the call for evidence, a minority of them were 
against
98. 
 Investor protection 
and confidence Level 
playing 
field  Cost-
Effectiveness  
No action at EU level 0 0 0 
Clarify that firms which are not authorised to hold clients assets are not covered under the ICSD -- 0 -  
Clarify that if firms do in fact hold client assets 
then clients should be entitled to compensation if 
the firm defaults ++ ++ + 
 
7.1.5.  Policy options relating to coverage for claims involving market abuse 
(1)  Option 1 – No action at EU level.  Under the status quo, claims involving 
conduct that is market abuse could in th eory still be eligib le for compensation 
under the ICSD. This is a largely theoreti cal issue and is unlikely to occur in 
practice (i.e. that a person who has e ngaged in market abuse would claim 
against the scheme). But leaving open th e possibility is inconsistent with the 
general objective of prohibiting market abuse and promoting market integrity 
in financial markets.  
(2)  Option 2 – Amend the ICSD to exp ressly exclude claims for compensation 
by persons who have engaged in market abuse. This policy option would 
                                                 
98  Member States against were Finland, Estonia, and Hungary. 
 
EN 41   EN exclude any claim for compensation where a person has engaged in market 
abuse. It would promote investor conf idence and market in tegrity by removing 
this theoretical loophole. The loophole is  inconsistent with the objective of 
financial services directives to proh ibit market abuse and promote market 
integrity. It is necessary to introduce this exclusion in a binding legal instrument, as it should be bindi ng for all schemes within the EU. 
(3)  Option 3 – Leave it to Member States to decide whether transactions 
where market abuse was involved are to  be excluded from compensation. 
This policy option would introduce an option in the ICSD allowing Member 
States to exclude claims for compensation involving market abuse. This is not a credible option from an investor conf idence or market integrity perspective; 
as such an amendment would imply that  individual Member States would be 
free to choose to permit claims for compensation involving market abuse. 
 Investor protection and 
confidence Level playing 
field  Cost-
Effectiveness  
No action at EU level 0 0 0 
Exclude coverage of claims where market abuse was involved + + + 
Leave it to Member States to decide  -- - 0 
 
7.2. Policy options for updating the ICSD in  areas where it is no longer adequate 
due to changes in the financial servi ces industry or in related directives 
7.2.1.  Policy options relating to the non-coverage of claims for breach of conduct of 
business obligations  
(1)  Option 1 – No action at EU level.   Under this policy option, the scope of 
mandatory coverage would not be expanded to include civil claims for breach of conduct of business rules against a firm that beco mes insolvent. It would 
remain optional for Member States to extend the scope of claims covered by 
their schemes based on the characteristic s of their specific market (e.g. the 
frequency of breaches of conduct of business requirements by firms in that market, the extent to which civil clai ms are made and the likelihood of firms 
failing with unpaid claims against them).  
 Leaving discretion to individual Member  States would mean that Member 
States can take into account market differe nces and the risks in their particular 
market when deciding whether to exte nd the coverage of their schemes to 
cover this situation. The risk set out in section 3.2.1 would remain (i.e. that 
individual Member States fail to rec ognise that negligen t advice becomes an 
increased source of risk a nd, if firms fail, investors with civil claims against 
the firms are left without adequate compensation). If this risk materialises it could have a detrimental effect on inve stor protection and confidence in the 
use of investment firms. But it might al so be argued that there may be other 
more effective means to deal with this  risk, e.g. closer s upervision of such 
 
EN 42   EN firms, requiring firms to take out profe ssional liability insurance or enhancing 
civil liability by intermediaries. All these options will need to be considered in the forthcoming MiFID review – which is  the most appropriate instrument in 
order to deal with issues related to th e activity of investment firms and their 
relationship with their clients. For thes e reasons taking no ac tion in the context 
of the ICSD is our preferred opt ion. Nearly all the Member States
99 having 
answered the call for evidence were in favour of keeping the status quo, except 
the United Kingdom where any breach of conduct of business rules is already 
covered. 
(2)  Option 2 – Extend compensation to cover unpaid claims for any breach of 
conduct of business requirements against a firm that defaults. This policy 
option would require the schemes to ex tend their coverage under the ICSD to 
compensate investors for unpaid claims against a firm for breach of MiFID conduct of business rules where the fi rm has defaulted. This option could 
cover the breach of a wide number of  conduct of business rules for all 
investment services (e.g.: informa tion requirements, know your customer 
obligation; suitability requirements; conflict of interest rules
100). 
This would be a significant extension of the scope of the ICSD and would 
significantly increase investor protection a nd investor confiden ce in the use of 
investment services. There is currently  only one Member St ate (the UK) which 
covers such claims. 
There may be an issue about the necessi ty of such a measure in different 
markets. For example, in some Member  States typically retail investment 
services are more likely to  be provided by firms belongi ng to large banking or 
insurance groups while in other Member States, there are a larger number of smaller firms providing investment advice
101. While the risk of poor 
investment advice might not necessarily  be higher for a small independent 
firm, the risk of default might be per ceived to be higher. A small independent 
firm normally has less financial re sources to pay out large amounts of 
compensation claims.  
 There is not yet clear evidence of an EU wide problem of small investment 
firms that are subject to civil claims defaulting with unpaid claims. Moreover, 
most of the respondents to the call fo r evidence expressed that this option 
would be legally and administratively ve ry complicated and even unworkable, 
including that it would imply an incr ease in costs for the financial system. 
 
                                                
 
99  Member States in favour of the status quo were  Czech Republic, Estonia, France, Germany, Hungary, 
and the Netherlands.  
100   Article 19 (2), (3), (4) and (5) of MiFID and Article 18 of MiFID. 
101             See Oxera report pages 105-106 for further details on market structure. 
 
EN 43   EN A related complexity for this option is that Member States have the choice 
under MiFID to not apply that Directiv e to investment firms that are only 
allowed to provide investment advice and are not allowed to hold client 
assets.102This option has been exercised in  a number of Member States. 
Therefore the conduct of business oblig ations that apply to many smaller 
investment advisers across Europe may vary and depend on the national 
legislation in each Member State. Th e appropriateness of this optional 
exemption is an issue that will be review ed as part of the 2010 MiFID review.   
A more cost effective option may be as pa rt of the MiFID review to review the 
continued appropriateness of the optiona l exemption and also to consider 
whether other requirements could be imposed to ensure that firms providing investment advice have sufficient capital,  appropriate insurance to pay out any 
outstanding civil claims for breaches of  conduct of business requirements or 
enhance the liability borne by investme nt firms. Pending the issue being 
considered as part of the MiFID re view, extending comp ensation under the 
ICSD would remain optional. 
(3)  Option 3 – Extend compensation to cover unpaid claims for a limited set of 
breach of conduct of business requirements. As the previous one, this policy 
option would require the schemes to ex tend their coverage under the ICSD to 
compensate investors for unpaid claims  against a defaulted firm. However, 
under this option a more narrow set of  conduct of business rules would be 
covered (e.g.: only violati ons in the provision of inve stment advice or even 
only breach of the suitability  rule for investment advice
103). 
Although the extension of th e scope of the Directive under this option would 
be less broad than in the previous one, it still faces the same  issues. In addition, 
it would require a complex graduation of services and conduct of business 
rules in order to establish the ones which would be covered under the ICSD 
and the ones which wouldn't. This c ould add uncertainty as to the actual 
coverage and client protection. 
 
 Investor protection 
and confidence Level 
playing 
field Cost-
Effectiveness  
No action at EU level 0 0 0 
Extend compensation to claims relating to any breach 
of conduct of business requirements + 0 -- 
Extend compensation to claims relating to a limited set 
of breaches of conduct of business requirements + - --  
 
                                                 
102   Article 3 (1) of MiFID 
103   Article 19 (5) of MiFID. 
 
EN 44   EN 7.2.2.  Policy options relating to co verage for non-retail clients 
(1)  Option 1 – No action at EU level.  Under this policy op tion, Member States 
would maintain the possibility to include non-retail clients, if they elect to do 
so. Member States would retain flexibil ity depending on the characteristics of 
their own market. This approach is cons istent with the initial focus under the 
ICSD and under MiFID of pr otecting small investors.  
 In practice a few Member States cover non-retail clients under the 
compensation schemes. There is no evidence that failure by other Member States to cover non-retail cl ients has caused significant or widespread problems 
under the ICSD and therefor e retaining the current option appears appropriate. 
Most stakeholders s upported this option. 
(2)  Option 2 – Extend compensation to claims relating to non-retail clients. 
This policy option would extend compen sation to all types of clients of 
investment firms. 
In reality this would not provide much further investor protection for larger 
non-retail investors. Relative to the va lue of investments held by non-retail 
investments the compensation payable unde r the ICSD (even if increased) is 
relatively low. For example, if a local  authority had hundreds of thousands of 
Euros of cash or financial instruments he ld by an investment firm that then 
defaulted, it would only currently be entitled to receive €20 000 from most schemes.  
Such an extension would add to the co st for firms without really providing 
much protection to this category of c lients, due to the limited amount of the 
compensation, which is tailored to small i nvestors' situations . As set out above 
in option 1, there is no clear evidence sugge sting that the scope of the ICSD 
should be extended to cover non-retail  investors. Further, compensating 
professional and/or institu tional investors may create moral hazard issues, as it 
may discourage such investors from doing adequate due diligence on firms they propose to use. In th is respect non-retail invest ors are in a much better 
position to be able to assess the soundness of a firm.  
So this option does not appear to be co st effective and would not significantly 
enhance investor protection. 
(3)  Option 3 – Extend compensation to  certain non-retail clients (e.g. local 
authorities or large corporates). Under this option, coverage would be 
extended only to specific non-retail c lients (e.g. local authorities or large 
corporates), leaving the op tion to Member States to also extend coverage to 
other non-retail clients. 
 The same arguments as set out for option 2 would apply (i.e. this option 
provides only limited additional investor protection and potentially creates moral hazard issues). Therefore this  option is also not a preferred one. 
 Investor protection and 
confidence Level 
playing field Cost-
Effectiveness  
 
EN 45   EN No action at EU level 0 0 0 
Extend compensation to claims relating to non-
retail clients 0 + --- 
Extend compensation to certain non-retail clients 0 0 -- 
 
7.2.3.  Policy options relating to aligning the cl assification of clients with the MiFID 
definitions 
(1)  Option 1 – No action at EU level.  Under this policy option, the slight 
differences between the definition of some "professional and institutional 
investors" in the ICSD104 and the definition of "professional clients" in 
MiFID105 would remain. This would re sult in some inconsistency.  
(2) Option 2 –  Introduce a new classification of clients under the ICSD based 
on pure quantitative criteria.  Under this policy option, a new classification 
could be introduced under the ICSD in order to take into account the dimension of clients' assets involved in  the provision of investment services 
independently of their professional qualif ication or their formal classification 
between professional or re tail clients (for instance only clients with assets 
below a certain threshold would be cove red). This solution would have  the 
advantage of providing coverage where it may be useful in the light of the limited amount covered by the directive (currently, EUR 20.000). On the other 
hand, it would introduce an additional crit erion of client cat egorization in the 
context of investment services and activ ities that could create uncertainty and 
make the classification of clients more complex.  
(3)  Option 3 – Align the classification of clients in the ICSD with the MiFID 
definition.   This option would provide great er consistency and clarity and 
simplify the position for compensation scheme s and investors. It would also be 
consistent with the intent of the IC SD, i.e. to complement the ISD (now 
replaced by MiFID).  
 Further adopting the MiFID definition c ould cover a broader range of small 
and medium enterprises (SMEs) th an the current ICSD definition
106.  
                                                 
104  Annex I of the ICSD and notably n. 1, 2, 3 and 8. 
105  Annex II.I of the MiFID. 
106  Currently firms which meet at least two of the follo wing criteria are always ab le to claim compensation 
under the ICSD: Balance sheet total ≤ €4 400 000, net turnover ≤ €8 800 000, average number of 
employees ≤ €50. Under MiFID, only the bigger firms meeting at least two of the following criteria may 
be classified as professional clients per se : Balance sheet total < €20 000 000, net turnover < €40 000 
000, own funds < €2 000 000. As a result, the adoption of the MiFID definitions would narrow the scope of firms that may be excluded under the ICSD.   
 
 
EN 46   EN  This option, which can be implemen ted only through the amendment of the 
existing Directive, also has the advant age that, if under the MiFID review it 
were considered appropriate to extend the scope of protection of the retail 
client category to include other classes of clients, those clients would then automatically be covered under the ICSD , as the scope of coverage of the 
ICSD is linked to the scope of MiFID. For these reasons this is the preferred option. The alignment of the definitions under the two directives was generally 
supported by stakeholders. 
 Investor protection and 
confidence Level 
playing field Cost-
Effectiveness  
No action at EU level 0 0 0 
Introduce a new classifi cation of clients under 
the ICSD 0 - -  
Align the definition of a clients in the ICSD 
with the MiFID definition + ++ + 
 
7.3. Policy options relating to reducin g gaps in the regulatory system 
7.3.1.  Policy options relating to non-coverage fo r failure of a thir d party custodian 
(1)  Option 1 – No action at EU level.  Under this option, th e coverage of the 
failure of a "third party custodian" w ould not be guaranteed at EU level. 
Member States would still retain the possi bility of extending at national level, 
the coverage of their national investor -compensation schemes to cover such 
cases. MiFID imposes specific requirements on firms who use third party custodians. It also requires the firm to  provide a prominent warning to retail 
investors about the risks where third party custodians are used. Still, retail investors might not fully appreciate the different coverage under the ICSD if 
there is failure of a third party custodian. It also means that protection of retail 
investors will be quite different unde r the ICSD depending on whether their 
assets (i.e. financial instruments) are held by the firm itself or a third party 
custodian. Further, differ ent positions taken in different Member States 
regarding extending coverage and different national laws about the liability of 
firms for custodians would mean that in the event of a failure of a custodian 
the position of investors could vary considerably from Member State to 
Member State. So taking no action is not  considered to be the best option.   
(2)  Option 2 – Provide in MiFID that firm s should be strictly liable to a client 
for any failure of a custodian they appoint. Under this option, if an 
investment firm appoints a custodian a nd the custodian fails to return the 
financial instruments, the client would st ill have a legal claim against the firm 
for the return of financial instruments held by the custodian. That is, the firm 
could not avoid liability by arguing that  it complied with all of its MiFID 
obligations and exercised all due dilige nce in the appointme nt of a custodian. 
This would potentially increase the prot ection provided to the client but the 
ability of the client to be compensate d by the firm for any civil claim would 
 
EN 47   EN still depend on the firm having sufficien t assets and capital to pay for the 
client's loss.  Further, in an extrem e situation imposing such liability could 
result in the failure of the firm its elf (even though it has exercised all due 
diligence in selecting and monitoring the custodian). As MiFID already specifies relatively detailed requirements relating to the use of third party custodians it does not seem appropriate in this context to extend liability to a 
firm for failure of a third party custodi an where the firm has complied with the 
MiFID requirements. We also note that the jurisdictions that currently impose 
strict liability regimes tend to be thos e jurisdictions where firms normally use a 
custodian within the same group rath er than independent third party 
custodians. For these reasons this  is not the preferred option. 
(3)  Option 3 – Extend compensation to investors for claims relating to the 
failure of a firm to return financial instruments due to failure of a third 
party custodian.  This policy option would give  investors the right to be 
compensated by the investor-compensation scheme in case of failure of a third party custodian that results in the firm not being able to return the client's financial instruments. 
This option would increase investor pr otection and investor confidence in 
investment services by dealing with th e potential gap that would arise if a 
custodian were to default. Further it w ould do so without in tervening, in this 
context, on the broader issue of the liability  of firms  in the case of default by a 
third party custodian. The extension of th e coverage of compensation is to be 
included in a binding instrument, i.e. the ICSD, as it is necessary to provide for 
legal certainty both to the investors and to the market participants. This option 
will have cost implications for invest ment firms and entities providing custody 
services in terms of the contributions that need to be paid to schemes. But this is outweighed by the increase in the investor protecti on provided by the 
extension of coverage. This is the pref erred option based on cost effectiveness 
and investor protection and confiden ce. A majority of Member States
107 having 
contributed to the call for evidence were against this option.  
 Investor protection 
and confidence Level 
playing 
field Cost-
Effectiveness  
No action at EU level 0 0 0 
Provide in MiFID that firms should be strictly liable 
to a client for any failure of a custodian they appoint ++ + --- 
Extend direct compensation to investors for 
claims relating to the failure of a custodian +++ + + 
 
                                                 
107  Member States against were Czech Republic, Finland,  France, Netherlands, and the United Kingdom.    
 
EN 48   EN 7.3.2.  Policy options relating to non-coverage for the defaul t of a depositary or sub-
custodian of a UCITS fund  
(1)  Option 1 – No action at EU level. Under this option, the coverage of the 
default of a depositary or sub-custodia n of a UCITS would not be guaranteed 
at EU level. UCITS holders would stil l be unable to claim for compensation 
under the ICSD because due to failure of  a depositary or sub-custodian and a 
loss of assets, their units or shares have  lost value. Member States would be 
allowed to extend the coverage of their national investor-compensation 
schemes to these cases. This might have the potential conse quences set out in 
section 3.3.2.  
(2)  Option 2 –  Extend compensation to UCITS where assets have been lost 
subsequent to the default of its depositary or its sub-custodian. This policy 
option would give UCITS (i.e. the fund its elf) the right to be compensated by 
the investor-compensation scheme if th e assets cannot be returned to it, 
because its depositary or a sub-custodian is insolvent.  
This option would however only result  in limited protection for UCITS 
investors as the level of UCITS losse s that could be claimed by the UCITS 
fund through the ICSD (i.e. currently 20 000 Euros) would be very marginal 
compared with the average value of a UCITS portfolio (a few million euros108). 
Therefore this option would not seem to result in any significant increase of 
investor protection  
(3)  Option 3 –  Amend UCITS Directive to strengthen the safeguards applying 
to depositaries and sub-custodians. This option involves amending the 
UCITS Directive to strengt hen the requirements that  apply in relation to 
depositaries and the use of sub-custodians  and to clarify the UCITS depositary 
liability. This option contributes to in creasing the UCITS investor protection 
and the level of confidence in investment in UCITS schemes.  
 This option would seem effective and proportionate as arguably there has been 
a lack of clarity in the UCITS requireme nts relating to depositaries and the use 
of sub-custodians and a lack of consis tency in applying thos e requirements. In 
this respect, the Commission has recently  consulted on depositary issues to 
gather views and evidence on the need to  adjust the current UCITS framework. 
It is likely that this will result in sp ecific amendments to  the UCITS framework 
to strengthen the existing legislation in  order to clarify what their duties and 
liability are. This will constitute a separa te work stream in the UCITS context.  
(4)  Option 4 – Extend ISCD compensati on to UCITS holders where assets 
have been lost subsequent to the defa ult of a UCITS depositary or its sub-
custodian. This policy option would give UC ITS holders the right to be 
compensated by the investor-compensation scheme if the assets cannot be returned to the UCITS, because the UC ITS depositary or any sub-custodian is 
insolvent. UCITS investors could cl aim for compensation under the ICSD, 
because their units or shares have lost their initial value due to a loss suffered 
                                                
 
108   UCITS funds AuM amounts to 167 millions Euros in average  - Source EFAMA fact book 2008   
 
EN 49   EN by the UCITS subsequent to the default of the UCITS depositary or its sub-
custodian. 
This option would increase investor protection and conf idence in investment in 
UCITS schemes. In addition, in the li ght of the choice made under point 7.3.1, 
it is reasonable that the risk of losing  assets because of problems with third 
party custodians under MiFID is addresse d in similar terms in the case of 
problems with depositaries or sub-custodians of the UCITS. 
Compared with option 2, the level of compensation offered through the ICSD 
seems proportionate for unit holders and covers the average amount that investors invest in a UCITS
109. 
 This option could be complementary to option 3. Coverage of UCITS would of 
course be a significant extension of th e scope of the ICSD beyond investment 
firms providing investment services. Al so, the cost of this extension in 
coverage would logically be expected  to be provided by UCITS or UCITS 
depositaries or sub custodians rather than investment firms. Moreover, 
strengthening the requirements for UC ITS depositaries by its own could not 
efficiently address the problem. Nowadays, the ICSD is a safety net on top of 
the requirements on firms imposed by Mi FID; a similar system should be built 
for UCITS. On balance this option al ong with option 3 would be the best 
options to protect investors and promot e investor confidence in UCITS. The 
Member States
110 being opposed to extend the c overage to failure of a third 
party custodian were also against this option. 
  
 Investor protection 
and confidence Level 
playing 
field Cost-
Effectiveness  
No action at EU level 0 0 0 
Extend compensation to UCITS funds for assets that 
have been lost by a depositary (or sub-custodian). + 0 -- 
Amend UCITS to strengthe n safeguards that apply 
to depositaries ++ 0 + 
Extend compensation to UCITS holders where 
assets have been lost by a depositary or sub-
custodian +++ 0 + 
 
                                                 
109    According to estimation based on data provided in the EFAMA Fact book Euro household invest an 
average of 10.000 euros in co llective investment funds.  
110  Member States against were Czech Republic, Finland,  France, Netherlands, and the United Kingdom.    
 
EN 50   EN 7.3.3.  Policy options relating to non-coverage of money market funds 
(1)  Option 1 – No action at EU level.  Under this policy option, loss arising from 
investment in money market funds w ould continue not to be compensated 
under the ICSD. This would be consis tent with the general principle 
underlying financial regulation in the EU, that investors in financial 
investments should not be protected from investment risk associated with their 
investments (e.g. if the value of the underlying assets or the value of the market declines). It would also mean that the ICSD is not extended to cover an entirely different set of participants fr om investment firms (i.e. operators of 
money market funds). The majority of contributors to the call for evidence, 
including all Member States, considered  that money market s should not be 
covered by the ICSD.  
(2)  Option 2 – Introduce new requiremen ts in the UCITS directive to define 
"money market funds" and strengthe n requirements for such funds.  
Under this policy option, requirements relating to money market funds would 
be strengthened. For example, by setti ng specific criteria for what can be 
described as a money market fund a nd prescribing speci fic regulatory 
requirements that apply to the operation of  such funds. This initiative has been 
undertaken by CESR in order to create a European money ma rket fund label. 
Equivalent initiatives have also been undertaken in the US, where the SEC is 
currently developing some proposals to st rengthen the current definition of the 
US money market funds. Defining mone y market funds would help create a 
homogenous class of assets in the EU. It would be an essentia l first step should 
any further alternative solution need to be developed by authorities in order to 
avoid another liquidity crisis.  This option would imply the amendment of the 
UCITS Directive, for which a new im pact assessment would be developed 
assessing appropriate options. This is th e preferred option from the perspective 
of increasing investor protection an d being the most cost effective. 
(3)  Option 3 – Extend compensation under the ICSD to loss of value of units 
of "MiFID qualifying money market funds".  This option would provide for 
investors to be compensated in the even t of a specific loss of value of their 
units in money market funds. It would a pply to the safest money market funds 
based on the MiFID definition of a qualifying money market fund. 
It would increase investor protection a nd investor confidence in qualifying 
MiFID money market funds. However this  might not be significant as only the 
safest funds, those theoretically posing the least risk to investors would be 
covered.  
Any proposal to compensate unit hol ders would need to consider why 
compensation should be payable for "inve stment risk" on such an investment, 
which is not a risk covered by the ICSD or other Directives. It would also be 
necessary to identify which types of m oney market funds are considered to be 
low risk, and why other similar "low risk " funds or products should not also be 
guaranteed. Singling out only one class of  investment (money market funds) 
for special treatment would also seem to create a competitive advantage to money market funds over other an alogous funds and products.    
 
EN 51   EN Investment risk is inherent in all fi nancial decisions in investment products 
such as money market funds and is ra rely the subject of regulation. The only 
exception is bank deposits, which due to their univer sal use, unique 
characteristics and systemic importan ce are treated as requiring special 
treatment (due to the risk of bank runs ). But money market funds are not the 
same as bank deposits. They are popular  with retail investors in certain 
Member States but are not universally used in the same way as bank accounts. 
They are an investment product with inve stment risk and the investment risk 
can vary significantly from fund to fund. 
There would clearly be a cost to this op tion in terms of funding the scheme. It 
is assumed that this would be borne by money market fund operators rather 
than investment firms (as investment  firms are a distinct and separate 
population). This appears to be a less co st efficient option than other options. 
An alternative solution woul d be to apply coverage to  all money market funds 
(not just the safest funds). But this w ould highlight even mo re starkly the issue 
of why money market funds that invest in higher risk instruments should be 
protected under the ICSD while other t ypes of funds or investments are not 
protected. It might also raise moral hazard issues. 
On the assumption that the issue will be  dealt with through a strengthening of 
the requirements under UCITS that apply to money market funds (option 2), 
that option would appear to be the most effective means of dealing with issues 
relating to money market funds.  
This option is therefore considered not to be justifiable or cost effective. 
 Investor protection 
and confidence Level 
playing field  Cost-
Effectiveness  
No action at EU level 0 0 0 
Take action to strengthen requirements 
applying to Money Market Funds ++ 0 + 
Extend of compensation under the ICSD to loss of 
value of the safest money market funds ++ -- - 
 
7.4. Policy options to maintain some alignment between the ICSD and the DGSD.  
7.4.1.  Policy options relating to the minimum level of compensation under the ICSD  
(1)  Option 1 – No action at EU level.  Under this option, Me mber States would 
continue to be free to increase thei r compensation levels, but the minimum 
compensation level would remain unchanged. The potential consequences set out in section 3.3.1 would remain, esp ecially regarding distortion of the 
internal market and compromising i nvestor protection and confidence in 
investment services. It would also l eave significant differences between the 
 
EN 52   EN level of compensation payable for invest ments and deposits (where the level is 
now significantly higher since the DGSD has been amended). 
 So this option is not considered credib le either from an investor protection 
viewpoint (as the minimum level of compensation would remain 
comparatively low) or from the perspective of maintaining a level playing field between investments and deposits and between the levels of compensation 
provided for in different Me mber States.        
(2)  Option 2 – Amend the ICSD and replicate the coverage adopted under the 
DGSD.  This policy option would re-introdu ce the level playing field between 
the ICSD and the DGSD. It would in troduce a maximum compensation level, 
so that Member States would not be  able to set different amounts. 
 This option would be significant in term s of investor protect ion. Especially in 
those limited situations where cash is held by a bank and it is difficult to 
determine if it is a deposit or is being held in connection with an investment 
service. In such cases the investor would receive the same level of compensation irrespective of how the cash is classified. 
 But it is unclear that it would necessarily result in a significant increase in 
confidence in investment services. For example, if on average investors have 
cash or investments worth €30 000 held by investment firms, increasing the 
level to €100 000 would ar guably not provide much further investor 
confidence than increasing the level to €50 000.
111 
 Therefore while it would promote a le vel playing field between investments 
and deposits and between the protections  provided for in different Member 
States, this option is not consid ered to be cost effective. 
(3) Option 3 – Amend the ICSD a nd increase the minimum level of 
compensation to €50 000, but allow Mem ber States to specify a higher 
limit (minimum harmonisation approach).  This policy option would 
increase the minimum compensation level by fixing it at a level which is more 
closely related to the average value of i nvestments held by retail clients, while 
allowing Member States to apply higher compensation levels. 112. Most 
industry associations expressed the view that there should not be an automatic 
alignment with the DGSD; although i nvestor representatives supported the 
alignment of the compensation level. Investor compensation schemes have 
expressed mitigated views. The Commission's view is that this option is a fair compromise between on the one hand increasing investor  protection and 
investor confidence in investment serv ices, and on the other hand reducing the 
risk of a level playing field issue be tween deposits and investment products. 
                                                
 
111 Please refer to Annex IV for the average amount held by investment firms on behalf of retail investors 
112  Put customers first – European survey on people's  approach to savings, Fidelity International, April 
2010: "Around half of those surveyed think they have good or reasonable knowledge of financial 
products while around half admit to having a poor level of knowledge. There are significant differences between countries. The UK stands out as the country  with the highest level of claimed knowledge, 
which may reflect more independent advice and a more sophisticated financial press." 
 
EN 53   EN This option is to be introduced by a ch ange in the ICSD as it should have 
binding effects to ensure a minimum leve l of protection to investors in all 
Member States.  
 It would potentially requ ire further funding depending on the average level that 
would be established (esp ecially if further pre-f unding was required). But it 
would ensure that the level of costs woul d be calibrated to a realistic level of 
investments held by investors. Indeed the target fund level will be calculated 
taking into account the amount of securi ties and monies held by the members 
of the scheme on behalf of retail invest ors. As a result national schemes of 
Member States where the average amount of securities held by retail investors 
is lower than the minimum compensati on limit will require lower level of 
contributions from their participating firms.  
 As the national schemes do not, as a general rule, have any data on the 
distribution of the amount of monies and securities among retail investors, they 
could not provide us neither with the av erage and median of securities held by 
retail investors neither with  an assessment of the impact on contributions from 
participating firms if the minimum co mpensation limit would be increased (see 
question 13 in the second set of questi ons sent to the national schemes).   
 In terms of data on the amount of moni es and securities held by investment 
firms on behalf of retail i nvestors, only 6 Member States, 5 of them being new 
EU-12 Member States and Portugal, coul d provide us with average data. As 
explained under paragraph 3.4.1., among the 5 new EU-12 Member States, 
Poland had the highest average with an  amount of €43 000 very close to the 
Portugal's average of €44 000. As a reminde r these two countries are ranked in 
the lowest 10 EU-27 countries in term s of GDP per inhabitant. For a more 
representative sample of data we  used the study commissioned by the 
Commission on "the EU market for consumer long-term retail savings 
vehicle". It should be note d that savings behaviours vary enormously between 
Member States. Based on their customer survey (see paragraph 3.4.1.), retail investors can invest significant amount s in bonds and in investment funds
113, 
even exceeding €50 000 in seve ral Member States. The th ird source of data we 
used was Eurostat. As the average amount  of financial instruments held per 
investor or securities account is most of  the time not available at the national 
scheme level, we calculated the av erage amount of securities held per 
household based on the household's fina ncial accounts published by Eurostat. 
These data are only rough estimates and should be analysed with care. The average amount of securities held pe r household across all EU countries 
amounts to €21 000. The average for EU-15 countries amounts to €31 000. As you will notice the data from the differe nt sources are not easily comparable 
and give a wide range of estima tions. If you compare the amounts per 
consumer from the consumer survey carried out by BME Consulting with the 
                                                
 
113  Based on data from their consumer survey, the average amount invested in bonds per consumer is €173 
000 in the Netherlands, €106 000 euro in France, over €87 000 in Italy, €43 000 in Germany, €29 000 
in Spain, €19 000 in Sweden and €18 000 in the UK. Households in the countries where investment funds are most popular tend to invest between €30 000 and €50 000 while their French and UK 
counterparts invest over €120 000. 
 
EN 54   EN Eurostat data per household, the main conclusion we can draw is that the 
number of retail investors should be lower than the number of households. As 
a result the new minimu m compensation amount should be higher than the 
average amount calculated per househ old based on Eurostat data.  
  Only three schemes (Germany, Ireland, and Italy) were able to provide us with 
an impact assessment in terms of compensation amounts to be paid and 
investors' coverage based on a concrete  compensation case (except for Italy). 
Indeed when a compensation case is triggered, the scheme will receive the distribution of the monies an d securities held by the de faulted firm for each of 
its retail client. Two additional schemes (Portugal and Bulgaria) were able to 
provide an assessment in terms of inve stors' coverage. It  should be stressed 
that it is difficult to assess to what  extent these 5 examples might be 
representative of the ot her 22 Member States in  view of the different 
investment patterns by retail investors between the different Member States.  
Based on the Phoenix case in Germany, an increase of the compensation limit 
to € 50 000 would result in the compen sation costs rising by 23% and would 
benefit approximately 4.0% of the investors. An increase to € 100 000 would result in the compensation costs rising by 37% and would benefit 
approximately 5.5% (4.0% + an additiona l 1.5%) of the investors. The number 
of investors having filed a claim in  the Phoenix case amounted to 30 000 
investors out of which approximately 90%  had invested less than € 20 000. As 
a result 10% of the investors remained  unprotected (for the amount above €20 
000). The number of additional investors that would have benefited from an 
increase of the limit to € 50 000 or € 100 000 would have been respectively 1 
200 or 1 650 additional investors out of the 3 000 unprotected investors. 
Based on data collected by the Irish sc heme in relation to the W&R Morrogh 
case, an increase of the compensation limit to € 50 000 would result in the compensation costs rising between 15% and 31% and would benefit 
approximately 2.9% of the 2 605 i nvestors having filed a claim (or 78 
claimants). An increase to € 100 000 w ould result in the compensation costs 
rising between 46% and 73% and woul d benefit 4.4% (2.9% + an additional 
1.5%) of the investors (or 117 claimants). 
In the case of Italy, with the curren t level of compensation of €20 000, 70% of 
the investors are covered. An increase to €50 000 would mean that 90% of the 
investors would be covered at  a costs increase of 50%. 
According to the Portuguese scheme, with the current level of coverage € 25 
000, in average, 82.6% of c overed investors would be fully compensated if the 
ICS was triggered. The increase in the level of coverage to € 50 000 and to 
€100 000 would lead to an increase in th e proportion of investors that would be 
fully compensated to respectively 91.4%  and 96.1%. If we use as a proxy the 
number of securities accounts (cir ca 2.3 million) to assess the number of 
investors, the increase of the limit w ould benefit respectiv ely circa 205 000 
(8.8% of the investors) and 315 000 i nvestors (13.5% of the investors). 
 
EN 55   EN In the case of Bulgaria, 95% of the investors are covered with the current 
compensation limit of €20 000. 
 The optimal level of coverage is likely  to be less than that adopted under the 
DGSD. But to deal with situations where it is unclear if assets held by banks 
are covered by the ICSD or the DGSD, the ICSD could be amended to specify that the investor is to be compensated under the directive providing the highest 
level of coverage (i.e. the DGSD); the current option to Member States under 
Article 2(3) of the ICSD  should be modified accord ingly. This would protect 
investors, reduce level playing field c oncerns and provide an incentive to 
banks to clearly specify the character of  an account (i.e. whether a deposit or a 
securities account). 
 Although this option would contribute to  increased investor protection and a 
fair level playing field be tween investment products and deposits, there is still 
the risk of arbitrage between Member St ates since they would still be allowed 
to apply higher compensation levels. In  some Member States the current 
compensation limits are already higher than the proposed compensation level 
of €50 000 (e.g. Spain €100 000, the UK £50,000 and France €70 000).  As a 
result investors might move their secu rities within their home country from a 
national investment firm to the branch of an investment firm from another 
Member State where the compensation limit is higher. Investors might also move their securities from one Member State to another Member State where 
higher compensation limits are in place. Although such behaviour was not experienced during the crisis, this situ ation potentially unde rmines the purpose 
of the ICSD which was to ensure the pr oper functioning of a single market for 
investment services and to eliminate competitive distortions.  
 
(4) Option 4 _ Amend the ICSD to increa se the level of compensation to €50 
000 and require all Member States to  apply this fixed level of 
compensation (maximum harmonisatio n of the coverage level with a 
grandfathering clause for the Memb er States with a higher limit).  
 The approach of maximum harmonisati on would require a fixed level of 
compensation of €50 000 in all Member  States. This new compensation limit 
of €50 000 will be close to the limit in place in the UK (£50 000) where retail 
investors are more acquainted with inve stment products. If in the UK, where 
there is a high number of investment  firms active the authorities have 
considered that this limit is adequa te, being a more dynamic and developed 
market in terms of investment products, it could also be adequate for the EU. To allow for a smooth transition in Member States with a higher compensation limit than €50 000 (e.g. Spain €100 000, the UK £50,000 and France €70 000), the existing higher compensation amount could continue to apply in these 
Member States for a period of 3 years fr om the date of transposition of the 
revised ICSD. The UK compensation lim it being relatively close to the 
proposed level of compensation of €50 000, the transition may be possible more quickly. In the case of Spain and France, the difference being greater, a 
decrease of their compensation limits might justify a longer transition period. 
 
EN 56   EN In summary the transitional period of 3 years seems to be reasonable as the 
funding needs of these schemes should be  impacted in a positive way. This 
option would present the same advantages  as Option 3 in terms of investor 
protection while in additi on reducing the risk of cr oss border discrepancies. 
Nonetheless we have to acknowledge th at the decrease of the compensation 
limit in the two Member States with an existing significantly higher limit (i.e. Spain and France) might create compe titive distortions between investment 
products and deposits. But the Commission is of  the view that this risk is lower 
than the risk of arbitrage between Memb er States with different compensation 
limits. This option is therefore the preferred option. Views expressed by 
Member States in the call for evidence about an increase of the compensation limit were divided. Half of them were in  favour of an increase, but not always 
necessarily to the level of coverage under the DGSD
114. 
 Investor protection 
and confidence Level 
playing 
field  Cost-
Effectiveness  
No action at EU level 0 0 0 
Amend the ICSD and replicate the coverage adopted 
under the Deposit Guarantee Scheme Directive ++ + - 
Amend the ICSD and increase the minimum level of 
compensation to a minimum level of €50 000 ++ + 0 
Amend the ICSD and increase the level of 
compensation to a fixed amount of €50 000 ++ ++ 0 
 
7.4.2.  Policy options relating to the co-insurance principle 
(1)  Option 1 – No action at EU level.  Under this policy op tion, Member States 
would continue to have the option of limiting the compensation for an 
investor's claim to 90% or more of th e claim. That is, Member States could 
require investors to bear a propor tion of any loss ("the co-insurance 
principle"). This option would mean that  the consequences set out in section 
3.4.2 would remain. 
(3)   Option 2 – Modify the co-insurance principle. Under this policy option, the 
co-insurance principle would be modifi ed in order to require a qualitative 
element i.e. the assessment of whether the client could have become aware of problems in the holding of assets by the investment firm.  The option would 
further strengthen the rationale of th e co-insurance principle (that is to 
encourage investors to take some care in choosing an d maintaining the 
investment firms). On the other hand, it  would add complexity  and delay in the 
management of ICSD cases.  
                                                
 
114  Member States in favour of an increase were Estonia and France, as well as Finland and the United 
Kingdom but in these two cases not necessarily to the level of coverage under the DGSD. 
 
EN 57   EN (3)  Option 3 – Remove the possibility of co-insurance.  This policy option would 
eliminate the option for Member States  to require inve stors to bear a 
proportion of any loss.  
The co-insurance principle diminishes th e compensation that clients can claim. 
Eliminating this option w ould provide increased inve stor protection under the 
ICSD and would also improve investor confidence in investment firms, as 
clients would no longer have to bear part of the loss if there is fraud at a firm 
or other problems with the firm's syst ems or controls. The elimination of the 
co-insurance principle would be done through amendment of the ICSD to 
ensure the same level of investor protection in all Member States. A non-
binding solution would not be able  to achieve the same purpose. 
The rationale for this option was expre ssed in the ICSD to be to encourage 
investors to take due care in th eir choice of investment firms.115 It addressed an 
element of moral hazard risk (i.e. th at the introduction of the ICSD may 
encourage investors not to take care in their selection of investment firms). But 
arguably it is unrealistic to expect retail investors to be able to identify which 
firms are more or less likely to be aff ected by fraud or systems failures (unless 
a firm is making claims about a serv ice that are clearly unrealistic). 
Contributors to the call for evidence, i ndustry and investor associations have 
expressed a great consensus on remo ving the co-insurance principle. 
Therefore this option is the preferred option based on investor protection and 
confidence and ensuring a level play ing field between investments and 
deposits and across Member States. 
  Investor protection and 
confidence Level playing 
field Cost-
Effectiveness  
No action at EU level 0 0 0 
Modify the co-insurance principle 0 0 --  
Remove the possibility of co-
insurance ++ + 0 
8. ANALYSIS OF IMPACTS  
8.1. Impact on stakeholders 
The following table shows the impact of the changes comprising the preferred policy 
options in relation to the main stakeholders. 
        Impact on 
stakeholders 
Scenario Investors Compensation 
schemes Investment firms Supervisors Other 
stakeholders 
                                                 
115 See recital 13 of the Directive. 
 
EN 58   EN         Impact on 
stakeholders 
Scenario Investors Compensation 
schemes Investment firms Supervisors Other 
stakeholders 
Harmonise how schemes should be funded Investor protection 
and confidence would be reinforced 
as these principles 
and rules would 
reduce the risk of a 
scheme having 
insufficient funding 
to meet its 
obligations. There 
would also lead to 
an increased 
harmonisation of the 
level of investor 
protection between 
Member States. Compensation 
schemes would benefit from common 
and clearer funding 
requirements. Investment firms 
would be required to provide more 
contributions ex 
ante which would 
increase the 
funding costs (1).  
The increased 
harmonisation of 
the funding rules 
would   improve 
the proper 
functioning of the 
single market by 
reducing 
discrepancies 
affecting the 
treatment of 
investment firms 
between Member 
States. Supervisors 
would have common and 
clearer rules 
in order to 
assess the 
adequacy of 
the funding of 
the scheme. No impact 
Introduce a 
solidarity 
principle in the context of the 
European 
system of 
national 
schemes Investor protection 
and confidence 
would be reinforced through borrowing 
possibilities among 
national schemes. 
They would be 
confident to be 
compensated within 
a reasonable period 
of time even in the 
case of the failure of 
a very large 
investment firm. National schemes 
would benefit from 
the development of common network 
leading to problem- 
and solution-sharing. 
This solidarity 
principle would be a 
cost-effective way to 
cope with liquidity 
problems that might 
arise from the failure 
of  a large investment 
firm. This option would 
provide more 
flexibility in the collection of 
contributions from 
investment firms, 
with the possibility 
to distribute 
overtime any 
important losses. 
This solidarity 
principle would be 
a cost-effective 
way to cope with 
the failure of a 
major investment 
firm, while 
ensuring the 
industry will 
contribute to such 
a failure. This solution 
would be 
consistent with the 
current 
common 
framework of 
supervisors 
and with the 
forthcoming  
EU system of 
supervisory 
authorities No impact 
Require 
provisional 
payout of partial 
compensation if payout delay 
exceeds a given 
time period Investor protection 
and confidence 
would be reinforced 
as investors would be confident that 
they would receive 
part of the 
compensation 
amount after a given 
time period.  Schemes would need 
more resources to 
verify the eligibility 
and the provisional amount of the claim 
within the specified 
time period.  The earlier 
payment of claims 
could have an 
impact on the funding levels 
required from the 
investment firms. No impact No impact 
 
EN 59   EN         Impact on 
stakeholders 
Scenario Investors Compensation 
schemes Investment firms Supervisors Other 
stakeholders 
Require firms to disclose to investors what is 
covered and 
what is not 
covered by 
ICSD schemes  This option would 
increase investor awareness of the 
level and scope of 
coverage and result 
in greater investor 
confidence. Schemes would 
receive fewer invalid claims if the scope of 
coverage is clearer to 
investors. Investment firms 
would have to improve their 
existing disclosure 
procedures. Supervisors 
would have clearer rules 
against which 
to assess the 
compliance 
by investment 
firms with the 
disclosure 
requirements. No impact 
No action at EU 
level: Do not 
expand the 
scope of 
mandatory 
coverage to 
breach of 
conduct of 
business 
obligations  Investor protection 
in the event of the 
failure of a firm 
giving poor 
investment advice 
may vary between 
Member States 
depending on 
whether coverage in 
that State is 
extended to cover 
such situations.  No impact No impact No impact No impact 
Align the 
definition of  
clients in the 
ICSD with the 
MiFID 
definition It would provide 
greater certainty and 
clarity leading to 
improved investor 
confidence. More 
medium-sized 
companies would 
fall under the scope 
of the ICSD. The identification of 
investors eligible to 
the coverage of the 
scheme would be 
easier as it would 
correspond to the 
MiFID classification 
implemented by the 
investment firm.  There would be a 
common 
categorisation  of 
retail investors in 
the two directives 
avoiding any 
duplication of 
categories. No impact No impact 
Compensate 
investors under 
the ICSD for 
claims relating to failure of a 
firm to return 
financial 
instruments due 
to failure of a 
third party 
custodian Increased protection 
for investors in 
situations where 
there was failure of a third party 
custodian. Potentially more 
claims will need to be 
processed if there is 
default of a third party custodian. Increased funding 
will be required 
from firms to 
cover the extension in scope 
of the Directive. No impact. Third party 
custodians may 
also be required 
to contribute to funding the extra 
coverage. 
Amend UCITS to strengthen 
safeguards that 
apply to 
depositaries and 
sub-custodians Increased investor 
protection and 
confidence when 
investing in UCITS 
schemes  No impact No impact Improved 
supervision of 
UCITS funds 
and their 
depositaries 
and sub-
custodians UCITS funds 
would have to 
comply with 
stronger 
requirements in 
relation to 
depositaries and 
sub-custodians 
whose liability 
would be 
clarified. 
 
EN 60   EN         Impact on 
stakeholders 
Scenario Investors Compensation 
schemes Investment firms Supervisors Other 
stakeholders 
Extend compensation to UCITS unit 
holders where 
their 
investments 
have lost their 
initial value due 
to the loss of 
assets by a 
UCITS 
depositary or a 
sub-custodian Increased investor 
protection and confidence when 
investing in UCITS 
schemes A wider range of 
claims will need to be processed by schemes 
as a result of the 
extended scope of 
scheme coverage.  No impact (on the 
assumption that the cost of funding 
the extra coverage 
is borne by UCITS 
funds and/or 
depositaries and 
not by investment 
firms). No impact UCITS funds 
and/or depositaries are 
likely to be 
required to 
provide funding 
to cover the 
extension of 
coverage under 
the Directive. 
Take action to define "money 
market funds" in 
the UCITS 
directive and to 
strengthen 
requirements 
applying to such 
funds Increased investor 
protection and 
confidence resulting 
from the clarity of 
having a common 
definition of Money 
Market Funds and 
specific regulatory 
requirements in 
terms of types of 
investments and risk management. No impact. 
Compensation 
schemes would not 
cover investment 
risk. No impact  Improved 
supervision of 
Money 
Market funds  Money Market 
Funds would 
have to comply  
with new 
regulatory 
requirements. 
Clarify that if firms do in fact 
hold client 
assets the clients 
should be 
entitled to 
compensation if 
the firm defaults Investor protection 
and confidence 
would be increased 
as investors could 
claim irrespective of 
the investment's 
authorisation and of 
the nature of the 
investment service 
provided. 
 This option would 
bring clarity to the 
scope of the scheme 
and avoid any 
situation like the 
AMIS case where 
investors and the 
scheme do not agree 
on the scope of the 
coverage. In Member States 
where such claims 
are not currently 
permitted, firms 
may have to 
provide funding 
where previously 
they were not 
required to do so.    No impact No impact 
Exclude 
coverage of 
claims when 
market abuse 
was involved It would improve 
investor confidence 
and market integrity 
by removing this 
loophole. No impact No impact No impact It would increase 
market integrity 
by removing this 
loophole. 
 
EN 61   EN         Impact on 
stakeholders 
Scenario Investors Compensation 
schemes Investment firms Supervisors Other 
stakeholders 
Amend the 
ICSD and 
increase the 
level of 
compensation to 
a fixed amount 
of €50 000 The compensation 
level would be aligned with the 
average amount of 
investment held by 
investors leading to 
increased protection 
and confidence in 
many Member 
States. This would 
also increase 
harmonisation of the 
level of investor 
protection between 
Member States. No impact Contributions 
required from investment firms 
would be 
increased 
(especially if 
greater ex ante 
funding is 
required). 
Harmonisation of 
compensation 
levels between 
Member States 
ensuring a level 
playing field 
between firms in 
different States. 
The higher 
compensation 
limit for 
investments would 
reduce the 
competition 
distortion between 
investing in 
deposits and 
investment 
products.  No impact No impact 
Remove the 
possibility of 
co-insurance The compensation 
amount would 
slightly be increased 
resulting in 
increased investor 
protection and 
confidence. 
Investors would 
receive consistent 
treatment across 
Member States as 
there would no 
longer be discretion 
for individual States 
to impose co-
insurance. No impact. Contributions 
required from 
investment firms 
would be slightly 
increased116. 
 No impact No impact 
                                                 
116 The UK FSA conducted a detailed cost benefit analysis in October 2008 before deciding to remove the 
co-insurance principle for investment products: "If co-insurance had not been applied to the 
compensation payments made during  the period December 2001 to December 2007, claimants would 
have, as a group, benefited from payments being approximately 1.4% higher."; 
http://www.fsa.gov.uk/pages/Libr ary/Policy/CP/2008/08_15.shtml   
 
EN 62   EN (1) The IA Board has called for an asse ssment of the one-off and ongoing costs for 
the relevant stakeholders. To assess th e costs impact upon investment firms of the 
introduction of harmonised funding rules is hypothetical at this stage as these 
funding rules will be defined based on a number of variable s that will need to be 
determined on a State by State basis and as there is a lack of data at the national 
schemes level which makes the calibration of  an appropriate target fund level very 
difficult. As a result the following figures should be looked at very carefully and in no case are these claimed to be representative.  
We have made our simulation based on the amount of covered securities and monies 
which is the most appropriate calculation ba se to calculate the amount of the target 
fund level. But it should be noted that the amounts of  the covered securities and 
monies communicated by the schemes are based on the existing compensation limit (in most cases €20 000) whereas we propose to increase the compensation limit to 
€50 000. It is also worth noting that these simulations do not take into account the 
extension of the coverage to firms providing custody services or UCITS 
depositaries
117. Nonetheless two scenarios have be en developed which gives a rough 
estimate of the potential cost s impact upon investment firm s in a limited number of 
Member States (10 schemes). In the first scenario, where the ta rget fund level has 
been set at 0.50% of the covered securitie s and monies held by investment firms on 
behalf of retail investors w ith an ex ante funding pr oportion of 100%,  there would 
be 4 schemes with a deficit of funding a nd 6 schemes with an excess of funding.  
Portugal which is currently ex post funde d would be the most severely impacted 
scheme with an average increase of fundi ng of circa € 1.2 million per participating 
firm (it should be taken into account however  that big firms will have to contribute 
more than smaller ones in proportion to th eir business size and there would be a 
transition period of 10 years to  reach the target fund level) .. Hungary would have the 
second highest deficit in f unding with an average of ci rca €400 000 per participating 
firm. Luxembourg and Netherlands would in cur a deficit of re spectively circa €40 
000 and €20 000 per investment firm118. The six schemes with an excess of funding 
are Bulgaria, Cyprus, Denmark, Romania, Slovakia, and Spain (Fogain). In the 
second scenario the ta rget fund level has been set at 1.00% of the covered securities 
and monies held by investment firms on beha lf of retail investors with the same ex 
ante funding proportion of 100%. The propo rtion of schemes with a deficit of 
funding and schemes with an excess of funding would remain the same. The 
Portuguese scheme would still have the hi ghest deficit with about € 2.4 million per 
participating firm. Hungary would rank second with circa €1 million per 
participating firm. Luxembourg (ex post f unded scheme) and Netherland would have 
a similar level of deficit with around €70 000 per participating firm119. The six 
schemes left with an excess of funding are Bulgaria, Cyprus, Denmark, Romania, 
Slovakia, and Spain (Fogain). 
                                                 
117  The number of retail investors in UCITS funds in Europe is significant. Based on EFAMA data as of 
end 2008 (see page 19), there are around 35 500 UCITS funds in Europe. Based on the assumptions that 
there are 2 000 unit holders per UCITS fund and that 37% of these unit holders are retail investors, the estimated number of retail investors in Europe is approximately 26 millions. 
118  With respect to the Netherlands, these data relate to non-bank investment firms (i.e. data from the 
scheme covering bank investment firms were not available). 
119  With respect to the Netherlands, these data relate to non-bank investment firms (i.e. data from the 
scheme covering bank investment firms were not available). 
 
EN 63   EN The additional costs calculated per firm will be (partially) passed on to retail 
investors. Taking the assumption that 100% of  the costs would be pass on to retail 
investors, this would mean a one-off costs increase (to be spr ead over a transitional 
period of 10 years) per retail  investor in the first scen ario of between €25 and €40 
and in the second scenario of between €65 and €135 for the countri es with a deficit 
of funding for which the number of  securities accounts were available120.  
8.2. Other impacts 
8.2.1.  Impacts on the environment, employment and third countries 
It is not expected that the changes in th e ICSD are going to have any impact on the 
natural environment or on the gender policy of the EU. 
Concerning the social impact of the amendmen ts to be introduced in the ICSD, it is 
not possible to assess the direct impact, how ever as the amendments to the ICSD are 
introduced in order to enhance investor prot ection and investor protection is essential 
in maintaining a social order,  social welfare, prosperity etc., the overall impact will 
be positive for the society. Consumers will be better protected and thus have more 
confidence in the system, that they will trus t to, for instance, finance their pensions 
through alternative investments and not si mply rely on national social security 
budgets – which have become very tig ht through the crisis. Moreover, the 
enhancement of investor protection (buy side ) will facilitate the access of SMEs (sell 
side) to alternative financing mechanisms. As a consequence, SMEs will have more financing to create further jobs, thus it will create a positive impact on the employment.  
As regards investment firms of third country origin, as in order to operate in the EU 
under the MiFID framework they have to become EU investment firms and be 
established in the EU, they will not be im pacted in a different way as EU firms. 
Investors of third countries will be prot ected in the same way as EU investors; 
therefore their level protec tion will also be enhanced. 
8.2.2.  Impacts on small and medium size enterprises 
"Small" companies
121 are covered by the ICSD, but "medium sized companies"122 
were excluded from the scope of the ICSD.123 The alignment of definition of retail 
                                                 
120  These estimates are only based on the four Member  States out of the 10 Member States which could 
also provide us with the number of securities accounts held for re tail clients by investment firms. These 
four Member States are: Hungary, Netherlands, Portug al and Hungary. All of these four schemes have a 
deficit of funding in our two simulations except Romani a which in the first scenario has a slight surplus. 
121 See Article 4(2) and Annex I Category (8) of the ICSD; Companies which are of  such a size that they 
are permitted to draw up abridged balance sheets u nder Article 11 of the Fourth Council Directive 
78/660/EC are covered by the ICSD. 
122 As per the definition of the Fourth Accounting Directive 78/660/EC,  “medium-sized” companies are 
companies which, on their balance sheet dates, do not exceed the limits of two of the following three 
criteria:: 
 - balance sheet total: EUR 17 500 000;   - net turnover: EUR 35 000 000;  
 - number of employees: 250. 
 
EN 64   EN investors under the ICSD with MiFID w ould bring more "medium sized" companies 
under the scope of the ICSD.124 Therefore, SMEs will be better protected, as they 
will have the right to claim compensation in case of failure of an investment firm. Currently, there is no level playing field at  EU level on the coverage of SMEs by 
compensation schemes.  
The changes envisaged to improve the f unctioning of the ICSD  (principles about 
funding, provisional payout of partial comp ensation, more detailed information about 
compensation scheme coverage) would lead  to a better protection of the retail 
investors including the "small" and "mediu m sized" companies. The increase of the 
minimum level of compensation and the rem oval of the co-insurance principle would 
also enhance retail investor  protection and confidence. 
Concerning investment firms, as their cont ributions to the compensation schemes is 
likely to be proportionate to the size of their business, compliance costs may not be 
as significant as for larger firms.  A direct  effect of the amendments to the ICSD will 
be that as investor protection is enhance d, investors will have more incentives to 
invest in securities markets and thus the scope for business of investment firms will 
be extended, including for SMEs. 
8.3. Estimation of reduction or in crease in administrative burden 
No additional administrative burden is foreseen for investment firms, as supervisory 
authorities have already the necessary information to be transmitted to the national compensation schemes to calculate the amount that every firm will have to contribute 
- in compliance with MiFID, investment firms have to report all the relevant 
information to the supervisory authorities.  
Concerning UCITS depositaries and sub-custod ians, the extension of the coverage of 
the investor compensation scheme to the UCITS unit holders in case of loss of the 
assets by a UCITS depositary or a sub-cu stodian will involve additional reporting by 
the depositaries and sub-custodians to the relevant authorities.  
There will be increased disclosure obliga tions upon investment firms, UCITS and the 
national schemes. The existing disclosure obligations upon investment firms will need to be reinforced by requi ring firms to disclose in clear and simple terms what is 
covered and what is not covered by the schemes. The full set of disclosure 
obligations upon investment firms will be extended to UCITS which were currently 
not covered by the ICSD. National investor compensation schemes will have to publish annually information about their le vel of funding and the target funding 
level. 
                                                                                                                                                        
 
123 As per the definition of the Fourth Accounting Di rective 78/660/EC,  "small"  companies are companies 
which, on their balance sheet dates, do not exceed the limits of two of the following three criteria: 
 - balance sheet total: EUR 4 400 000;   - net turnover: EUR 8 800 000;  
 - number of employees: 50. 
124 Article 4 (11) & (12) and Annex II of MiFID: Professional investors are defined in Annex II of MiFID 
and includes large undertakings. Article 4(12) of MifFID defines retail investors as investors not being 
professional investors. 
 
EN 65   EN Based on the calculations presented in Anne x XII, we estimate that there will be 
approximately €1 500 000 of one-off admini strative burden on investment firms and 
credit institutions providing investment se rvices. There will not be any measurable 
on-going costs imposed by the planned amendment on these firms. 
The on-going administrative burden on UCITS is estimated at € 9 400 000, and the 
on-off costs on UCITS are estimated at €240 000. 
For the compensation schemes we estimat e a recurring administrative burden 
between €15 000 and €30 000 per year overall in the EU 27. 
8.4. Summary of the final outcome 
In view of the conclusions reached in this impact assessment, the European 
Commission considers appropriate to pr esent a proposal amending the Investor 
Compensation Scheme Directive. The fulfilme nt of the policy objectives described in 
section 5 is to be achieved through a legislative solution, as it is necessary to 
harmonise the details for the funding of  investor compensation schemes, the 
coverage of the schemes, the minimum compensation limit and the compensation 
payout periods in order to create a level pl aying field for investors' compensation in 
the European Union. A Directive is the proposed instrument, as it will ensure a common framework while leaving some margin  of discretion to the Member States 
when implementing it, since national compensation schemes operate in very different 
ways due to differences in  national markets. The issuance of a recommendation by 
the Commission on the issues covered by th is review would not be enough, as it 
would not create the necessary legally bindi ng obligations to ensure a level playing 
field for investor protection within the EU. The exchange of best practices between 
the schemes might be a good tool to support th e application of the new principles to 
be introduced in the Directive. 
However, as a legislative measure should be principles based and, to the extent 
possible, avoid unnecessary techni cal details,  it is necessa ry to recognize a role for 
the forthcoming European Securities and Markets Authority (ESMA) – set up in a 
proposal for a Regulation adopted by the European Commission in September 2009 
and currently under negotiation through the co-decision procedure – in elaborating 
technical standards with regard to th e highly technical functioning of the 
compensation schemes.  
The proposal should aim at solving the problems identified in this impact 
assessment: 
- Modify the Directive to provide for more detailed ha rmonisation of funding and for 
a borrowing mechanism between national compensation schemes.  
- Article 9 should be amended to provide for a provisional payout of partial 
compensation to investors within a specifi ed period if final payment has not been 
made within that period. 
- Article 10 should be amended to require firms to provide clear information about 
what is covered and what is  not covered under the scheme (e.g. that investment risk 
is not covered). 
 
EN 66   EN - Article 4(2) and Annex I shoul d be amended in order to al ign the definition of retail 
investors in the ICSD with the definition in MiFID. 
- A new provision should be included to clarify that firms are covered under the 
Directive if they in fact hol d assets for retail clients irrespective of the type of 
investment service they provide or whether they are doing so in breach of a requirement on their authorisation. 
- Article 3 should be amended to exclude  claims for compensation by a person who 
has engaged in market abuse. 
- Article 4(1) should be amended to in crease the compensation level to €50 000. 
- Article 4(4) should be amended to remove the co-insurance principle. 
- Various articles should be amended to pr ovide that compensati on should be payable 
if a retail investor suffers loss due to the failure of a third party custodian appointed 
by the firm to hold financial instruments for the client. 
- Various articles should be amended to pr ovide that compensati on should be payable 
to a unit holder of a UCITS scheme if the retail unit holder suffers loss due to the failure of a depositary or s ub-custodian of the scheme. 
In addition the Commission is currently analysing the possibility to: - amend UCITS to strengthen safeguards that apply to depositaries and sub-
custodians 
- take action to strengthen requirement s applying to Money Market funds. 
9. M
ONITORING AND EVALUATION  
The Commission is the guardian of the Tr eaty and therefore will monitor how 
Member States have implemented the changes of the ICSD. Where needed, the Commission services will offer assistance to  Member States for the implementation 
of the legislative changes in the form of transposit ion workshops with all the 
Member States or bilateral meetings at th e request of any of them.  When necessary, 
the Commission will pursue the procedure set out in Article 258 of the TFEU in case 
any Member State fails to respect its duties concerning the implementation and 
application of Community Law.  
As the number of investment firm failures leading to their inability to return the 
securities and monies held  on behalf of retail investors are unpredictable, the 
functioning of the ICSD cannot be re gularly monitored on the basis of how 
investment firm failures are handled. Nevert heless an evaluation of the consequences 
of the application of the legislative meas ure could take place three years after the 
transposition deadline of the legislative m easure. Such review could be performed 
jointly by the European Commission and by ESMA. This review should include an 
analysis of: (i) the possibl e complaints received by the European Commission, (ii) 
how concrete cases have been handled, a nd (iii) how national ICS do comply with 
 
EN 67   EN the new requirements in terms of funding a nd disclosure of information. The review 
should be disclosed to the Counc il and the European Parliament. 
 
EN 68   EN ANNEX I – OUTCOME OF THE CALL FOR EVIDENCE  
The European Commission received 70 contributi ons: 9 from compensation schemes, 4 from 
investors or investor groups, 45 from industr y bodies, professional bodies and firms and 12 
from Member States (securities regu lators and finance ministries).  
Contributions received from stakeholders va ried in detail. There was a large amount of 
consensus on a number of technical issues. Al so, there was consensus against extending the 
scope of the directive in a number of areas (especially from industry rather than investor 
groups). On issues relating to the structure and funding of schemes, opinion was divided. A 
summary of the main comments received is presented in the following: 
 Should Multilateral Trading Facilities be covered by the directive?  – There was 
general consensus that in practice MTFs do not hold clients assets so it is unlikely that 
investors may suffer losses as a direct cons equence of the operati on of an MTF. Other 
emphasised that, still, the directive should cover this possibility (even if remote) and that this should also apply to regulated mark ets that operate an MTF in order to ensure 
a level playing field.  
 Should investment firms be covered even if  their permission does not entitle them 
to hold client assets?  – The principle was generall y supported. Some respondents 
argued that the coverage should be consiste nt with any limits in the authorisation. 
Others underlined that investor s should be protected under th e directive even if a firm 
was not entitled under its permission to hold funds. It is reasonable that a client's 
protection should not depend on a factor (the pr ecise terms of a firm 's permission) that 
client's cannot be expected to be aware of. 
 Should investment firms be covered if they  provide services only to non-retail 
clients? – In line with the r easoning developed in the prev ious point, some respondent 
emphasised that, since retail customers may not be aware of the precise terms of a 
firm's permission, firms should be covered unde r the ICSD if they do in fact provide 
services to a retail customer  (although their contribution to  the fund should reflect the 
limitation in their authorisa tion). Under a different point  of view, some respondents 
were also open to the idea of extending co verage to professional clients; most 
responses, however, opposed extending c overage under the dir ective beyond retail 
clients to, for example, local authorities, professional or instit utional investors.  
 Should investors be compensated for defa ult of a third party where assets have 
been deposited? Should UCITS and UCITS unit holders be able to claim for the 
failure of a UCITS depositary or sub-custodian? – Many responses opposed such 
perspectives as being a significant and unj ustified extension of the scope of the 
directive. There is generally no contra ctual relationship between investors and 
depositaries and it is more appropriate that clear responsibilities should be placed on 
an investment firm or UCITS regardi ng the appointment and monitoring of a 
depositary or sub-custodian. If a depositary or sub-custodian fails it should be for the 
investment firm or the UCITS to recove r monies by civil action. Further, some 
responses suggested that, due to the diffe rences between investment services and 
collective portfolio management, tools ot her than the ICSD would address more 
appropriately the issue of UCITS unit hol ders' compensation (e.g. a separate and 
specially designed UCITS compen sation scheme was mentioned).    
 
EN 69   EN  Should the directive cover any breach of conduct of business rules? There was a 
divergence of views. Especially in the UK, where the scheme already covers any 
breach of conduct of business rules, res pondents were prudently supportive. Most 
other respondents thought that this would be legally and admini stratively complicated 
and unworkable as it would be very difficult for schemes to judge if there was a valid 
claim in the event of a default by a firm. The issue of the significant increase in costs 
for the financial system was also raised. 
 Should the level of compensation under th e directive be aligned with the level 
under the deposit guarantee scheme directive? There were a number of respondents 
who thought that the levels should be a ligned. Many suggested, however, that the 
nature of the investments and risks addresse d is quite different. Further, it was claimed 
a lack of evidence that existing levels unde r the ICSD were inadequate. For example, 
very few claims resulted from the financia l crisis. Various res pondents suggested that 
any increase should be subject to a thorough co st benefit analysis. In some cases, there 
was support for a level playing field as to maximum levels. 
 Should general principles about how sche mes should be funded be introduced?  
The majority of respondents supported deta ils of funding being left to individual 
Member States. Others thought that at least some  funding principles would be useful. 
Some respondents took an explicit position in favour of pre funding. The issue of 
ensuring consistency between the ICSD and Deposit Guarantee Schemes Directive 
was mentioned, also in the light of the jo int operation of the two schemes in some 
countries. Access to liquidity by such scheme s (such as lending facilities) would also 
need to be addressed.  
 Should the process of recognizing the el igibility of the claim be regulated?  Most 
responses thought that the process should not be regulated at Community level as it 
would be much more complicated than for claims by depositors. The issue of existing 
huge differences between national laws and judiciary systems was underlined. 
 Should provisional partial compensation be introduced?  There were mixed 
responses. Some believing it was desirable and others that it was not feasible as it 
would be difficult to quickly verify a clai m and then complicated to recover amounts 
that were later found to have been unduly paid out. 
 Should compensation schemes have minimum reserve funds?  Responses were 
divided. Many underlined that the need of co mpensation is not the same as for deposit 
guarantees, where funding is required more ur gently, and that reserve funds would add 
complexity to the funding and to the management of the resulting funds. 
 Should special attention be given to money market funds?  Most thought that they 
should not be covered as th e rationale was entirely di fferent (i.e. to encourage 
investment in money market funds for a public policy purpose) and that it would be 
compensating for 'investment risk' a risk th at should not be covered by compensation 
funds. Other underlined that possible liquidi ty problems should be addressed through 
measures other that the ICSD, which has a completely different purpose.  
Other issues 
 Some respondents felt that, especially in cr oss borders situations, there needs to be 
clear disclosure to investors about the scope and coverage of schemes. 
 It was also suggested that more co -operation between member  states should be 
provided for in the directive. 
 
EN 70   EN  In general, the need for more alignment between the ICSD and the Deposit Guarantee 
Schemes Directive was also mentioned (f or example, cancelling the co-insurance 
principle i.e. that a po rtion of losses should be borne by the investor). 
 Another point is that there is no exclus ion of coverage for claims involving a 
transaction where market abuse has been  involved (an exemption currently only 
applies to money laundering). 
 
 
EN 71   EN ANNEX  II – QUESTIONS SENT TO INVEST OR COMPENSATION SCHEMES  
First set of questions sent in June 2009  
 
1.  Funding arrangements 
 
1.1. How is the compensation scheme funded? By  pre- and/or post-funding? Up to what 
percentage?  
1.2. In the case of pre-funding, how is the on-going management of collected funds 
regulated or supervised? 
1.3. Are funds pooled/differentiated across in dustry sectors and types of investment 
business?  
1.4. On what basis are contributions calcula ted (e.g. investment and cash balances, 
number of clients, revenues or incomes, nu mber of employees, capital, deposits of credit 
institutions, mix of fixed a nd variable contributions)?  
1.5. Are there limits on contribu tions? If yes, what limits? 
1.6. Are contributions annual or ba sed on a different timeframe? 
1.7. Does the compensation scheme have power to borrow funds? 1.8. If there are different compensation sche mes, can they borrow between schemes? 
1.9. Is State funding envisaged?  If yes, in which way? 
1.10. Is the compensation scheme allowed to take out insurance to meet their funding 
requirements?  
1.11. Is the compensation scheme able to reco ver some of the compensation costs after 
liquidation of firms in default? 
1.12. How many compensation cases has the comp ensation scheme dealt with since 2004? 
1.13. Are there any funding agreem ents with third countries? 
 
2. Structure of compensation schemes 
 
2.1. How is the compensation scheme structured? What is the ownership?  
2.2. How many firms are participating in the compensation scheme? How many EEA 
branches are participating? 
 
EN 72   EN  
3. Rules on depositaries 
 
3.1. Are failures of a depositary appointed by an investment firm or of any sub-depositary 
used by the depositary covered by the compensation scheme?  
 
4. Compensation limit/ claims  / partial compensation 
 
4.1. What is the maximum amount of compensation? 
4.2. What is the time limit on making claims? 4.3. What is the time limit on compensation payment? 4.4. Are there preliminary partial compensations  allowed? If yes, under which conditions? 
4.5. Are there any "carryover mechanisms" allowed – that is mechanisms aimed at 
preventing schemes from carrying their compen sation debts over a certain period of time? 
4.6. Based on any available information, what is the average amount invested by retail 
investors in your Member State? 
 
5. Eligible claims and claimants 
 
5.1. Is the compensation scheme covering source s of loss beyond what is required in the 
ICSD (e.g. investment advice, conduct of business?) If yes, under what conditions? How many cases of claims due to breaches of conduct of business ob ligations have you 
received?  
5.2. Is the compensation scheme covering clai mants included in Annex I of the ICSD? If 
yes, which ones? 
 
6. Exemption from the obligation to belong to a ICSD scheme 
 
6.1. Has any Member State exempt investment firms from the obligat ion to belong to an 
Investor Compensation Scheme (c fr Recital 10 & Article 2 (1)) ? If yes, what alternative 
arrangements have been put in place? 
 
Second set of questions sent in November 2009
 
 
EN 73   EN  
Method of funding  
1. If your Investor Compensation Scheme (ICS) is ex-ante funded, do you have any ex 
ante target fund level? If yes, what is the level? 
 
€ million 2006 2007 2008 
Fund size                   
 
  How was this target fund level determined?   
 
      
 
If you have ex-ante funding but this is not based on any target f und level, please 
explain your methodology to assess the appropr iateness of the le vel of ex ante 
funding. 
 
2. Have you recently increased, or consideri ng increasing, the proportion of ex ante 
funding versus ex post funding for your ICS? If yes, do you have any estimates of the 
cost to investment firms of increasing th e percentage of ex ante funding? Please 
briefly explain the conclusions regarding th e level of the proposed increase and the 
projected cost to firms. 
 
3. If, on top of ex ante funding, there is the possibility to  ask for exceptional/ex post 
contributions, what is the proportion of ex post funding versus ex ante funding?  
 
Coverage of SME's  
 
4. Does your ICS cover securities and monies held on behalf of Small and Medium size 
Enterprises (SME's) beyond what is specified  in Annex I (8) of the Directive?  
 
If so, could you please specify how SMEs are defined in your country for the purposes 
of the application of the i nvestor compensation scheme? 
 
EN 74   EN  
Compensation cases  
5. Following our first questionnaire you kind ly provided us with the number of 
compensation cases your scheme had to deal  with since 2004. Could you in addition 
provide us with the following details for each of the cases?  
 
Name of failed investment firm Year  Total number of 
claims Total payout (€ 
million) 
                        
                        
                        
                        
 
Estimate of securities and moni es held by investment firms  
 
6. What is the total amount of securities and monies held by investment firms on behalf 
of retail investors? If you do not have detailed figures pl ease provide an estimate.  
 
7. What is the total amount of covered securi ties and monies held by investment firms on 
behalf of retail investors (i.e. amount of  securities and monies up to the maximum 
compensation limit)? If you do not have deta iled figures please provide an estimate. 
 
Total amount (€ millions) 2006 2007 2008 
Securities and monies held on behalf of retail 
investors                   
Covered securities and monies held on behalf of 
retail investors                   
Please specify the level of coverage applied for 
calculations of covered securities and monies                   
 
EN 75   EN  
 
8. Could you please list the top 10 ICS members with respect to respectively (i) the 
amount of securities an d monies held on behalf of retail investors as of end 2008 and 
(ii) the amount of covered securities and m onies held by investment firms on behalf of 
retail investors as of end 2008? 
 
 Name of DGS member (*) Securities and monies  Covered securities and monies  
1                   
2                   
3                   
4                   
6                   
6                   
7                   
8                   
9                   
10                   
 
(*) If you can not report the name of the DGS member (e.g. c onfidentiality reasons), please replace the name by X1, X2, X3, 
… 
 
If you are providing data on covered securiti es, please specify the level of coverage 
you are using:   
 
      
 
 
9. What is the total number of securities accoun ts held for retail clients in your Member 
State? 
 
EN 76   EN  
Funds available 
 
10. For ex ante funded schemes, what is the to tal amount of readily av ailable funds as of 
end 2008? Could you please provide us with  the accumulated fund size as of end 2007 
and the contributions collected in 2008? 
 
(€ million)  
Accumulated fund size as of end 2007       
Contributions collected in 2008       
Total amount of readily available funds as of end 2008       
 
11. Have you calculated the maximum amount of ex post contributions your scheme 
might collect if needed based on existing regulation? Please ta ke into account any 
increase in the ordinary am ount of ongoing contributions and any exceptional/surplus 
/ex post contributions which might be collected.  
 
(€ million)  
Increase in the ordinary amount of ongoing 
contributions       
Any exceptional or surplus contributions       
Any other ex post contributions  
Maximum amount of ex post contributions       
 
 
Compensation limit 
 
12. In your view is the minimum compensati on amount of €20 000 in the Directive still 
appropriate? Please provide us with any available data to support your view. 
 
13. How would you assess and what would be the impact on the amount of ex ante 
contributions and/or potential ex-post contributions if the minimum level of 
 
EN 77   EN compensation (currently €20 000) would be increased? Plea se explain your 
methodology based on the following scenarios. 
 
 Scenario 1: 
Level of coverage 
€ 50,000 Scenario 2: 
Level of coverage 
€ 100,000 
Increase in the amount of 
covered securities             
Increase in the amount of ex 
ante contributions             
Increase in the amount of ex 
post contributions             
 
Please specify the reference date (if different from 31/12/2008):       
 Please specify the level of coverage applied by your DGS as of the reference date:       
 
Please add any comment on the data you provided:   
     
 
 
 
Establishing claims and payout delays 
14. Is your ICS able itself to determine th e eligibility and amount of a compensation 
claim? If so, please explain how this is done . If not, please explai n who determines the 
eligibility and amount of each claim. 
 
15. How many months from the trigger event (e.g.  failure of the investment firm) were 
necessary to pay compensation to investor s in the last 5 cas es you dealt with?  
 
Name of failed investment firm Year  Months needed 
to pay the first 
claim  Months needed 
to pay the last 
claim 
 
EN 78   EN Name of failed investment firm Year  Months needed 
to pay the first 
claim  Months needed 
to pay the last 
claim 
                        
                        
                        
                        
                        
 
   
16. If your ICS provides for the possibility to  pay out provisional compensation in the 
case of long delays, what are the specific requirements for a pr ovisional payout and 
the mechanisms to claim back the amount of the provisional compensation if it is later 
determined that the compensation claim was not eligible? 
 
 
 
Note: in these questions: 
 An "investment firm" is a firm to whom the Directive applies. A "security" is a financial instrument referred to in the Directive. 
The "Directive" is the Investor Compensation Schemes Directive. 
 If there is confidential information, please feel fre e to provide any data a nd/or information on an 
anonymous basis. 
 
 
 
EN 79   EN ANNEX  III – OPERATION OF COMPENSATION SCHEMES  
 Structure of schemes 
The structure and organisational set-up of th e schemes varies between Member States. 
Some Member States (Austria, Cyprus, Germ any, Greece, Netherlands, and Spain) have 
different compensation schemes for non-bank inve stment firms and credit institutions. In 
these cases the role of investor compensation as  regards credit institutions is played by the 
deposit guarantee scheme. In Austria, non-bank investment firms fall under the Austrian 
investor compensation scheme (AeW). Austrian banks are covered by fi ve different schemes 
with respect to investor compensation125. In Cyprus there are three schemes: one scheme 
covers banks, the second covers clients of investment firms and th e third scheme covers 
clients of cooperatives. In Germany, there is also a split between bank and non-bank firms, as 
there are three Compensation Funds, one for inve stment firms (EdW), one for private banks 
and one for public banks. In addition, separa te schemes are operated by the association 
representing credit cooperatives and th e regional associations of savings banks126. In the case 
of Greece, investor compensation is provided by  the Athens Stock Exchange (ASE) Member's 
Guarantee Fund for members of the ASE and for non members of the ASE such as investment 
companies and mutual funds in the case they provide portfolio management services. In 
February 2009, the Hellenic De posit & Investment Guarantee Fund (HDGIF) was established 
by virtue of the Greek law 3746/2009 to cover,  besides deposits, the investment services 
provided by credit institutions  not participating in the Athe ns Stock Exchange Member's 
Guarantee Fund. In Spain there is also a spli t between the ICS for non-bank investment firms 
and banks. 
The schemes are either set up as a public body or a private company. The public schemes are 
run as independent legal entity under public law (Belgium, Estonia, Portugal), or owned and 
operated by the national financial regulators (Lat via, Slovenia), or are administered by a 
separate public entity / comp any (Germany, Sweden's National Debt Office). In Germany, the 
ICS is a special federal fund without legal capacity administered by the public bank KfW. 
Although public bodies,  these schemes may have some form of involvement or representation 
by the participating firms. The private schemes can take the form of either a limited company with participating firms and/or public authoritie s as shareholders (Austria, Ireland, Romania, 
Slovakia, Spain), either a private entity managed by the relevant trade association (Finland), either an independent legal entity (Denmark, France, Italy, Hungary, United Kingdom), either 
a private non-profit associati on (Luxembourg). In the case of Denmark the fund is a private 
independent body although it is operated by the Ce ntral Bank. The scheme in Cyprus is also 
operated by the Central Bank. The Dutch scheme  operated by the Dutch Central Bank is a 
                                                
 
125  There are five different schemes covering different  banking sectors (savings banks, commercial banks, 
cooperatives, etc.): Österreichische Raiffeisen-Einlagensicherung eGen, Einlagensicherung der Banken & 
Bankiers, Sparkassen-Haftungs AG , Schulze-Delitzsch Ha ftungsgenossenschaft, and Hypo-Haftungs-
Gesellschaft mbH. 
126  Entschädigungseinrichtung deutscher Banken (EdB) for private deposit banks, 
Entschädigungseinrichtung öffentlicher Banken for public deposit banks. Sicherungseinrichtung des 
Bundesverband der Volksbanken und Raiffeisenbanken for the association representing credit kooperatives. Sicherungseinrichtungen der regionalen Sparkassen- und Gi roverbände for the regional associations of savings 
banks 
 
EN 80   EN foundation directed by a Board in which the two supervisors for the financial sector in the 
Netherlands (DNB and AFM), as well as  the investment firms are represented. 
Although in most of the cases independent, the sc hemes maintain a close relationship with the 
financial regulator, and are accountable and su bject to the oversight of that regulator. 
Funding of schemes 
Ex ante and ex post funding  
Schemes are principally financed  by contributions levied from  participating firms. These 
contributions can either be collec ted to build a reserve in antici pation of future losses (ex-ante 
funding) or when needed to cover compensation costs of failures that have occurred (ex-post 
funding).  
A majority of the investor-compensation sche mes are pre-funded (e.g. the Austrian scheme 
for investment firms (AeW), Belgium, Bulgar ia, Cyprus, Czech Republic, France, Germany, 
Greece, Hungary, Ireland, Lithuania, Nether lands, Poland, Romania, Slovakia, Spain).  
In addition most of these schemes (e.g.Austr ia (AeW), Belgium, France, Germany, Greece, 
Hungary, Ireland, Netherlands, Poland, Romania, Slovakia, Spain) have  the possibility to 
request exceptional/surplus contributions if the assets held by the investor-compensation 
scheme are not sufficient to cove r the payment of the claims.  
In the case of Austria (AeW), it is worth no ting that legislation wa s recently amended to 
improve the funding of the scheme in light of the recent major claims (see Amis case). The ex 
post funding mechanism was replaced by ex ante funding supplemented by surplus contributions in the case the funds ava ilable are insufficient to cover claims. 
Following the Phoenix case, the contribution system of the German ICS for non-bank 
investment firms (EdW) was reformed in 2009.  The annual contributions  were increased to 
around €10m in order to achieve an adequa te funding level of €30-40m. The level of 
contributions per firm is differentiated taking into account a certain number of risk factors 
(see risk weighting paragraph below). 
A few schemes are funded through a mix of ex ante and ex post funding (e.g. Denmark, 
Estonia, Finland, Malta). The f unding principles of the Danish and Finnish schemes are quite 
similar. Only part of the minimum capital of the fund has to be paid in cash. In Finland this 
minimum capital has been set at €12m, of which €4.2m needs to be provided in cash. The rest 
of the minimum capital may be covered by in surance or by a binding commitment from a 
credit institution to lend. In the case of Denmark, the remaining capital takes the form of pledges by member firms. The Estonian scheme is  pre-funded but part of the payment can be 
deferred if the investment firm assumes the oblig ation to pay the deferred  part upon request or 
even suspended if the assets of the scheme have reached a certain minimum threshold. In 
Malta, the annual variable contribution is not paid to the scheme but accounted for and held 
by each firm until such time that the scheme  makes a call on such funds. The variable 
contribution is required to be held in a "reser ve" and may be invested by the firm with a third 
party approved in writing by the scheme. Such third party shall hold th e funds on pledge in 
favour of the scheme. 
 
EN 81   EN These schemes with ex ante funding or funded through a mix of ex ante and ex post funding 
do not usually have any explicit ex  ante target fund level except  in the case of Greece (ASE 
Guarantee Fund), Estonia, Ireland and the Nether lands. In Greece this target fund level is re-
assessed annually taking into account general a nd individual risks. Estonia has a target fund 
level of € 2 million to be reached by 2020. Ireland undertakes a formal funding review every 3 years and sets target fund levels to be r eached by the end of every new 3-years funding 
period. In the Netherlands the target fund wa s set at €11.3 million by law when the fund was 
established in 1998. The Bulgarian scheme has an  implicit target fund level whereby the 
annual contributions are suspende d when the funding available reac hes a level equal to 5% of 
the client's assets eligible for compensation. 
In most Member States there is no formal methodology to assess the appropriateness of the 
level of ex ante funding. Contributions are co llected based on pre-determined formulas.   
Schemes are post-funded in eight Member States (the five Austrian schemes for banks, Italy, 
Latvia, Luxembourg, Portugal, Slovenia, Swed en, United Kingdom). However some of these 
schemes levy ex-ante contributions to cover admi nistrative costs. In It aly the scheme has an 
initial endowment (€7.7m) to face any pressing or unexpected need. In the case of Portugal, 
the ex post contributions are guaranteed by pledges on the financial instruments. In the case of 
Slovenia, the investment firms must hold a certa in amount of liquid eligible assets. It should 
be noted that Luxembourg is pla nning to introduce ex ante funding. 
In 2006/2007 the UK Financial Services Compen sation Scheme (FSCS) conducted a reform 
of its funding arrangements. The reform did not touch upon the "pay-as-you-go" model in 
which contributions are paid to cover actual compensation costs and those known to arise in 
the near future (12 months extended to 24 months in the new scheme). At the time of the reform to introduce a pre-funding element was not considered appropriate because of the legal 
and practical difficulties involved. 
Pooling of assets a nd cross-subsidisation
 
Countries may create one global fund to cove r firms across industry sectors (deposit and 
investment activities) or  across investment activities or crea te several sub-funds per type of 
investment activities. In the first case the funds are pooled across the different investment 
activities with explicit cro ss-subsidisation between them. In the second case funds are 
differentiated by investment activity. 
As explained above some Member States (A ustria, Cyprus, Germany, Greece, Netherlands, 
and Spain) have different compensation sche mes for non-bank investment firms and credit 
institutions. Austrian banks ar e covered by five different sche mes with respect to investor 
compensation. If one scheme has insufficient funds to cover a failure, members of the other schemes are obliged to contribute up to a certa in maximum (1,5% of risk -weighted assets). In 
the Netherlands, in the case the funding of the ICS for non-bank investment firms would be 
insufficient to cover compensation costs even af ter the payment of surplus contributions by its 
members, the banks and non-bank investment firms would have to compensate for the gap. In Spain, the ICS for non-bank invest ment firms had to cover comp ensation costs arising from 
failures having taken place prior to its incorporation date
127. As the newly incorporated 
                                                 
127  See Oxera report pages 56-59 
 
EN 82   EN scheme had nearly no reserves , the costs were mainly borne  by the separate deposit and 
investment guarantee scheme for banks.  
In a few Member States (e.g. Belgium, Denm ark, Estonia, France, Lithuania, Luxembourg, 
United Kingdom) the investor-compensation sc heme and any other guarantee schemes are 
operated and managed by the same fund. In Belgium there is a single pool of funds which can 
be used to cover all liabilities, regardless of  whether these liabilit ies arise on deposit-taking 
activities or investment business. In Denmark the fund is divided into 3 departments (credit 
institutions, mortgage banks, i nvestment companies). In Estoni a the Fund has 4 sectoral pools 
of assets (deposit guarantee , investor protection, pension protection, pension insurance 
contract). But in none of these two examples are the assets pooled. However inter-borrowing 
is possible (see additional funding arrangements) . In France, the ICS and the DGS are both 
owned and managed by the "Fonds de Garantie des Dépôts" but there is no pooling of assets 
between both. The situation is the same in Lithuania where the ICS and the DGS are both 
owned and managed by the same entity, namely  the "Deposit and Investment Insurance". 
There is a separate pool of assets for each sc heme, but inter-borrowing between the ICS and 
the DGS is possible. In Luxembourg the IC S and the DGS are both owned and managed by 
the "Association pour la Garantie des Dépôts", but there is a sepa rate pool of assets for each 
scheme and no inter borrowing is possible. In  the United Kingdom the scheme has 5 broad 
pools/classes (deposit taking, i nvestment, life and pensions, general insurance and home 
finance) with two sub-classes each for provider and intermediation activities. There is explicit 
cross-subsidisation between and within the classes. This cross-subsidisation was a major change introduced by the reform of the sc heme's funding arrangements conducted in 
2006/2007. 
Before the reform, the UK scheme was divide d into 12 contribution groups, each of which 
was completely insulated from the compensatio ns costs born by the ot her groups. In addition 
the relatively small numbers of firms in some  contribution group raised concerns about the 
sustainability of the group. The new model intr oduced five broad classes (deposit taking, 
investment, life and pensions, general insurance and home finance) with two sub-classes each 
for provider and intermediation activ ities.  If a default occurs in a sub-class the firms in this 
sub-class will bear the compensation costs up to the sub-class annual threshold. The annual 
threshold determines the maximum amount firms c ould be required to pay to cover defaults. If 
one sub-class has reached its annual threshold, the other sub-class will be required to contribute to the compensation costs.  In additi on there is a general retail pool above the five 
classes and their sub-classes to which all firms w ould contribute if there is a major failure. As 
a result, the funding capacity of the scheme was reinforced  by (i) increasing the maximum 
annual thresholds and (ii) introducing explicit cross-subsidy arrangemen t within and between 
the classes.  The funding capacity of the scheme was designed in order to be able to meet the 
compensation claims arising from a medium-sized  default (or a series of smaller defaults) 
with cross-subsidy being only used as a con tingency plan in case of a major failure. The 
borrowing group has to reimburse the lending group as soon as possible. 
The other countries have sepa rate deposit and investor comp ensation scheme. Within the 
investor compensation scheme the funds are ge nerally pooled across all types of investment 
activities, the exception being Ireland.  
In Ireland the investor-compensation scheme op erates two separate sub-funds (fund A and 
fund B ). The categories of investment firms and insu rance intermediaries which contribute to 
each of these sub-funds are derived from the type of their regulatory authorisations. 
 
EN 83   EN Calculation of contributions  
There are up to three types of contributions: entry/one- time contributions, ongoing 
contributions on a yearly or quarterly basi s and exceptional/surpl us/top-up contributions. 
Entry contributions have to be paid by new members in Bulgaria, Cyprus, France, Germany, 
Greece, Hungary, Netherlands, Romania and Sl ovakia. All ongoing contributions, except in 
Estonia, are annual although the payment might  be made in several instalments (two 
instalments allowed in the case of Spain an d France, quarterly instalments for Bulgaria, 
Poland and Slovakia). In the case of the Estoni an fund the contributions are calculated and 
paid on a quarterly basis. Most of the ex an te schemes (Austria (AeW), Belgium, France, 
Germany, Greece, Hungary, Ireland, Netherlands,  Poland, Romania, Slovakia, Spain) have 
the possibility to levy surplus contributions.  
The assessment basis used to calculate the amount  of contributions vari es between schemes. 
The basis used might also differ within a scheme  depending on the type of contribution (entry 
or ongoing contribution) or it can be a mix of different assessment basis. The assessment 
bases used are the following:  
− the value of the covered m onies and financial instru ments held or managed; 
− the number of clients; 
− the revenues or income generated by investment businesses; 
− the level of capital of an investment firm; 
− the maximum amount of compensation per client; 
− the average turnover of the securities  sale and purchase transactions  
− the number of approved persons or traders 
Maximum limits for ongoing contributions exis t in several Member States (Belgium, 
Bulgaria, Cyprus, Denmark, Est onia, Finland, Germany (EdW), Lithuania, Netherlands, and 
Poland). There might also be maximum limits on the exceptional/surplus  contributions (e.g. 
Austria (AeW), Germany (EdW), Greece (the  Hellenic Deposit & Investment Guarantee 
Fund), Hungary, Romania). Ireland might intr oduce such a maximum limit which would be 
equal to twice the annual contribution rate. Ther e is a cap on ex-post contributions in Latvia, 
Luxembourg, Portugal, Slovenia, and the UK. In the United Kingdom the annual thresholds 
per sub-class determine the maximum amount fi rms could be required to pay to cover 
defaults. 
Risk weighting  
From an economic rationale it might make se nse to differentiate the calculation of the 
contributions according to the specific risks im posed by each individual investment firm on 
the scheme (i.e. risk-based approach). But such  a risk-weighting calculatio n is very difficult to 
implement as there are no appropriate and objectiv e criteria to define which investment firms 
would be more prone to fraud (unpr edictable nature of claims).  
 
EN 84   EN The French and the German (EdW) schemes are th e only schemes that adopted an explicit risk 
weighting methodology. The French scheme takes in to account the probability of default of a 
firm when calculating its annua l contribution. The assessment ba se (investor assets held by 
the firm) is multiplied by a risk indicator that reflects the capital adequacy and operating 
profitability of the firm. Follo wing the reform of its contribu tion system, the German scheme 
distinguishes between different groups of inst itutions and assigns diffe rentiated contribution 
rates to these groups taking into account the license, the actual  contractual situation, and the 
risk of compensation of the institution.  
Although no scheme, except the French and the German (EdW) schemes, have adopted an 
explicit risk weighting methodology, the criteria  used to calculate the ongoing or ex post 
contributions might be differe ntiated. Ongoing or ex  post contributions rates or amounts are 
differentiated based on the firm's  authorisation or the types of  investment services provided 
by the firm (Finland, Ireland, Ital y, Slovakia, and United Kingdom). 
In the UK the structure of the different contri bution groups/classes was redefined as part of 
the reform mentioned above. Under the previo us structure the firms were grouped according 
to their FSA authorisation. There were 12 c ontributions groups whose small number of 
participants within each group ro se concerned about the sustaina bility of the group in case of 
a medium or large failure. The reform introdu ced 5 broader classes based on 5 identifiable 
industry sectors (deposit taki ng, investment, life and pensio ns, general insurance and home 
finance). Each class with the exception of th e deposit class is divide d between providers and 
intermediation activities. As a result of these sub-classes, contributio ns are differentiated 
based on the activity a firm undertakes. 
 
EN 85   EN  
 Ex ante or ex 
post funding Different pools of fund 
by type of business Calculation of contributions Maximum limit on 
contributions Risk weighting 
Austria128 
(AeW fund) Ex ante (with 
ability to raise surplus contributions) No (but the ICS only 
covers non-bank investment firms) As of 2010, investment firms have 
to pay annual contributions of (depending on the number of customers) 1‰ –3‰ of the free income on license-requiring business. Half of the annual contributions (at most) shall be used for an insurance premium (“fidelity insurance”).  Surplus contributions 
are limited to 2,5% of firm's annual fixed costs (maximum to be paid two times in five years)  No 
Austria (funds 
for banks) Ex post The members of the 
five sectoral bank schemes have to support the scheme which needs additional funds, up until a certain limit (1.5% of risk-weighted assets) n.a. n.a. No 
Belgium Ex ante (with 
ability to raise No (but one single 
scheme with pooling of Annual contributions based on 
0.7% of annual turnover and Contributions for an 
individual firm cease if No 
                                                 
128  The Austrian government reviewed the ef ficiency of the existing scheme, especially in light of the major claims recently rais ed by investors. As a result the 
Austrian Securities Supervision Act 2007 has been amended to improve the funding of the scheme (changes effective as from 1 May 2009).  The ex post 
funding mechanism was replaced by a mix of ex ante and ex post funding. Investment firms are now required to pay annual contrib utions. In the case the 
funds available are insufficient to cover claims; the members will need to make surplus contributions.  
 
EN 86   EN surplus 
contributions) assets between deposit-
taking and investment activity) 0.001% of the covered financial 
instruments. the "net total of its 
contributions" since the inception of the fund reached an amount set at seven times the total of its contributions paid over the last three years.  
Bulgaria Ex ante No Two types of contributions: 
Entry contributions – calculated on 
the basis of the minimum required 
capital. 
Annual contributi ons paid in 
quarterly instalments - calculated 
on the basis of the total value of covered financial instruments (up 
to 0,1%) and cash (up to 0,5%)  Yes, contributions are 
suspended when the funding available reaches a level equal to 5% of the client's assets eligible for compensation No 
Cyprus (fund 
for clients of investment firms) Ex-ante  No (but there are two 
ICS, one for credit institutions and one for non-bank investment firms) Two types of contributions: 
Entry contribution which is a fixed 
amount 
Annual contributions calculated as 
0.1% of the eligible funds (monies + financial instruments) held by firms Yes; If the total 
contributions of an investment firm exceed 0.05% of the previous year total eligible funds, no contribution is being made No 
Cyprus (fund 
for clients of 
banks) Ex ante No (but there are two 
ICS, one for credit 
institutions and one for 
non-bank investment Two types of contributions 
 
Entry contributions are fixed.  
Ordinary annual contributions n.a. No 
 
EN 87   EN firms) amount to a percentage of up to 
one per mile (1‰) of the eligible funds and financial instruments of 
the members’ clients. 
Czech republic Ex-ante No Securities dealers make an annual 
contribution amounting to 2% of the volume of fees and commissions generated by their investment services activities. Management companies providing asset management services are also required to pay annual contributions. No No 
Denmark  Mix of ex ante 
and ex post funding (25% of the minimum capital has to be paid in cash, the rest takes the form of pledges by member firms)  One single fund for 
deposit guarantee and investor protection divided into 3 departments by type of firm (credit institutions, mortgage banks, investment companies), but no separation by activity.  The contribution payments for 
investment firms are calculated on a prorata basis: at least 55% is based on the value of the clients' securities and cash balances held by a firm, and the remaining share is based on the number of employees of the firm. Yes; No new 
contributions as the funds available exceed the required minimum. No 
Estonia Mix of ex ante 
and ex post 
funding (right 
to defer part of the payment if No Quarterly contributions based on 
the average turnover of securities 
transactions and the market value 
of the cash and securities held or managed by the firm  Yes; Contributions are 
suspended when the 
assets exceeds the 
minimum required capital No 
 
EN 88   EN commitment 
from the firm to pay upon request) 
Finland Mix of ex ante 
and ex post funding (only part of the minimum capital of the fund has to be paid in cash, the rest being covered by insurance or by a binding commitment from a credit institution to lend.) No Contributions are differentiated by 
type of investment activity (transmission and execution of orders, asset management, placing of financial instruments, custodial and management services, etc.). 
10% of contributions is fixed and 
90% variable. The variable part is calculated based on the number of customers covered. Yes; No new 
contributions as the funds available exceed the minimum capital (contributions raised just to cover the administrative costs arising from the insurance and the lending commitment from the bank) Implicit risk 
weighting as contributions are differentiated by investment service or activity. 
France Ex ante (with 
ability to raise surplus contributions) No Two types of contributions: 
 Entry contributions (certificates of 
association) 
Annual contributi ons calculated 
based on half the value of securities, and for non bank investment firms, on all cash balances,  weighted by a risk factorNo Yes; the level of 
contribution takes into account the probability of default of a firm 
 
EN 89   EN Germany 
(EdW) Ex ante (with 
ability to raise surplus contributions) No (but the ICS only 
covers non-bank investment firms) Two types of contributions: 
 Entry contributions 0.35% or 
3.5% of the liable capital depending on the scope of the licence.  
0.1% or 1% of the liable capital 
depending on licence 
Annual contributions are 
determined by scope of the licence 
for rendering financial services and amounts to 1.23%, 2.46%, 3.85% or 7.7% of gross commission income and of gross earnings on financial transactions, however, not more than 10% of net income. 
so trade on their own account            Surplus contributions 
can be raised, but must not exceed 5 times the last annual contribution due. The overall charge from all types of contributions must not exceed 45% of annual net income.                      Yes, contributions 
are based on the type of licensed / authorised investment business, and on the risk of compensation of the institutions. 
Greece (ASE Guarantee Fund) Ex-ante (with 
the ability to raise surplus contributions) No Entry contributions and annual 
contributions comprising a fixed and a variable element No No 
Greece 
(Hellenic Deposit & Investment Guarantee Fund) Ex ante (with 
the ability to raise surplus contributions) No Decision of calculation of annual 
contributions is still pending. 
 Supplementary 
contributions may be up to three times the annual contributions. No 
Hungary Ex ante 
funding (with No Two types of contributions: 
Entry contributions with a Surplus contributions 
cannot exceed the No 
 
EN 90   EN ability to raise 
surplus contributions) maximum of €11 000 
Annual contributions calculated on 
the basis of the average value of all 
funds deposited by investors with the Fund member in the form of liquid assets or securities to which the Fund’s protection applies, with a maximum of 3‰ of the base 
amount preceding year's annual 
contributions  
Ireland Ex ante 
funding (with ability to raise surplus contributions) Yes; The ICS consists 
of two sub-funds designated as Fund A and Fund B. The categories of firms which contribute to each of these sub-funds are derived directly from the type of Financial Regulator's authorisations.   Fund A firms pay a fixed rate of 
contribution plus a variable contribution which is determined by the band of eligible client numbers into which they fall.  
Fund B firms pay a fixed 
contribution, the amount of which depends on the income band of the firm. No Implicit risk 
weighting as contributions calculations are based on  the type of authorised investment business (fund A or fund B) 
Italy Ex post 
The scheme 
has an initial reserve (€7.7m) to face any pressing or unexpected No Fixed annual contributions to 
cover administrative costs. 
Ex post contributions collected on 
the basis of income generated by investment businesses, with different rates based on services/activities and the situation of credit institutions already members of a deposit guarantee No maximum limit for 
ex post contributions (minimum limit: €260). Implicit risk 
weighting as ex post contributions are differentiated for some services/activities 
 
 
EN 91   EN need. 
 scheme. 
Latvia Ex post No Value of the financial instruments 
held or managed by the firm Maximum 4% of the 
aggregate portfolio of financial instruments capped at the maximum level of compensation No 
Lithuania Ex ante No Annual contributions calculated as 
0.01% of the value of the transactions carried out  Yes; maximum annual 
contribution is LTL 20 000 No 
Luxembourg Ex post No Ex post contributions to cover 
compensation costs allocated according to the amount of protected investment balances  Ex post contributions 
cannot exceed per calendar year 5% of a firm's equity capital No 
Malta Ex ante and ex 
post funding  No Annual contributions consist of a 
fix and a variable part: 
- a fix contribution whose amount 
depends on the category of investment firm 
- a variable contribution calculated 
as a 0.1% of the total revenue of 
the firm but this variable contribution is not paid to the scheme (held by the firm in a No No 
 
EN 92   EN reserve until the scheme makes a 
call for these funds)  
Netherlands Ex ante (with 
ability to raise surplus contributions) No (but the ICS only 
covers non-bank investment firms) Two types of contributions: 
Entry contribution  
Annual contributions consisting of 
a fixed and a variable part, the latter depending on the number of non-professional clients per investment firm Total annual 
contribution per firm limited to 3% of its net worth Besides, the variable contribution is capped at a maximum of nearly Є 113.000 
(2009). No 
Poland Ex ante (with 
ability to raise surplus contributions) No Annual contributions calculated as 
a % of the value of the cash (0.4%) and of financial instruments (0.01%) held on investor's account 
In case the funds available are not 
sufficient to cover the compensation claims, the annual contributions can be increased by an amount not greater than 1.8% Yes; Annual 
contributions are suspended when the member's participation in the scheme is ten times the amount of the defined rate No 
Portugal Ex post (with 
ex ante pledges)  No Fixed annual contributions of €2 
500 to cover administrative costs; Ex post contributions collected in the form of binding pledges Yes; maximum 0,2% 
per year of total protected funds and securities of a firm No 
Romania Ex ante (with 
ability to raise surplus 
contributions) No Two types of contributions: 
Entry contribution which 
represents 1% of the minimum 
initial capital required according to No maximum limits on 
annual contributions, but the surplus 
contribution may not No 
 
EN 93   EN the business activity authorised 
Annual contributions calculated by 
applying a % (1,80% for 2008 
contributions) on the income/fees  from the different investment 
activities exceed twice the 
amount of the most recent annual contribution levied for a member. 
Slovakia Ex ante (with 
ability to raise surplus contributions) No Two types of contributions: 
Entry contribution Annual contributions calculated as 
(a) a % of the amount of fees charged to clients for investment services and ancillary services and as (b) a % of the value of client assets and as (c) a fix contribution increased per each client which is entitled to compensation from the fund ranging from 1 to 20 euros No Implicit risk 
weighting as contributions are differentiated by type of investment business 
Slovenia Ex post No Although there is no ex ante 
funding, investment firms must hold a certain amount of liquid eligible assets calculated based on the number of clients Every investment firm 
must hold eligible assets in the amount of €50 per client but not less than €50 000 and not more than €300 000 No 
Spain (Fogain) Ex ante (with 
ability to raise surplus No (but the ICS only 
covers non-bank investment firms) Annual contributions consist of a 
fix and a variable part: No No 
 
EN 94   EN contributions) - a fix contribution whose amount 
depends on the income band the firm belongs to  
- a variable contribution calculated 
as a % of the value of the financial instruments held or managed, as a % of the investment monies held, and as % of the maximum amount of coverage provided by the 
scheme for each covered client. 
Sweden Ex post No Yearly f ees to cover administrative 
costs of the fund No No 
United 
Kingdom Ex post Yes. The UK scheme is 
divided into 5 classes (deposit taking, investment, life and pensions, general insurance and home finance), with sub-classes for providers and intermediation activities. There is explicit cross-subsidisation between and within the classes. Annual contributions to cover 
management expenses. 
Ex post contributions in different 
contribution groups are allocated 
based on multiple criteria. In the case of the Class D "Investment", the criteria used to calculate 
contributions are:  
- the income for the sub-class D1 
"Fund management" 
- the number of approved persons 
or traders for the sub-class D2 
"Investment intermediation" Annual threshold per 
sub-class determines the maximum amount all firms in that sub-class could be required to pay to cover defaults. Implicit risk 
weighting as contributions are differentiated based on the firms' activity (provider or intermediation) 
 
EN 95   EN Additional funding arrangements  
Schemes need back-up sources of funding in case the funding available and any surplus 
contributions are insufficient to cover compensation claims. 
Borrowing 
All the schemes except Italy, the Netherlands, Poland, and Slovenia have the power to borrow 
funds when its funds are insufficient to pay co mpensation claims. In the Netherlands however, 
since the Central Bank is operati ng the ICS and pre-finances the scheme in case of insufficient 
funding, the scheme in effect borrows the funds from Central Bank. In France, the scheme can 
only borrow from participating firms. So me funds (e.g. Czech Republic, Ireland, and 
Romania) stressed the fact that there is a commercial limit on th e scheme's ability to borrow. 
A state guarantee might be necessary for commercial borrowing.  
Borrowing between the different  compensation schemes is usually not allowed. The only 
exceptions are Slovakia, where the investor-c ompensation scheme and the deposit protection 
scheme can borrow funds from each other, but only for compensation payments purposes. In Belgium there is only one Fund covering depos its and securities. The funds are pooled and 
can be used for compensation purposes whether it is to cover deposits or securities. In 
Denmark, Estonia, and Lithuania where the investor-compensation scheme and other 
guarantee schemes are managed and operated by the same Fund, intra-borrowing between the 
different departments or the di fferent pools of assets is a llowed. In Ireland the investor-
compensation scheme operates two se parate sub-funds (fund A and fund B ) and borrowing 
between these two sub-funds is allowed. 
State funding 
State support might be envisaged in the form of a guarantee granted by the state for a loan 
made to the fund in the following countries: Austria, Denmark, Estonia, and Hungary. In Estonia the fund may also apply for a state loan. In Czech Re public and Slovakia, the fund 
may also ask for a state loan and in addition ask for government subsidies. In the case of Spain the scheme may borrow funds from th e Spanish securities supervisor but on a 
commercial basis. In Germany, following the Phoenix case
129, an urgent measure of last resort 
giving public funds to the nationa l investor-compensation scheme  was introduced in order to 
avoid the fund being unable to pa yout partial compensation paymen ts after the affiliated firms 
contested the legality of special  contributions and refused paymen ts. In Lithuania the "Deposit 
and Insurance Fund" is a st ate undertaking. In Sweden a nd in the United Kingdom the 
schemes can borrow from their National Debt Management Office. 
Insurance 
Taking out insurance is allowed for a number of  investor-compensation schemes: Austria, 
Belgium, Cyprus, Czech Republic, Finland, Gre ece, Hungary, Ireland, Ital y, Malta, Portugal, 
and United Kingdom. In the case of the Austri an scheme (AeW), it is not only allowed but 
obliged to take out insurance. The Czech scheme has been unable up to now to find an insurance company ready to cover this type of  risk. The Irish fund has also analysed this 
                                                
 
129  http://www.e-d-w.de/en/Phoenix-Stand.html   
 
EN 96   EN option on various occasions. Their conclusion is  that it would be costly and require the 
collection and analysis  of a significant quantity of data.  
 
 Borrowing 
power Borrowing between 
schemes or pools State funding  Insurance 
Austria (AeW)  Yes No Yes; fund can borrow 
with state guarantee Obliged to 
take out insurance, but no insurance contracted yet 
Austria (fund for banks) Yes If one scheme needs 
additional funds, other schemes need to contribute up to a certain limit (1.5% of risk-weighted assets) Yes; fund can borrow 
with state guarantee n.a. 
Belgium Yes Single fund covering 
deposits and securities No Allowed but 
no insurance taken out 
Bulgaria Yes No No No 
Cyprus (fund for investment firms) Yes No No Allowed but 
no insurance taken out 
Czech republic Yes No Yes; fund can borrow 
from the state  Allowed but 
no insurance taken out 
Denmark Yes Yes, inter-borrowing 
possible between the different departments Yes; fund can borrow 
with state guarantee No 
Estonia Yes Yes; borrowing 
possible between sectoral funds Yes; fund can borrow 
from the state or with state guarantee No 
Finland Yes No No Allowed but 
no insurance taken out 
 
EN 97   EN France Yes but 
only from participating firms No No No 
Germany 
(EdW) Yes No Last resort measure in 
the Phoenix case (the financing for the partial compensation payments has been assured by a loan granted to EdW by the German Government) No 
Greece (ASE 
Guarantee Fund) Yes No No Allowed but 
no insurance taken out 
Hungary Yes No Yes; fund can borrow 
with state guarantee Allowed but 
no insurance taken out 
Ireland Yes Yes; inter-borrowing 
allowed between the two sub-funds of the ICS  No Allowed but 
no insurance taken out 
Italy No No No Allowed but 
no insurance taken out 
Latvia Yes No No No 
Lithuania Yes Yes; inter-borrowing 
allowed between the ICS and the DGS Yes; the Fund is a 
state undertaking No 
Luxembourg Yes No No No 
Malta Yes No Such funding would 
always be envisaged in a worse case scenario Allowed but 
no insurance taken out (not feasible) 
Netherlands No  No No No 
Poland No No No No 
Portugal Yes No No Allowed but 
 
EN 98   EN no insurance 
taken out 
Romania Yes No No No 
Slovakia Yes Yes; inter-borrowing 
possible between the ICS and the DGS Yes; fund can borrow 
from the state No 
Slovenia No; the 
scheme is not a legal entity No No No 
Spain (Fogain) Yes No Yes, the fund can 
borrow from the financial regulator but on a commercial basis No 
Sweden Yes, via the 
National Debt Office No Yes, the fund can 
borrow from the National Debt Office No 
United 
Kingdom Yes (credit 
facility in 
place) There is explicit 
cross-subsidisation 
between and within 
the 5 pools/classes. Yes, the fund can 
borrow from the Debt 
Management Office Allowed but 
no insurance 
taken out 
 
Estimate of securities and monies held by investment firms 
A small minority of schemes have detailed information on the amount of securities and 
monies held by investment firms and on the nu mber of securities a ccounts held for retail 
clients. 
As of 2008 
(in € million for absolute figures and in € for averages) Securities 
and monies held on behalf of retail investors  Covered 
securities and monies held on behalf of retail investors Number of 
securities accounts held for retail clients Average 
securities and monies held per securities account Average 
covered securities and monies held per securities account 
Bulgaria 1.029 122 n.a. n.a. n.a. 
Cyprus (fund for 
investment 
firms) 
n.a. 514 n.a. n.a. n.a. 
 
EN 99   EN Cyprus 
(fund for banks) 
n.a. 109 n.a. n.a. n.a. 
Denmark n.a. 48 n.a. n.a. n.a. 
Estonia 170 n.a. 16.500 10.279 n.a. 
Greece (ASE Guarantee Fund) 
n.a. n.a. 427 n.a. n.a. 
Hungary 22.399 6.360 847.725 26.422 7.502 
Latvia 491 n.a. 58.902 8.336 n.a. 
Luxembourg n.a. 1.820 n.a. n.a. n.a. 
Netherlands1 n.a. 3.400 170.000 n.a. 20.000 
Poland 75.362 n.a. 1.750.000 43.064 n.a. 
Portugal 103.205 18.179 2.343.372 44.041 7.757 
Romania 839 200 92.800 9.041 2.152 
Spain (Fogain) 
18.497 3.065 n.a. n.a. n.a. 
1 Statistics relating to non-bank investment firms only 
Funds available 
With respect to the ex ante schemes we have tr ied to assess the coverage ratio, i.e. the ratio 
between the readily available f unding and the total monies and securities held by investment 
firms on behalf of retail investors. Due to lim ited data available we have only been able to 
calculate this coverage ratio for a few schemes. 
 Accumulated 
fund size as 
of end 2007 
(€ mln) Contributions 
collected in 
2008 (€ mln) Total amount 
of readily 
available funds 
as of end 2008 
(€ mln) Coverage ratio 
based on total 
monies and 
securities (%) Coverage 
ratio based on 
covered 
monies and 
securities (%) 
Austria (AeW) n.a. n.a. n.a. n.a. n.a. 
Belgium n.a. 50,9 802,7 n.a. n.a. 
Bulgaria 1,21 1,06 2,32 0,23% 1,90% 
 
EN 100   EN Cyprus (fund for 
investment firms) 5,1 0,7 5,8 n.a. 1,13% 
Cyprus (fund for banks) 1,0 0,19 1,2 n.a. 1,11% 
Czech republic 0,9 4,4 5,3 n.a. n.a. 
Denmark Mix of ex ante and ex post funding 
Estonia Mix of ex ante and ex post funding 
Finland 5.3 0.17 12 * n.a. n.a. 
France n.a. n.a. n.a. n.a. n.a. 
Germany (EdW) n.a. 3,34 8,52 n.a. n.a. 
Greece (ASE Guarantee fund) n.a. n.a. n.a. n.a. n.a. 
Hungary 5,0 4,0 9,0 0,04% 0,14% 
Ireland 19,4 4,8 24,5 n.a. n.a. 
Italy Ex post funding 
Latvia Ex post funding 
Lithuania n.a. 0,07 1,5 n.a. n.a. 
Luxembourg Ex post funding 
Malta 1.09 n.a. 1.13 n.a n.a 
Netherlands 9,1 1,8 10,9 n.a. 0,32% 
Poland 13,95 3,4 16,35 0,02% n.a. 
Portugal Ex post funding 
Romania 1,17 1,45 2,62 0,31% 1,31% 
Slovakia 1.64 0.30 1.87 0.32% 2,01% 
Slovenia Ex post funding 
Spain (Fogain) 38,5 7,0 45,5 0,25% 1,48% 
Sweden Ex post funding 
 
EN 101   EN United Kingdom Ex post funding 
(*) In Finland, the minimum cap ital for the compensation scheme of €12m is provided in cash 
up until a certain threshold, the remainder may be covered by insurance or by a binding commitment to lend. 
Level of compensation& co-insurance principle 
In most Member States the maximum amount of  compensation is €20 0 00 (Austria, Belgium, 
Bulgaria as from 1
st of January 2010, Cyprus, Czech Repu blic, Denmark, Estonia, Finland, 
Germany, Hungary, Ireland, Italy, Latvia, Li thuania, Luxembourg, Malta, Netherlands, 
Romania as from 2012). A few Member States (Greece up to € 30 000, Poland up to €22 000, 
Portugal up to €25 000, Slovenia up to €22  000, Sweden up to SEK 250 000) provide 
compensation slightly in excess of the compen sation level foreseen in the ICSD. France and 
the UK offer significantly higher  compensation levels. Spain has increased, as a result of the 
financial crisis, the level of investor-com pensation from €20 000 to €100 000 in October 
2008. The Slovakian scheme is the only scheme to compensate for 100% of the value of the client's assets. 
Only 7 Member States (Finland, Germany, H ungary, Ireland, Latvia, Malta, Poland) have 
adopted and/or maintained the co-insurance pr inciple and cover 90% of the claim up to €20 
000. The UK scheme has beginning of 2009 rem oved the co-insurance principle and as a 
result, increased the compensation limit for investments to £50 000. The objective was to 
match the compensation limit for deposits. The deposit limit was increased in October from 100% of €35 000 to 100% of £50 000. 
 
 Maximum compensation (€) Level of coverage (%) 
Austria €20 000 100% 
Belgium €20 000 100% 
Bulgaria Equivalent amount of €15 339 in 2009 
with transitional arrangement to increase the compensation limit to the equivalent of €20 000 as from the 1
st of January 
2010. 90% 
Cyprus €20 000 100% 
Czech republic €20 000 100% 
Denmark €20 000 100% 
Estonia €20 000 100% 
Finland €20 000 90% 
 
EN 102   EN France €70 000 on financial instruments, €70 000 
on investment monies 100% 
Germany (EdW) €20 000 90% 
Greece (ASE 
Guarantee Fund & HDIGF) €30 000 100% 
Hungary €20 000 as from 1st November 2009 100% of claims up to HUF1 
million; 90% of claims above HUF1 million 
Ireland €20 000 90% 
Italy €20 000 100% 
Latvia €20 000 90% 
Lithuania €20 000 100% 
Luxembourg €20 000 100% 
Malta €20 000 90% 
Netherlands €20 000 100% 
Poland €22 000 100% of claims up to €3 000, 
90% of claims above €3 000  
Portugal €25 000 100% 
Romania Transitional arrang ement in order to reach 
the compensation limit of €20 000 in 2012. 100% 
Slovakia 100% of the value of client's assets 100% 
Slovenia €22 000 100% 
Spain €100 000 since October 2008 100% 
Sweden SEK 250 000 (€24 000) 100% 
United Kingdom £48 000; will be increased to £50 000 as 
from 1 January 2010 100% of the first £30 000 and 
90% of the next £20 000; 100% as from 1 January 2010 
 
 
EN 103   EN The impact of an increase of the compensa tion limit in terms of compensation amounts and/ 
or investors coverage has been  assessed by three schemes.  
Based on the Phoenix case in Germany, an increase of the compensation limit 
• to € 50 000 would result in th e compensation costs rising by 23% 
• to € 100 000 would result in th e compensation costs rising by 37% 
An increase in the maximum compensation to  EUR 50,000 in this compensation case would 
benefit approximately 4.5% of the investor s and an increase to EUR 100,000 an additional 
1.5%. 
 Based on data collected by the Irish scheme in relation to  the W&R Morrogh case, an increase 
of the compensation limit 
• to € 50 000 would result in the compen sation costs rising between 15% and 31% 
• to € 100 000 would result in the compen sation costs rising between 46% and 73% 
An increase of the compensation limit to € 50 000 would have benefit approximately 2.9% of 
the investors and an increase to EUR 100,000 an additional 1.5%. 
 According to the Portuguese scheme, with the current level of covera ge € 25 000, in average, 
82.6% of covered investors would be fully compensated if the ICS was triggered. The 
increase in the level of coverage to € 50 000 and to €100 000 would lead to an increase in the 
proportion of investors that w ould be fully compensated to respectively 91.4% and 96.1%.  
Time limits and right to partial compensation 
The time limit on compensation payment generally ranges from 3 months to 6 months. It is 
important to note that this time limit usually ap plies after the establishment of the eligibility 
and the amount of the claim. But the time between the case's tr igger event and the 
establishment of eligibil ity and the amount of the claim can be very long: 
 Months needed to pay the first claim Months needed to pay the last claim 
Germany 
(EdW) Between 7 months and 37 months 
for the Phoenix case Between 28 months and 45 months; the 
Phoenix case is still open since 2005 which is more than 4 years. 
Hungary Between 1 month and 4 months  Between 4 months and 21 months 
Ireland 24 months 120 months in the case of MMI; the 
W&R Morrogh case is s till open after 8 
years with 1% of the claims remaining to be certified 
 
EN 104   EN Lithuania 2 months 2 months 
Netherlands Within 3 months Within 3 months 
Poland 20 months 33 months 
Sweden n.a. 24 months 
 
There are a few Member States where the time lim it of 3 to 6 months starts to run from the 
date the financial regulator has ascertained the scheme's  payment obligation (Finland, 
France), from when an investor has submitted a compensation claim (Netherlands), or from the date the inaccessibility of th e funds has been ascertained (Sl ovakia). This might in practice 
reduce the payout delays. 
Another option to reduce delays in payments is  partial compensation. Partial compensation is 
never allowed except in Belgium, Czech Republic, Germany, Slovenia and the United Kingdom. In Czech Republic, partial compensation has been used by the fund because of insufficient funds to cover the entirety of the claims. In Germany the scheme has started since 
February 2009 to pay partial compensati on to investors in the Phoenix case.  
"Carry-over mechanisms" are usually not allowe d – that is mechanisms aimed at preventing 
schemes from carrying their compensation debt s over a certain period of time. The only 
exception is the Czech Republic where compensati on rights expire after 5 years. But the fund 
has never encountered any problem to make co mpensation payments within this period of 5 
years. 
Compensation cases 
According to Oxera, the number and size of the compensation cases between 1999 and 2004 
suggests that "many schemes have had no or limited experience of the actual operation of 
their schemes". Six Member States (Austria , Finland, France, Luxembourg, Portugal and 
Sweden) had not experienced any failures be tween 1999 and 2004 that would have triggered 
the operation of the compensation scheme. In all other EU-15 Member States failures had 
occurred but only infrequently (except in the UK).  Most of the compensation cases generated 
a small number of claims except in the cas e of Spain and Ireland. Among the EU-10 new 
Member States only the Czech Republic and Hungary had experienced compensation cases over this period.  
The higher number of claims in the UK can be a ttributed to the inclusion within the scope of 
the UK scheme of claims relating to poor inve stment management and negligent investment 
advice. According to the Oxera report (page 40 ): "only 1-2% are due to losses resulting from 
embezzlement or theft of client assets".  Th e most frequent case of misselling relate to 
pensions. According to the Oxera report (pag e 27): "in the financial year 2002/2003, 88% of 
the activity of the UK scheme related to claims resulting from cases of pension mis-selling".  
There are a few schemes which have dealt w ith compensation cases since 2004: 9 cases in 
Czech republic, 3 cases in Germany (among which the Phoenix case), 4 cases in Greece out of 
which only 2 cases have required compensation action, 5 cases in Italy, 1 case in Lithuania, 4 
 
EN 105   EN cases in the Netherlands, 1 case in Poland, and 1 case in Sweden. The most important case in 
Germany is the Phoenix case. This failure invol ves such a large number of investors and huge 
amounts of compensation claims that the German fund was unable to even start to pay partial 
compensation without the German government support. 
In Austria there is a case before the courts (s ee AMIS case) as to whether amounts need to be 
paid out of the fund.  
 
EN 106   EN  
 Compensation cases between 1999 and 2004 (source: 
Oxera report pg 41 & 130) Compensation cases since 2004 
 Number 
of failures Total 
claims Highest 
number of claims for a failure Highest total 
payout for a failure Number of 
failures Total claims Highest 
number of claims for a failure Highest total 
payout for a 
failure 
Austria (AeW) 0 - - - Legal 
proceedings 
pending in 1 
case (Amis 
case)11 000 11 000 Still to be 
determined 
Belgium 1 750 400 €2.6m - - - - 
Bulgaria n.a. n.a. n.a. n.a. - - - - 
Cyprus 0 - - - - - - - 
Czech republic 6 n.a. n.a. n.a. 9 23 166 19 070 €56m 
Denmark 1 204 204 €1.6m - - - - 
Estonia 0 - - - - - - - 
Finland 0 - - - - - - - 
France 0 - - - n.a. n.a. n.a. n.a. 
 
EN 107   EN Germany 
(EdW) 15 2 411 723 Expected to be 
under €7m3 29 441 29 427 Current estimate 
of €46m 
Greece (ASE Guarantee Fund) 5 n.a. n.a. n.a. 4 5 013 1 948 €2.2m 
Hungary 13 n.a. n.a. n.a. - - - - 
Ireland 3 2 954 2 362 Expected to be 
under €8.5m--- -  
Italy 10 606 394 €5.7m 5 396 231 €0.8m 
Latvia 0 - - - - - - - 
Lithuania 0 - - - 1 16 16 €0.06m 
Luxembourg 0 - - - - - - - 
Malta 0 - - - - - - - 
Netherlands 2 245 n.a. n.a. 3 1 9 5 €0.1m 
Poland 0 - - - 1 1 125 1 125 €7.6m 
Portugal 0 0 - - - - 
Romania n.a. n.a. n.a. n.a. - - - - 
Slovakia 0 - - - - - - - 
 
EN 108   EN Slovenia 0 - - - - - - - 
Spain 0 8 818 6 852 €31.8m in one 
case--- -  
Sweden 0 - - - 1 n.a. n.a. n.a. 
United 
Kingdom 1999   661 
2000   360 
2001   284 2002   139 
2003   164 8 077
6 913
7 4827 598
12 8512 623 €23mn.a. 81 305 
investment 
claims from 
2004/05 to 
2008/09; on 
average 95% 
of these claims 
relate to 
missellingn.a. n.a. 
1 The number of claims and the payout amou nts has not yet been determined for th e most recent compensation case in 2009
 
EN 109   EN  
Eligible claims and claimants 
The investor-compensation schemes do not usua lly cover sources of losses beyond what is 
required in the ICSD except in the UK. The UK scheme is the only one to cover claims for 
compensation resulting from poor investment ma nagement or bad investment advice in the 
event of default of the investment firm. 
The ICS generally cover retail investors on ly. Non-retail investors are excluded from 
coverage unless the nationa l scheme elects to cover losses of such clients. Several schemes 
have extended the coverage to cover claima nts included in Annex I of the ICSD (Czech 
Republic, Denmark, Finland, France, Germany, H ungary, Italy, Lithuania, Poland, Portugal, 
Spain and Sweden). The United Kingdom has ex tended the coverage on ly to some pension 
funds. Finland and Germany cover all categorie s except professional and institutional 
investors. Four Member States (Denmark, Fi nland, Germany, and Lith uania) cover national 
and local authorities (categorie s (2) and (3) of Annex I). In addition one Member States 
(Czech Republic) covers only national authorit ies. Eleven schemes have elected to cover 
medium-sized and large companies (category (8 ) of Annex I). Czech Republic and Lithuania 
cover professional and institutional investors.  Denmark also covers professional and 
institutional investors except when they are a ffiliated to the scheme. Sweden covers also 
professional investors to a cer tain extent, i.e. insuranc e undertakings and collective-
investment undertakings. 
 Coverage of claimants included in Annex I 
Austria (AeW 
and schemes for banks) Yes. Category (8) of Annex I is covered. 
Czech Republic Yes. The Fund covers the claimants listed in points (1), (2), (6) and (8) of 
Annex I. 
Denmark Yes. The Fund covers the claima nts listed in point s (1) apart from 
deposits, funds and securities made by or belonging to institutions which 
are affiliated with the Fund, (2), (3 ), (5), (7) and (8) of Annex I. 
Finland Yes. Categories (2), (3), (4), (5 ), (6) and (8) of Anne x I are covered. Many 
of these will, however, inevitably fa ll into the category of professional 
investors and be thus excluded. 
France Yes. Category (8) of Annex I is covered. 
Germany Yes. The vast majority of cl aimants included in Annex I are covered, 
except professional and institutional investors (incl. pension and retirement funds). 
Hungary Yes. Categories (4),  (7), and (8) are covered. 
Italy Yes. Category (8) is covered. 
 
EN 110   EN Lithuania Yes. Categories (1), (2), (3), and (8) of A nnex I are covered. 
Poland Yes; Pension fund manage ment companies are covered. 
Portugal Yes. Category (8) of Annex I is covered. 
Spain Yes. Professional investors (accordi ng to the MiFID concept) that are not 
expressly stated in Annex I are covered as well as category (8). 
Sweden Yes. The Scheme also covers  insurance undertakings and certain 
collective-investme nt undertakings. 
United Kingdom Yes. Some pe nsion funds are covered. 
 
[1st questionnaire: no answers received yet from France 
2nd questionnaire: no answers received  yet from France, Slovenia] 
 
 
EN 111   EN ANNEX IV – SUMMARY OF THE VIEWS EXPRESSED BY INDUSTRY AND 
INVESTOR ASSOCIATIONS AT THE MEETING HELD ON 3RD SEPTEMBER 2009   
 1. Updating compensation limits 
The compensation limit set when the Investor Compensation Scheme Directive was 
introduced in 1997 was a minimum of €20 000 for each client. Is that  minimum level still 
adequate or should it be increased? If it is increased, what is a suitable level and what is the 
basis for suggesting that new level? 
 Is there merit in aligning the limit to the Deposit Guarantee Scheme Directive level (i.e. at 
least €50 000 per client per firm increasing to  a fixed level of €100 000 by December 2010)? 
 
Most industry participants were of the view th at there should not be any automatic alignment 
with the DGS compensation level. In their view the nature of the risks addressed are different. 
One participant suggested that the minimum level of €20 000 should be maintained as the 
Member States have the option to go beyond th is level if needed. A nother respondent thought 
it would make sense to increase this mini mum amount if the economics show that the 
investors are not anymore adequately protected.  
A few industry participants were  in favour of aligning the co mpensation level with the DGS 
level in order to maintain investor confidence and to maintain a leve l playing field between 
investment and banking products. 
 Investor representatives suppor ted an alignment of compensation level with the Deposit 
Guarantee Scheme. 
 
2. Deletion of the co-insurance principle 
The directive currently allows Member States to  introduce a co-insurance principle (that is, to 
require clients to bear a propor tion of any loss). Should the opti on of co-insurance be deleted 
so that clients cannot be requi red to bear any proportion of the loss (within the compensation 
limits)? 
 
There was a great consensus, both from industry and investors' associations, to remove the co-
insurance principle.  Investors cannot be reasonabl y expected to be able to assess the risk of 
the investment firm they choose to deal wit h. In addition it is a confusing message for the 
 
EN 112   EN investor. In the case the co-insurance principle is maintained it should  at least be harmonised 
across Member States to avoid any competition issue. 
 
3. Default of a third party depositary or custodian 
Should compensation be payable under the Directive where th e default is not by the 
investment firm itself but by a third party depo sitary or custodian appoi nted by the firm to 
hold client assets (i.e. where th e default of a third party results  in the firm not being able to 
return assets to the client)? If  so, what third parties and what situations should be covered? If 
not, do you believe it is justifiable that the clie nt's position should differ  according to whether 
the firm holds client assets itself or chooses a third party to hold the assets? 
 
There was a clear consensus that the investor shoul d be protected in case of failure of a third 
party custodian, but there were divergent view s on how to achieve this or whether it was 
possible to do so. A number of participants pointed  out that this raises very difficult technical 
and policy issues. For several participants the imp lications for investment firms of the specific 
MiFID requirements relating to the use of a thir d party depositary were not completely clear. 
In the event the scope of the schemes would be  extended to cover failure of the third party 
custodian, everyone agreed that  the custodians shoul d be required to contribute to the 
schemes.  
 On the issue of compensation for failure of a UCITS depositary, a few pa rticipants advised to 
wait for the outcome of the UCITS depositaries consultation and the Alternative Investment 
Fund regulatory framework before moving forward on this topic. 
 
4. Money market funds 
Apart from bank deposits, are there any othe r types of investments  (for example money 
market funds) for which an investo r should be entitled to compensation if th e investment is not 
repaid? If so, why do they deserve special treatment and could this  create an unl evel playing 
field with other types of investments?  
 
All participants ag reed that money market funds shoul d not be covered by the ICSD. This 
would imply covering investment risk which is  inherent to any investment product. The 
funding of such a scheme would also not be feas ible in view of the ex tent of the losses to 
cover. Different options were put forward such  as improved disclosure, clear definition of 
money market funds, etc. 
 
 
EN 113   EN There was one caveat from the investor side in the case the investment firm deposits the 
client's investment monies in "qualified money market funds" as it is allowed by article 18 of 
the MiFID Implementing Directive. In case the money market fund would decrease in value, 
the investor should be compensated by the scheme. 
 
5. Funding of schemes 
Should a level of pre-funding be required for a ll schemes? If so, on what basis would the 
amount required to be pre-funded be assessed? 
 
Most participants agreed that th e schemes need to be at least partially pre-funded if they want 
to be credible towards the investors. Some of  the participants suggested that the funding 
principles (ex ante or ex post) of Investor Compensation schemes should be linked to the ones 
of the Deposit Guarantee Scheme . One of the investors' associations was in favour of total 
pre-funding. 
 Some of the participants underlined the fact  that no ex ante funding can be designed to 
overcome a worst case scenario. Complementar y funding measures should be foreseen. 
 
With respect to the basis on which to assess th e pre-funding, the partic ipants had either no 
views or thought that it was a technical matter to  be dealt with at the level of each scheme.  
 
6. Provisional payouts 
Investor compensation schemes are required under the directive to reimburse investors within 
three months of "the establishment of the elig ibility and the amount of the claim". But, as the 
eligibility and the amo unt of the claim are determined by national law (notably insolvency 
law), the waiting period for investors can be considerable (in some cases several years if 
there are court proceedings rela ted to insolvency). Should inves tors be entitled to a partial 
provisional payment?  If so, how could this work in practice? 
 
Some participants raised doubts about the possi bility to make provisi onal payout while the 
eligibility of the claim has not yet been asce rtained due to the fact  that in case of 
establishment of non-eligibility the investor s hould pay-back the amount received to the fund.  
 Several of the participants thought there wa s no need to adapt th e rules to the Deposit 
Guarantee Scheme. There was not the same need in the case of investments that the investor 
 
EN 114   EN gets compensated within days as it is necessa ry for deposits which investors use for day-to-
day living expenses. 
 One of the participants underlined the importan ce to set realistic deadlines. If the schemes can 
not meet the shortened payout delays, this w ould be damaging for the credibility of the 
schemes.   
 Investors' associations were of  the view that investors shoul d be compensated within days. 
They also put forward the idea to link the pa yout delay to the tri gger event, meaning the 
default of the investment firm. Moreover, they put forward the idea to create a special scheme 
to cover the cases of invest ors not paying back to the fund the money received as a 
provisional payout when the non-eligibil ity of the claim was established.  
 
7. Information to clie nts about the directive 
Is the scope and coverage of the Investor Compensation Schemes Directive generally 
understood by investors? Should firms provide more information upfront to clients about the 
scope and level of compensation provided for unde r the directive? Specifi cally, should more 
information be provided about what the scheme does and does not cover? 
 
There was a large consensus that disclosure  requirements should be strengthened. But the 
information disclosed should be in a non-tech nical language and expl icit about the risks 
which are and are not covered by the scheme. 
 According to one of the particip ants, due to the crisis, public aw areness of the existence of the 
schemes has improved. One of the investors' associations suggested improving investor 
education via for example public campaigns. He also mentioned that misleading information 
about scheme coverage had been ci rculated in some Member States. 
 
8. Coverage of non-retail investors 
Should some of the non-retail in vestors listed in Annex I of the Directive be covered by 
investor compensation schemes? 
 
The participants had not clear views on an exte nsion of the scope of coverage. Several of 
them agreed that it would make sense to alig n retail investor defini tions across directives 
(ICSD, MiFID, Prospectus) and to take into  account the "opt-ins" allowed by MiFID. 
 
EN 115   EN  
9. Other issues 
Are you aware of any other practical issues  concerning the functioning of the Investor 
Compensation Schemes Directive that may have caused difficulties for investors or firms? 
 
The European Commission asked whether civ il claims for breach of conduct of business 
obligations should be covered. There was little comment on this issue. 
 One of the participants wanted to draw the attention on the scope of the ICSD. If an 
investment firm is not allowed to hold client's  assets, it should not be covered by the scheme. 
 
 
EN 116   EN ANNEX V – THE AVERAGE AMOUNT HELD BY INVESTMENT FIRMS ON 
BEHALF OF RETAIL INVESTORS  
Total securities held per household 
 As there is very limited data available at the national investor compensation schemes about 
the average amount held by investment firms on be half of retail investors, the average amount 
of securities held by household was used a proxy. This proxy was calculated by dividing the 
amount of securities held by households  by the number of households.  
 The amount of securities held by households wa s based on the "Financial accounts – balance 
sheets – households; non profit institutions" published by Eurostat (ESA-95 methodology
130). 
The categories of financial assets usually held  in a securities account by investment firms on 
behalf of the investor were ta ken into account: securi ties other than shares (f3), quoted shares 
(f511), and mutual funds shares (f52).    
 As there is no data available on the number of securities account s owned by retail investors, 
the number of households was used as a proxy
131. 
 Table: Average amount of securities held per household in 2007 – in Euro 
 
                                                
 
130  http://circa.europa.eu/irc/dsis/nfacc ount/info/data/esa95/esa95-new.htm   
131  Source Eurostat: 
http://epp.eurostat.ec.europa.eu/portal/page/porta l/living_conditions_and_social_protection/data/main_t
ables    
 
EN 117   EN Securities 
other than 
sharesQuoted 
sharesMutual 
fund 
sharesTotal 
securities 
Austria 10.877 7.187 14.056 32.119
Belgium 15.053 21.657 29.258 65.967
Bulgaria 36 578 17 631
Cyprus n.a. n.a. n.a. n.a.Czech Republic n.a. n.a. n.a. n.a.Denmark 11.324 13.918 16.390 41.633Estonia 847 901 403 2.150Finland 1.783 14.219 8.920 24.922France 2.089 4.890 12.247 19.226Germany 8.974 5.186 13.886 28.047Greece 7.224 12.192 3.969 23.385Hungary 1.239 354 2.503 4.096Ireland 75 12.409 n.a. n.a.Italy 30.899 8.578 11.158 42.056
Latvia 8 n.a. n.a. n.a.
Lithuania 392 673 199 1.264Luxembpourg n.a. n.a. n.a. n.a.Malta n.a. n.a. n.a. n.a.Netherlands 6.927 14.295 7.425 28.647Poland 95 1.264 2.216 3.576Portugal 5.170 3.433 7.164 15.768Romania 38 1.902 188 2.128Slovakia 258 n.a. 1.183 n.a.Slovenia 669 7.038 4.617 12.324Spain 3.442 9.585 12.658 25.685
Sweden 3.369 15.900 13.248 32.517
United Kingdom 1.508 9.436 8.574 19.518
Average EU-27 4.882 7.886 8.109 21.283
Average EU-15 7.765 10.920 12.227 30.730
Median EU-27 1.783 7.187 7.425 21.451
Median EU-15 6.049 10.889 12.247 28.047
 
Source: Eurostat; Data for quoted shares were not provided by Eurostat for the UK and Italy. 
Related to the UK we have used informati on provided by the UK Office National Statistics -
Financial Statistics No. 570 Oc tober 2009 (Table 12.1N);   
http://www.statistics.gov.uk/STATBASE/Product.asp?vlnk=376  
Related to Italy we have used  information provided by Banca d' Italia – Statistical Appendix – 
Abridged report 2007: http://www.bancaditalia .it/pubblicazioni/r elann/rel07/encf07/stat_app_07.pdf
  
The number of households for Ireland and Sweden  were not provided by  Eurostat. We used 
respectively information published by Central Statistics Office Ireland 
(http://www.cso.ie/px/pxeirest at/database/eirestat/Census% 20of%20Population/Census%20of
%20Population.asp ) and Statistics Sweden 
(http://www.scb.se/Pages/ TableAndChart____146284.aspx ). 
 
 
EN 118   EN ANNEX  VI – DESCRIPTION OF SIGNIFICANT COMPENSATION CASES  
The Amis case 
The AMIS group consisted of two companies:  Asset Management Investment service AG 
(AMIS) and AMIS Financial Consulting AG (AFC ) which are both commonly referred to as 
the "AMIS case". Both companies were not allowe d to hold clients' assets and, for this reason, 
pursuant to Austrian law were not obliged to pa rticipate in the investor compensation scheme 
for non-bank investment firms (AeW). Client 's money was transferred directly to 
Luxembourg depositary banks and invested in two UCITS funds. 
 AMIS became insolvent in 2005 subsequent to a fraud. Out of  16 000 investors, 12 000 have 
filed a claim with the Austrian compensati on scheme for a total amount of €145 million. The 
Austrian ICS has refused to compensate i nvestors and referred them to the Luxembourg 
depositary banks. This scheme position was ch allenged before an Austrian Court which 
obliged the scheme to compensate investors since "AMIS held the funds indirectly". The 
Austrian scheme has appealed against this judgment. 
 In the case the Austrian scheme would have to compensate the AMIS in vestors, it could only 
meet payment up to € 5,5 million. The amount of  additional ex-post contributions would be 
too important in order to be sustainable for (some of) its participating members. 
 In light of these events the Austrian Securities Supervisio n Act 2007 has been amended in 
order to satisfy medium and large claims as well as mitigating the risks of such claims as well. 
Additional disclosure obligations  have been introduced. For example, investment firms have 
to clearly inform investors that they are prohib ited from holding clients'  assets under Austrian 
requirements. The funding of the scheme has be en strongly reinforced by requiring members 
to pay an annual fee and by in cluding the option for the f und to be backed by a state 
guarantee. These changes became effective as from 1 May 2009. 
The Phoenix case
132 
In Germany, the investment firm Phoenix Ka pitaldienst Gmbh (Phoenix) became insolvent 
because of illegalities in its activities. On March 15, 2005 the German Financial Supervisory 
Authority (BaFin) ascertained a nd notified the occurrence of an  event of claim at Phoenix 
Kapitaldienst GmbH. Investors had to file th eir claim for compensation within one year 
starting from the notification date. The German  ICS for investment firms, EdW, received 
more than 30,000 compensation claims for a to tal amount of € 674 mill ions. The insolvency 
assets amounted to circa €230 million which could cover a little more than 30% of the claims. 
The compensation payments were initially planne d to be made after the disbursement from 
the insolvency assets. This implied that the start of the compensati on payments could only 
                                                 
132  http://www.e-d-w.de/en/Phoenix-Stand.html 
 
EN 119   EN start once the insolvency plan was confirme d by the insolvency administrator and the 
creditors. But this plan was challenged befo re the Court by one of the largest creditors 
(creditor "X"). "X" argued that a large portion of  the insolvency assets were not part of the 
Phoenix asset pool (approx. EUR 162 million of a total of approx. EUR 230 million) and 
therefore may not be distribute d to investors under the inso lvency plan. End October 2007, 
the Court's ruling was in favour of "X". EdW in formed via its website that "as a result, no 
payments to creditors are to be expected from the insolvency estate in the foreseeable future". The insolvency administrator has introdu ced an appeal against this ruling. 
In order to be able to compensate investors, however, the EdW started preparing partial 
compensation payments. EdW's requested special  contributions from participating members 
to finance the partial compensa tion payments.  Many institutions  affiliated to EdW appealed 
against the contribution request s and refused payments. In Se ptember 2008 the administrative 
court of Berlin suspended the obligation of the affiliated institutions to pay special contributions owing to "doubts about the legitimacy  of the legal regulatio ns pertaining to the 
collection of special contributions ". EdW has introduced an appeal. 
The data collection and analysis to enable th e calculation of partia l compensation payments 
was completed in December 2008. As result Ed W has started paying pa rtial compensation as 
from February 2009. EdW has assessed the tim e required to review  and disburse the 
individual claims to about 2 1/2 years (appr ox. EUR 128 million over the next 2.5 years). The 
financing for the compensation payments has b een assured by a loan granted to EdW by the 
German Government. 
 
 
EN 120   EN ANNEX  VII  – DATA ON COMPLAINTS ABOUT INVESTMENT ADVICE  
The Commission has asked FI N-NET members to fill out  a questionnaire concerning 
complaints on financial services. Seven Me mber States have provided detailed data 
concerning complaints in the field of investme nt services, more specifically concerning 
investment advice.  
  Table X: Complaints on advice concerning investment products by Member State  
 2007 2009 2009* – data limited 
to first 6 months 
France 78 294 234
Belgium 62 100 103
Italy 95 63 81
Portugal 8 12 5
Germany 384 1 325 n.a.
United Kingdom 46 176 22 890 6 908
Ireland 384 1 039 860
Source: FIN-NET members, September 2009 
 
EN 121   EN ANNEX VIII  – ICSD  PROBLEM TREE  
 
 
          
 
 
   
 
      
 Drivers Problems Effects 
Problems in the 
practical functioning 
of the ICSD: 
- Funding of the 
schemes  
- Payout delays 
- Inadequate 
awareness of investors
Inadequacy of the 
ICSD due to 
subsequent changes 
in the EU regulatory 
framework and in the financial services 
industry: 
- (Non-) coverage of 
mis-selling or poor 
advice 
- (Non-) coverage of 
non-retail clients  
 
 
Gaps in the 
regulatory system: 
- (Non-) coverage of 
failure of a third-party 
custodian
Amendment of the 
minimum coverage of 
the DGS : 
- Level of 
compensation & co-Investor protection issues 
 
 Investor protection 
might be compromised 
in case: 
- the scheme is not working in an efficient way  - there is a gap in the  
coverage 
 
 
 Uneven degree of 
investor protection   
between Member States 
depending on differences in the level and scope of 
coverage. 
 
Industry 
 
 Unlevel playing field  
between investment 
firms across EU Member States 
 
 Investor detriment 
- Unpaid claims in case of 
insufficient funding at the 
level of the scheme 
- Very long and uncertain 
payout delays  
- No right to scheme 
compensation in case of failure of a third party 
custodian or a UCITS 
depositary or sub-custodian 
- Different level and scope 
of protection between 
Member States 
Undermined confidence  
in the operation of the 
schemes and in the level and scope of coverage and 
as a result in the operation 
of the investment firms
Industry 
 
 Distortion of 
competition across the EU affecting the proper functioning of a single market for investment services 
(differences in terms 
of the functioning of the schemes and the level and scope of 
coverage) 
 
 
 Distortion of 
competition within Member States 
between different 
investments: cash deposits vs. financial instruments held as investments leading to 
competitive
 
EN 122   EN ANNEX IX – SUMMARY OF THE MEETING WITH NATIONAL INVESTOR 
COMPENSATION SCHEMES ON 9TH FEBRUARY 2010 
The Commission services organised a hearing on the review of the Investor Compensation 
Schemes Directive on Tuesday 9 February. Only  the compensation schemes were invited, as 
discussions with Member States  are taking place in the ESC a nd a hearing with industry and 
investors took place in September 2009.  
 The purpose of the meeting was to discuss tech nical issues concerning  the funding, the level 
of compensation and the payout delays in order to further complement the information gathered via the two questionnaires we sent to the schemes in J une and November 2009. 
Moreover, as no meeting of the compensation schemes at European level had ever been 
organised, the hearing gave an opportunity to the schemes to know  about the practices of the 
other schemes. 
 
Funding 
 
How to assess the probability of firm defaults  and the related potential liabilities for the 
scheme? 
 
All of the schemes did agree that it is nearly im possible to assess the pr obability of defaults 
and the related potential liabiliti es. There are too many uncertainti es at stake: type of failed 
investment firm, causes of the insolvency, difficu lty in gathering the necessary data, etc. As 
an example, bankruptcy does not  necessary lead to a case fo r compensation. An investment 
firm can indeed go bankrupt without harm to th e investors. In the vi ew of most of the 
schemes, they can only try to make forecasts of the short to medium term  liabilities relating to 
known compensation cases.  
 In terms of the data collected  by the schemes, there are two approaches. In some Member 
States, the schemes do act simply  as a payout box and do not coll ect any data on the client's 
assets held by investment firms. In other Memb er States, the schemes collect such data from 
the investment firms themselves and/or their na tional regulator provides them with such data. 
 
 How to assess the adequacy of your funding a rrangements in light of  potential liabilities? 
What methodologies are used to calculate fund ing? What is the appropriate level of pre and 
post funding?  
 
 
EN 123   EN It is nearly impossible to assess the adequacy of  the funding levels in lig ht of the difficulties 
explained above. 
 Most of the schemes support the introduction of  pre-funding principles and more transparent 
systems. Some of the schemes stressed the im portance of pre-funding to enhance investor 
confidence. One of the schemes disagreed by  saying that an explicit backing by the 
government would be more efficient in tackling investor confidence. In  addition the matter of 
pre- and/or post-funding is nevertheless not as important as in the case of the DGS as having 
enough liquidity readily available is less critical. Another argume nt raised in favour of pre-
funding by one of the schemes was that it might also contribute to market discipline, although 
this was disputed by another scheme saying this would not solve the problem of fraud. 
  Several schemes underline the importance of ha ving different sources of funding. Pre-funding 
can serve as a first protection layer but will no t be sufficient in case of failure of a major 
investment firm. Ex post fundi ng can help to handle major fa ilures. On top of that, the 
schemes should have access to additional sources  of liquidity such as commercial loans, 
insurance and finally government support. Some  of the schemes reacted by saying that in 
practice commercial loans and insuran ce contracts are not a viable option. 
 
What are the most appropriate criteria to  calculate contributions? Should it be 
differentiated by investment business? How to di fferentiate the calculation according to the 
risks each firm imposes on the sc heme (i.e.: risk-based approach)? 
 
Although it seems difficult to have a general rule  to calculate contributions, several schemes 
mentioned that the contributions should be pr oportional to the size of the business. The 
volume of the assets eligible for compensation wa s given as an example as  it is directly linked 
to the risks posed by the firm to the scheme. It  was also stressed that the contributions should 
take into account the financia l capability of the firms.  
 A few schemes have in place monitoring tools enabling them to check the accuracy and 
completeness of the data reported by the firm s, and the related contributions paid.  
 
When there are limits on ongoing and/ or  exceptional contributions, how to assess the 
adequacy of these limits?  
 
 
EN 124   EN There were two examples given. One of the sc heme stated that the limits are calculated 
according to the affordability of the industry, in  order to avoid putting the sector in jeopardy. 
Another scheme explained that the limits are determined by the scheme's own assessment of the firm on a discretionary basis. 
 
Do schemes currently publish details of  how they calculate potential liabilities? 
Do schemes currently publish details of the funds immediately available to meet claims? 
 
The transparency level differs a lot from one scheme to the other. In some countries the 
scheme's annual report is made publicly available, in others  not. The level of information 
disclosed in the annual report differs too. 
 
Minimum level of compensation 
 
How to assess whether the minimum level of compen sation is still sufficient to protect the 
investment of retail investors? 
 How to assess the impact of any change in th e minimum compensation level on the funding 
arrangements? 
 Have you ever seen any ev idence of distortion of competition  as a result of different levels 
of compensation between Member States, and/ or between the deposit guarantee scheme and 
the investor compensation scheme? 
 
Most of them are not in favour of raising the compensation limit. A few schemes mentioned 
that an increase of the compensation level woul d mean a significant increase of compensation 
costs although only a small percentage of additional investors would be covered.  
 The issue of distortion of competition as a result  of different compensation levels between the 
ICS and the DGS was controversial.  
 
Payout delays 
 
EN 125   EN  
What are the main obstacles to a prompt pay out of compensation to investors?  
 How could the situation be improved within th e current framework? What do you believe is 
a reasonable period for a payout to  be made to an investor? 
 
The schemes do not support a reduction of the payout  delays. In their view  the best solution to 
reduce the payout delays would be to introduce in  the Directive some principles to oblige the 
insolvency authorities to provide informati on to the relevant compensation scheme when 
examining an insolvency case or even to i nvolve them in the insolvency procedure. 
 
For those schemes where partial compensation payment is allowed, how do you ensure that 
no undue money is paid to the investors and is there any means to recover money unduly 
paid out? 
 
In case of too large partial compensation payments , reclaiming money from investors is a very 
sensitive and expensive pro cess (e.g. court proceedings).
 
EN 126   EN ANNEX X – IMPACT OF THE INTRODUCTION OF GENERAL FUNDING PRINCIPLES UPON INVESTMENT FIRMS  
Two scenarios were developed: 
Scenario 1 : target fund level of 0.50% of the covere d securities and monies held by investme nt firms on behalf of retail clients, and 
target fund level is 100% ex ante funded 
 
EN 127   EN Scenario 1 0,50% 100%
Amounts in € 
millionsSecurities 
and monies 
held on 
behalf of 
retail 
investorsCovered 
securities 
and monies 
held on 
behalf of 
retail 
investorsTotal 
amount of 
readily 
available 
funds as of 
end 2008Coverage 
ratio based 
on total 
securities 
and moniesCoverage 
ratio 
based on 
covered 
securities 
and 
moniesTarget fund 
level = 0,50% 
of covered 
securities 
and moniesIncrease in ex 
ante funding 
needs if target 
fund is 100% ex 
ante funded# participating 
firmsaverage costs 
increase per 
member (in €)# securities 
accounts 
held for retail 
clientsaverage 
costs 
increase per 
retail client 
(in €) if 100% 
pass on
Austria n.a. n.a. n.a. n.a. n.a. n.a. n.a. 119 n.a. n.a. n.a.
Belgium n.a. n.a. 803 n.a. n.a. n.a. n.a. 112 n.a. n.a. n.a.
Bulgaria 1.029 122 2,32 0,23% 1,90% 0,61 -1,71 126 -13.571 n.a. n.a.
Cyprus (banks) n.a. 109 1,20 n.a. 1,11% 0,54 -0,66 n.a. n.a. n.a. n.a.
Cyprus (IF) n.a. 515 5,80 n.a. 1,13% 2,57 -3,23 71 -45.451 n.a. n.a.
Czech republic n.a. n.a. 5,30 n.a. n.a. n.a. n.a. 54 n.a. n.a. n.a.
Denmark (1)n.a. 48 166,10 n.a. 346,76% 0,24 -165,86 203 -817.047 n.a. n.a.
Estonia 170 n.a. 0,40 0,24% n.a. n.a. n.a. 24 n.a. 16.500 n.a.
Finland n.a. n.a. 12,00 n.a. n.a. n.a. n.a. 151 n.a. n.a. n.a.
France n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Germany n.a. n.a. 8,52 n.a. n.a. n.a. n.a. 790 n.a. n.a. n.a.
Greece n.a. n.a. n.a. n.a. n.a. n.a. n.a. 84 n.a. 427 n.a.
Hungary 22.399 6.360 9,00 0,04% 0,14% 31,80 22,80 57 400.000 847.725 26,90
Ireland n.a. n.a. 24,50 n.a. n.a. n.a. n.a. 5370 n.a. n.a. n.a.
Italy n.a. n.a. 13,90 n.a. n.a. n.a. n.a. 926 n.a. n.a. n.a.
Latvia 491 n.a. n.a. n.a. n.a. n.a. n.a. 39 n.a. 58.902 n.a.
Lithuania n.a. n.a. 1,50 n.a. n.a. n.a. n.a. 33 n.a. n.a. n.a.
Luxembourg (2)n.a. 1.820 n.a. n.a. n.a. 9,10 9,10 239 38.075 n.a. n.a.
Malta n.a. n.a. 1,13 n.a. n.a. n.a. n.a. 38 n.a. n.a. n.a.
Netherlands n.a. 3.400 10,90 n.a. 0,32% 17,00 6,10 346 17.630 170.000 35,88
Poland 75.362 n.a. 16,35 0,02% n. a. n.a. n.a. 79 n.a. 1.750.000 n.a.
Portugal (2)103.205 18.179 n.a. n.a. n.a. 90,89 90,89 74 1.228.284 2.343.372 38,79
Romania 839 200 2,62 0,31% 1,31% 1,00 -1,62 101 -16.052 92.800 -17,47
Slovakia 584 93 1,87 0,32% 2,01% 0,47 -1,40 38 -36.969 n.a. n.a.
Slovenia n.a. n.a. n.a. n.a. n.a. n.a. n.a. 24 n.a. n.a. n.a.
Spain 18.497 3.065 45,50 0,25% 1,48% 15,33 -30,18 146 -206.678 n.a. n.a.
Sweden n.a. n.a. n.a. n.a. n.a. n.a. n.a. 235 n.a. n.a. n.a.
United Kingdom n.a. n.a. 8,80 n.a. n.a. n.a. n.a. 10.104 n.a. n.a. n.a.
Average - - - 0,20% 39,57% - - - - - -
Average excl. DK 1,18%
Median - - - 0,23% 1,40% - - - - - -
Median excl. DK 1,22%
(1)Does not take into account the amounts pledged by investment firms of €333m
(2)Being ex post funded schemes we assumed that these schemes have no funds readily available  
 
EN 128   EN Scenario 2 : target fund level of 1.00% of the covere d securities and monies held by investme nt firms on behalf of retail clients, and 
target fund level is 100% ex ante funded 
 
EN 129   EN Amounts in € 
millionsSecurities 
and monies 
held on 
behalf of 
retail 
investorsCovered 
securities 
and monies 
held on 
behalf of 
retail 
investorsTotal 
amount of 
readily 
available 
funds as of 
end 2008Coverage 
ratio based 
on total 
securities 
and moniesCoverage 
ratio 
based on 
covered 
securities 
and 
moniesTarget fund 
level = 1,00% 
of covered 
securities 
and moniesIncrease in ex 
ante funding 
needs if target 
fund is 100% ex 
ante funded# participating 
firmsaverage costs 
increase per 
member (in €)# securities 
accounts 
held for retail 
clientsaverage 
costs 
increase per 
retail client 
(in €) if 100% 
pass on
Austria n.a. n.a. n.a. n.a. n.a. n.a. n.a. 119 n.a. n.a. n.a.
Belgium n.a. n.a. 803 n.a. n.a. n.a. n.a. 112 n.a. n.a. n.a.
Bulgaria 1.029 122 2,32 0,23% 1,90% 1,22 -1,10 126 -8.730 n.a. n.a.
Cyprus (banks) n.a. 109 1,20 n.a. 1,11% 1,09 -0,12 n.a. n.a. n.a. n.a.
Cyprus (IF) n.a. 515 5,80 n.a. 1,13% 5,15 -0,65 71 -9.211 n.a. n.a.
Czech republic n.a. n.a. 5,30 n.a. n.a. n.a. n.a. 54 n.a. n.a. n.a.
Denmark (1)n.a. 48 166,10 n.a. 346,76% 0,48 -165,62 203 -815.867 n.a. n.a.
Estonia 170 n.a. 0,40 0,24% n.a. n.a. n.a. 24 n.a. 16.500 n.a.
Finland n.a. n.a. 12,00 n.a. n.a. n.a. n.a. 151 n.a. n.a. n.a.
France n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Germany n.a. n.a. 8,52 n.a. n.a. n.a. n.a. 790 n.a. n.a. n.a.
Greece n.a. n.a. n.a. n.a. n.a. n.a. n.a. 84 n.a. 427 n.a.
Hungary 22.399 6.360 9,00 0,04% 0,14% 63, 60 54,60 57 957.895 847.725 64,41
Ireland n.a. n.a. 24,50 n.a. n.a. n.a. n.a. 5370 n.a. n.a. n.a.
Italy n.a. n.a. 13,90 n.a. n.a. n.a. n.a. 926 n.a. n.a. n.a.
Latvia 491 n.a. n.a. n.a. n.a. n.a. n.a. 39 n.a. 58.902 n.a.
Lithuania n.a. n.a. 1,50 n.a. n.a. n.a. n.a. 33 n.a. n.a. n.a.
Luxembourg (2)n.a. 1.820 n.a. n.a. n.a. 18, 20 18,20 239 76.151 n.a. n.a.
Malta n.a. n.a. 1,13 n.a. n.a. n.a. n.a. 38 n.a. n.a. n.a.
Netherlands n.a. 3.400 10,90 n.a. 0, 32% 34,00 23,10 346 66.763 170.000 135,88
Poland 75.362 n.a. 16,35 0,02% n.a. n.a. n.a. 79 n.a. 1.750.000 n.a.
Portugal (2)103.205 18.179 n.a. n.a. n.a. 181,79 181,79 74 2.456.568 2.343.372 77,57
Romania 839 200 2,62 0,31% 1,31% 2,00 -0,62 101 -6.164 92.800 -6,71
Slovakia 584 93 1,87 0,32% 2,01% 0,93 -0,94 38 -24.728 n.a. n.a.
Slovenia n.a. n.a. n.a. n.a. n.a. n.a. n.a. 24 n.a. n.a. n.a.
Spain 18.497 3.065 45,50 0,25% 1,48% 30,65 -14,85 146 -101.712 n.a. n.a.
Sweden n.a. n.a. n.a. n.a. n.a. n.a. n.a. 235 n.a. n.a. n.a.
United Kingdom n.a. n.a. 8,80 n.a. n.a. n.a. n.a. 10.104 n.a. n.a. n.a.
Average - - - 0,20% 39,57% - - - - - -
Average excl. DK 1,18%
Median - - - 0,23% 1,40% - - - - - -
Median excl. DK 1,22%
(1)Does not take into account the amounts pledged by investment firms of €333m
(2)Being ex post funded schemes we assumed that these schemes have no funds readily available  
 
EN 130   EN The countries underlined are countries wher e the compensation scheme is funded with a mix of ex ante a nd ex post funding. The 
countries highlighted in grey are schemes with ex post funding. 
 
 
EN 131   EN ANNEX XI – GLOSSARY OF ACRONYMS  
AES: Athens Stock Exchange Members Guarantee Fund 
AeW: Anlegerentschädigung von Wertpapier dienstleistungsunternehmen GmbH 
(Austrian Investor Compensation Sche me for non-bank investment firms) 
CESR: Committee of European  Securities Regulators 
DGS: Deposit Guarantee Scheme DGSD: Deposit Guarantee Scheme Directive ECB: European Central Bank EdW: Entschädigungseinrichtung der Wert papierhandelsunternehmen (German 
Investor Compensation Scheme for non-bank investment firms) 
EFAMA: European Fund and A sset Management Association 
ESC: European Securities Committee ESMA: European Securities and Markets Authority ESME: European Securities Markets Group FOGAIN: Fondo General de Garantia de  Inversiones (Spanish Investor 
Compensation Scheme) 
FSCS: UK Financial Servi ces Compensation Scheme 
HDIGF: Hellenic Deposit and Investment Guarantee Fund  
ICCL:  Investor Compensation Company Limited (Irish Investor Compensation 
Scheme) 
ICS: Investor Compensation Scheme ICSD: Investor Compensa tion Scheme Directive 
IMMFA: Institutional Money Market Funds Association ISD: Investment Services Directive MTF: Multilateral Trading Facility MiFID: Markets in Financ ial Instruments Directive 
SEC: Securities and Exchange Commission TFEU: Treaty on the Functioning of the European Union 
 
EN 132   EN UCITS: Undertakings for Collec tive Investment in Securities 
 
EN 133   EN ANNEX XII  – ESTIMATION OF ADMINISTRATIVE BURDEN  
 
Currently only investment firms are obliged to  disclose information to actual and intending 
investors about the investor compensati on scheme coverage (amount and scope). 
The Directive is to be amended to include: 
i. For investment firms  the requirements that the information provided shall be fair, 
clear and not misleading and in particular shal l explain what is covered by the relevant 
compensation scheme and what is not covere d under the scheme and how it applies in 
cross border situations. 
ii. The full set of disclosure obligations on UCITS similar to that on investment firms; 
iii. Annual publication of details about the leve l of funding and the target funding level by 
national investor compensation schemes  (draft technical standards will be 
developed by ESMA to ensure  ease of implementation). 
 
1. Administrative burden for investment firms 
The administrative burden from the planned ame ndment of the ICSD can be broken down into 
the costs of preparation of the required informa tion, and costs of its publication. The latter is 
estimated to be marginal, since publication of other compensation scheme related information 
is already a legal requirement, so that the am endment will be integr ated in the document 
already to be published.  
As for the costs of preparing the information, this is considered as a one-off cost, and the 
number of investment firms and branches ab road are taken as a basis, since it is the 
investment firm (or branch) that will have to pr epare the additional information once, as it is 
the same for all investment products that are offered.  
We estimate that preparing this information will imply 2.5 hours of work of a professional.133  
 
Table 1: Estimation of costs of preparation and pu blication of information requirements on 
investment firms 
  Admin burden 
on investment firms and branches Professional 
(hours) Extra costs 
('000) 
Drafting 1.5 0 
                                                 
133 This estimation is based on a comparison with UCITS disclosure costs, as measured by CSES: Study on the 
Costs and Benefits of the proposed UCITS Key Investor Information Final report December 2009 
 
EN 134   EN Translation 0.5 0 
Regulatory 
approval 0.3 0 
Printing and 
dissemination 0.2 0.0 
Total 2.5 0.0 
 
The table below shows the number of firms and branches abroad for each Member State, the 
hourly rate for a professional in the given country, and the overall administrative burden 
within each Member State (counting 2.5 hours of work). 
 
 
EN 135   EN Table 2: Calculation of administrative burden on investment firms, credit institutions and 
their non-domestic branches  
Member 
State hourly 
wage of 
managers number of 
investment 
firms, 
credit 
institutions 
authorised 
providing 
investment 
services 
and foreign 
branches  total costs 
Austria 51.53 975 125,601 
Belgium 50.63 132 16,707 
Bulgaria 3.30 N/A N/A 
Cyprus 31.64 97 7,673 
Czech 
Republic 11.52 57 1,641 
Denmark 51.99 671 87,215 
Estonia 8.10 26 526 
Finland 44.75 382 42,732 
France 51.14 490 62,641 
Germany 46.40 2,687 311,667 
Greece 26.98 116 7,826 
Hungary 11.66 N/A N/A 
Ireland 49.56 235 29,117 
Italy 61.50 881 135,452 
Latvia 5.86 N/A N/A 
Lithuania 7.38 26 480 
Luxembourg 56.63 199 28,173 
Malta 16.67 91 3,793 
Netherlands 36.88 N/A N/A 
Poland 13.02 80 2,603 
Portugal 31.00 76 5,891 
Romania 9.73 85 2,067 
 
EN 136   EN Slovakia 7.83 41 803 
Slovenia 18.34 26 1,192 
Spain 37.11 434 40,269 
Sweden 50.80 271 34,416 
United 
Kingdom 52.81 3,921 517,635 
total:     1,466,120 
 
We estimate that there will  be approximately 1,500,000 euros of one off administrative 
burden on investment firms and credit inst itutions providing inve stment services. 
 
2. Administrative burden for UCITS 
UCITS funds will provide disclosure within th e KID and they will have the possibility to 
provide disclosure at the same time with the is suing of the KID (i.e. the timelines of the KID 
and ICSD proposals will be aligned, or a peri od of compliance  will be envisaged, as KIDs 
need to be updated once a year). 
 
The preparation of the information  is calculated in terms of man-hours and counts as a one-off 
cost, as the information will remain the same over years. The basis of the calculation is the number of fund managers, assuming that the info rmation to be compiled will be the same over 
the various funds under their manageme nt. It is also expected that trade bodies will  be able to 
provide assistance in terms of information or even templates that can reduce the 
administrative burden on i ndividual fund managers. 
The publication costs
 are calculated in euros, and they constitute on-going administrative 
burden. The basis for those publication costs is  the number of Key Information Documents 
(KIDs) produced. 
 
2.1. One-off costs: prepar ation of information 
We estimate that for the disclosure of compensa tion scheme coverage to investors, on average 
4 hours will be spent by a fund manager on drafting (to simplify we do not distinguish 
between professional and other staff). This es timation is based on a CSES survey of fund 
managers that identifies the following cost el ements in drawing up the KID, indicating the 
hours spent on the different elements  by professional and other staff: 
 
 
EN 137   EN Table 3: The costs of the KID drafting 
 
The information on investor compensation sche mes to be provided is comparable to the 
"practical information" requireme nts of the KID, and would take  about half the time to draft 
as all other practical informa tion items. According to the CSES  study, the drafting of practical 
information requires 1.8 hours of a professional a nd a further 3.1 hours of other staff, in total 
4.9 hours, that is about one-seventh of the time required for the entire KID drafting. The ICSD 
amendment would thus require ab out half of that time, 2.5 hour s, which we count here as 
professional time. 
 Besides the costs of drafting, some costs of  translation and dissemination can also be 
expected. Drafting, translation an d dissemination costs of the enti re KID is displayed in the 
table below (column to the left),  with proportionate cost estimates
134 indicated for the ICSD 
amendment (column to the right). 
 
Table 4: The costs of drafting and additiona l costs of the ICSD amendment  
                                                 
134 As drafting is estimated to take half the time of KID practical information items, and practical information 
items require about one-seventh of the time requi red for the drafting of the entire KID, the time 
necessary for translation and dissemination is counted proportionately to be one-fourteenth of the KID 
drafting times. 
 
EN 138   EN Entire KID ICSD amendment  
Professional 
(# hours) Other 
staff 
(# 
hours) Extra 
costs 
('000) Professional (# 
hours) Extra 
costs ('000) 
Drafting 13.2 13.7 1.8 2.5 0.1 
Translation 7.7 10.6 1.6 1.3 0.1 
Regulatory approval 4.0 3.0 5.4 Not applicable Not 
applicable 
Printing and dissemination 1.9 1.8 3.2 0.2 0.2 
Total 26.8 29.1 12 4.0 0.4 
 
Overall 4 hours can be expected to be sp ent on drafting the ICSD information item. 
For the costing (hourly wage of fund managers /professional staff) we do not have figures 
about the distribution of across Member States , therefore we use an average of the EU27 
hourly wage of managers, taking account of the fact  that most fund managers are likely to be 
located in higher wage countries . The European average hourly  rate of managers is 31.29 
euros; here the calculations are done with an h ourly rate of 40 euros. Per fund manager the 
costs will be approximately  EUR 160 (€40/hour * 4 hours). 
There are approximately 1 500135 fund managers in the EU, lead ing to a cost of 1 500 * Eur 
160 = Eur 240 000 
 As a result the on-off costs on UCITS are estimated at EUR 240 000.  
2.2. On-going costs (publication costs): 
The CSES study on UCITS costing
136 reveals the number of UCIT S funds, and the number of 
KID disclosure documents prepared for those funds in a given year.137 Based on their survey,  
                                                 
135 The Zentrum für Europäische Wirtschaftsforschung GmbH (ZEW) / Observatoire de l'Epargne Européenne 
(OEE) database includes information on the number of  AMs in each country. It is estimated that 1441 
asset managers of UCITS existed in the EU in 2005. 
136 CSES: Study on the Costs and Benefits of the proposed UCITS Key Investor Information Final report 
December 2009 
137 "Fund managers were asked to provide information on the number of funds they have and hence the number 
KIDs which they might have to prepare, showing KIDs for sub funds and different share classes separately. Fund 
 
EN 139   EN 2402 KIDs are prepared for 1936 funds, which on average means 1.24 KIDs/fund. In Europe 
there are 37,643 funds,138 producing therefore around 46,677 KIDs  (in the calculation we use 
47000 KIDs, to round the figure which is only an estimate).  
Table 3 above shows that printing and dissemi nation costs are estimated at 200 euros per 
KID. The on-going burden then is estimated at 9,400,000 euros. 
 
3. Administrative burden for schemes: 
The Schemes will have to disclo se information every year about  their target funding level and 
actual level of funding. The numb er of investor compensation schemes across the 27 member 
States is 39139. The administrative burden flowing from this obligation will largely depend on 
schemes' internal management and record keep ing practices as well as the standards that 
ESMA would set. As some schemes are already publishing information, not all of them would 
face an equal increase of administrative burden. 
Even in the most convenient case there woul d be a yearly burden of transferring the 
information already collected on a business as us ual basis into the format required by ESMA 
(that will try to find the most cost-effective soluti on) of 12 hours of an official. Assuming this 
for the 39 compensation schemes would result in approximately 15 000 Euros as recurring 
administrative burden. A maximum estimate fi gure, counting with 24 hours per scheme 
arrives to approximately 30 000 Euros per year. 
 EU average hourly rate for senior official=31.29 31.29*12=375.48 375.48*39=14 643  EU average hourly rate for senior official=31.29 31.29*24=750.96 750.96*39=29 287  
                                                                                                                                                        
 
managers were asked to include just UCITS funds. In total, respondents managed a total of 1936 funds and 
expected to prepare 2402 KIDs; the higher number of KIDs  reflects, for example, th e preparation of 288 KIDs 
for individual share classes." 
138 The number of UCITS funds on 31 December 2008 was 37 643. 
139 The number of investor compensation schemes is higher than the number of Member States as some Member 
States (Austria, Cyprus, Germany, Greece, Neth erlands, and Spain) have different compensation 
schemes for non-bank investment firms and credit institutions. 
 
EN 140   EN It may be reasonable to calculate a relative ly higher one-off cost for adjusting national 
systems to the data ga thering requirements, but the cost s of this cannot be reasonable 
estimated at this stage. 
 For all the national investor compensation schemes together we estimate a recurring 
administrative burden between 215 000and 30 000 Euros per year.