Opinion of the European Monetary Institute on a consultation from the Council of the European Communities under Article 109f (6) of the Treaty establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI; on an amended Commission proposal for a European Parliament and Council Directive on investor compensation schemes (CON/95/5)
Date: 1995-07-28
Institutions: European Monetary Institute
Subjects: bank deposit, credit guarantee, credit institution, investment aid, investment company, investment protection

OPINION OF THE EUROPEAN MONETARY INSTITUTE

on a consultation from the Council of the European Communities under Article 109f (6) of the Treaty

establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI;

on an amended Commission proposal for a European Parliament and Council Directive on investor

compensation schemes.

1.

2.

3.

4.

CON/95/5

The  present  consultation  was  initiated  on  16th  February  1995  by  the  Council  of  the

European  Communities  which,  for  this  purpose,  transmitted  to  the  EMI  the  relevant

documents concerning the Commission amended proposal COM 585 final.

The  main  objective  of  the  proposal  is  to  require  that  each  member  state  has  an  investor

compensation  scheme  providing  at  least  a  certain  minimum  level  of  compensation  in  the

event that an investment firm is unable to meet its obligations to its investor clients.  The

schemes  would  cover  investment  services  provided  by  non-bank  investment  firms  and

investment  services  provided  by  credit  institutions,  to  the  extent  that  the  latter  are  not

covered  by  a  deposit  guarantee  scheme  which  complies  with  the  requirements  of  the

Deposit Guarantee Directive (94/19/EC).  The schemes would also be aimed, primarily, at

retail investors and small and medium sized enterprises and may exclude from cover other

categories of investors.

The EMI’s competence to deliver an opinion in this consultation is based on Article 109f

(2) and (6), first paragraph, of the Treaty as some of the provisions of the proposal have

the potential to affect the stability of the financial markets.

The EMI is aware that a case is pending before the European Court of Justice in relation

to  the  Deposit  Guarantee  Directive  (94/19/EC).    The  EMI  notes  that  the  proposal  for  a

directive on investor compensation schemes shares many of the features of 94/19/EC, and

indeed the amended proposal currently before the EMI for consultation has been modified

to ensure that its mechanics follow closely the mechanics of 94/19/EC.  Thus, the result of

the  case  relating  to  the  Deposit  Guarantee  Directive  might  have  implications  for  the

current  proposal.    The  EMI  has  not  analysed  the  legal  issues  put  forward  in  the  case

pending  before  the  European  Court  of  Justice.    Its  opinion  is  strictly  limited  to  issues

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relating to its field of competence and should in no way be understood as an opinion on the

legal questions raised or which may be raised in that case.

5.

The  EMI  considers  that  a  comprehensive  regime  of  investor  compensation  schemes  for

smaller  investors  will  enhance  investor  confidence  within  the  retail  investor  market.

Consequently,  the  stability  of  this  important  sector  of  the  financial  markets  is  likely  to

improve,  particularly  during  times  when,  otherwise,  investor  confidence  would  be

adversely impacted, for example due to the failure of an individual investment firm.  The

EMI therefore believes that the proposed directive is a valuable measure for fostering the

stability  of  the  financial  system  and  supports  the  basic  structure  of  the  proposal.    In

particular, the EMI agrees that this proposal should be aligned with and mutually coherent

with Directive 94/19/EC on deposit guarantee schemes.

Comments which are made by the EMI on the amended proposal are therefore aimed at

ensuring that the cover provided for investors will, when combined with arrangements put

in place to implement Directive 94/19/EC, be comprehensive within the apparent intended

scope of the proposal.  The comments made are, therefore, relatively detailed in nature.

6.

Article 1 (2) of the proposal defines “Investment business” by reference to Article 1 (1)

of the Investment Services Directive (93/22/EC) together with  the  service referred to  in

point 1 of Section C of the Annex to the Investment Services Directive (“safe keeping and

administration in relation to one or more of the instruments listed in Section B”).  The EMI

would make one specific observation relating to this definition.

To  fall  within  the  scope  of  the  Investment  Services  Directive,  and  therefore  within  the

intended scope of this proposal, foreign exchange services within item 7 of Section C of

the Annex must be supplied in connection with services provided under Section A of the

Annex.  Therefore sums which an investment firm holds in connection with the provision

of these linked foreign exchange services should, logically, be classed as “...money owed

to investors or belonging to investors...” and therefore fall within the terms of the proposal

by virtue of Article 2 (2), second paragraph.

The EMI assumes that it is the intention of the proposal that sums held in connection with

the provision of those linked foreign exchange services will be included within the scope of

the proposed directive, and welcomes this objective.

7.

The EMI notes with approval the intention to make the directive on investor compensation

contiguous with Directive 94/19/EC.  The EMI also notes that the manner in which claims

are  to  be  attributed  between  schemes  under  this  Directive  and  those  under  Directive

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94/14/EC shall be a matter for determination by the relevant member state (Article 2 (3)).

It is assumed that the provisions in Articles 9 and 10, requiring sufficient information to be

made  available  to  investors  to  allow  claims  to  be  pursued,  would  cover  these  attribution

arrangements and, again, the EMI would support such an intent.

The EMI notes that the Council reached political agreement on this proposal on 22nd May

1995 and that a Common position is expected within the course of the next few months.

A dissenting opinion of the Deutsche Bundesbank is attached as an Annex to this opinion.

8.

9.

28th July 1995

ANNEX

DISSENTING OPINION ATTACHED TO THE EMI OPINION ON THE COMMISSION

PROPOSAL FOR A EUROPEAN PARLIAMENT AND COUNCIL

DIRECTIVE ON INVESTOR COMPENSATION SCHEMES

Dissenting opinion of the Deutsche Bundesbank

The  Deutsche  Bundesbank  considers  that  the  question  as  to  whether  stability  of  the  financial  system

will  be  improved  by  the  Directive  on  Investor  Compensation  Schemes  cannot  be  answered  without

considering  the  principles  which  have  been  incorporated  into  the  proposal  from  the  Directive  on

Deposit  Guarantee  Schemes  (94/19/EC),  which  is  currently  the  subject  of  proceedings  before  the

European Court of Justice. The Deutsche Bundesbank therefore considers that making any substantive

comment on the proposal for a Directive on Investor Compensation Schemes would inevitably involve

making  statements  on  the  legal  issues  raised  in  those  court  proceedings.  Therefore  the  Deutsche

Bundesbank  wishes  only  to  state  that  it  welcomes  the  harmonisation  towards  which  the  Directive  on

Deposit Guarantee Schemes (94/19/EC) strives.  It also considers that, as any amendment of Directive

94/19/EC resulting from the judgement of the European Court of Justice will require to be incorporated

into  the  Directive  on  Investor  Compensation  Schemes,  the  formal  adoption  of  a  common  position  on

this  Directive  should  be  postponed  until  the  European  Court  of  Justice  has  reached  a  decision  in  the

proceedings relating to Directive 94/19/EC.