OPINION OF THE COMMISSION pursuant to Article 189 b (2) (d) of the EC Treaty on the European Parliament's amendments to the Council's common position regarding the proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE ON INVESTOR COMPENSATION SCHEMES
Date: 1996-05-08
Institutions: European Commission
Subjects: financial solvency, indemnification, investment, investment company, single market

i  COMfvliSSiON  Ur 

i Ht  t U K O P t AN  UOMMUNli IfcS 

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Brussels,  08.05.1996 
COM(96)  169  final  -  COD  47 

OPINION  OF THE  COMMISSION 

pursuant to Article  189 b (2) (d) of the EC  Treaty 

on the European  Parliament's  amendments 

to the Council's common  position regarding  the 

EUROPEAN  PARLIAMENT  AND COUNCIL  DIRECTIVE 

proposal  for a 

ON  INVESTOR  COMPENSATION  SCHEMES 

OPINION  OF THE  COMMISSION 

pursuant to Article  189 b (2) (d) of the EC  Treaty 

on the  European  Parliament's  amendments 

to the Council's common  position  regarding  the 

proposal  for a 

EUROPEAN  PARLIAMENT  AND  COUNCIL  DIRECTIVE 

ON INVESTOR  COMPENSATION  SCHEMES 

1.  STAGE  REACHED  IN THE  PROCEDURE 

a)  On  22  September  1993  the  Commission  adopted  a proposal  for  a  Council  Directive 
on  investor  compensation  schemes1.  This  proposal  was  forwarded  to the  Council  on 
22 October  1993. 

The  Council  forwarded  this  text  to  Parliament  and  to  the  Economic  and  Social 

Committee and  on  14 January  1994 began its own examination  of the  proposal. 

b)  The  Economic  and  Social  Committee  unanimously  adopted  an  opinion  on  the 

Commission  proposal  at its 312th  Plenary  Session on 26 January  19942. 

c)  The  European  Parliament  adopted  the  legislative  resolution  embodying  the  opinion 

of Parliament  on the Commission  proposal  at its sitting on  19 April  19943. 

d)  The  European  Monetary  Institute  delivered  an  opinion  on  this  proposal  on  28 July 

1995. 

c)  On  13 December  1994 the Commission  adopted  an amended  proposal4  in the  light  of 

its consultation  of Parliament  and  of the  Economic and  Social  Committee. 

0  On  23  October  1995  the  Council  adopted  the  common  position  which  is  the  subject 

of this  communication. 

g)  In  the  plenary  session  of  14  December  1995  the  President  of  the  Parliament 

acknowledged  receipt of the common  position. 

1  COM(93)381  final,  OJ  N" C 321,  27.1 1. 1993,  p.  15 

2  O J N °C  127,  7.5.1994,  p. I 

3  OJN°  128, 9.5.1994,  p.  80 

1  COM(94)  585  final,  OJ  N"C  382, 31.12.1994,  p. 27 

2 

h)  On  12 March  1996 the European  Parliament  adopted  unanimously  eight  amendments 

to the common  position5. 

In  accordance  with  the  procedure  described  in  Article  189  b  (2)  of  the  Treaty,  the 

Commission  has to deliver an opinion  on these  amendments. 

2.  POSITION  TAKEN  BY  THE  COMMISSION  REPRESENTATIVE  AT  THE 

PLENARY  SITTING 

The Commission  representative  rejected  all the eight  amendments. 

3.  COMMISSION  OPINION  ON  THE  AMENDMENTS  VOTED  BY  THE 

EUROPEAN  PARLIAMENT 

a)  Purpose  of the  amendments 

Amendment  N°  1 (Recital  N°  16) 

Its aim  is to eliminate the  "export-ban"  clause. 

Amendment  N° 2 (Article 2.2,1st  indent) 

Its  aim  is  twofold.  On  the  one  hand,  the  rapporteur  considers  that  schemes  should 

compensate  investors  not  only  when  the  investment  firm  is  in  financial  difficulties,  but 

in all  circumstances  On  the other  hand, the rapporteur  considers  that  the schemes  should 

have  the  same  power  as  the  competent  authorities  to  determine  when  investors  must  be 

compensated. 

Amendment  N° 3 (Article  2.2, 2nd  indent) 

Its  aim  and  scope  is  similar  to  that  of  amendment  N°  2.  The  only  difference  is  thai  the 

reference  is to a judicial  authority  rather than to competent  authorities. 

Amendment  N° 4 (Article  2.4) 

It  seeks  to  ensure  that  the  value,  to  be  stipulated  by  the  scheme,  of  the  securities 

belonging  to investors  will be their market  value. 

Amendment  N° 5 (Article  5.2) 

The  twelve  months'  notice  to exclude  a  firm  from  a  scheme  is considered  too  long,  it  is 

considered  more appropriate  to have immediate  exclusion. 

cxt  not  yet  published  in the Official  Journal 

Amendment  N° 6 (Article  7.1, 2nd  subparagraph) 

The  same objective  as amendment  N°  1. 

Amendment  N°  7 (Article  7.2, 2nd  paragraph) 

The  same  as  amendment  N"  S but  applying  to  the  case  of  branches  which  have  become 

members  of a scheme of a host  Member  State  in order to top-up  their  coverage. 

Amendment  N° S (Article  9.2) 

Its  aim  is  to  start  counting  the  three  months'  period  to  compensate  investors  from  the 

date  the  investment  firm  has  been  considered  unable  to  meet  its  obligations  (if  the 

eligibility  and  the amount  of the claim  have been  established). 

b)  Need  for  consistency  with the  Deposit  Guarantee  Schemes  Directive  (DGSD^ 

The  text  of the  common  position  is  very  similar  to that  of  the  DGSD.  The  Commission 

initial  proposal  differs  in  several  aspects  from  the  final  text  of  the  DGSD  because  when 

it was adopted  (22.9.93)  the  DGSD  was still  under  negotiation.  The  DGSD  was  adopted 

on  30.5.94  by  co-decision  (after  passing  through  the  conciliation  committee).  This 

means  that  the  DGSD  reflects  both  Council  and  Parliament's  opinion  on  compensation 

schemes. 

The need  for  consistency  between  the  proposal  and the  DGSD  has been  stressed  not  only 
by  the  Council  and  the  Commission.  It  has  also  been  requested  by  the  Parliament6,  by 
the  ECOSOC7, and  by  Industry  representatives  (the Banking  Federation  of the EU). 

The  need  for  legislative  coherence  between  the  proposal  and  the  DGSD  is  particularly 

evident  in  the  case  of  credit  institutions  because  Article  2.3  of  the  common  position 

allows  them  to  belong  to  just  one  scheme  to  comply  with  both  directives.  Lack  of 

consistency  may  produce  undesirable  distortions. 

c)  Commission  position 

For  the  Commission,  the  concern  for  consistency  with  the  DGSD  is  an  important 

argument,  in  addition  to  those  developed  below,  to  reject  amendments  N°  1,  2,  3,  5,  6 

and  7. 

6 

Section  B-2. Report  A3-0209/94.  First  Reading. 

I'oint  3.3  of  the  ECOSOC  opinion  (CES  98.94) 

Amendments  N°  1 and 6 (not  acceptable) 

The  text  in the common  position  is equivalent  to that  in  Recital  N°  14 and  in Article  4.1 

of  the  DGSD.  The  elimination  of  the  export-ban  clause,  whereby  branches  in  host 

Member  States  will  not  be  allowed  to  otïer  a  higher  protection  than  that  offered  by 

domestic  scheme(s),  would 

in  principle 

increase 

the  competition  between,  and 

presumably  the  efficiency  of,  the  investment  firms.  This  is  in  line  with  the  philosophy 

underlying  the  single  market.  However,  it  may  also  produce  unwanted  volatility  and 

instability  in  the  financial  markets.  To  strike  a  balance  between  a  higher  degree  of 

competition  and  a  higher  degree  of volatility  is not easy  "a priori". That  is why  it  seems 

advisable  to  establish  a  short  transitory  period  (in  this  case  until  31.12.99)  to  watch 

developments closely  . 

Amendments  N° 2 and 3 (not  acceptable) 

The  text  in  the  Common  Position  is equivalent  to  that  in  Articles  I.3.i  and  1.3.ii  of  the 

DGSD.  Parliament  proposes  to  go  back  to  Article  2.2  of  the  initial  Commission 

proposal. 

On  the  one  hand,  during  the  discussions  in  the  Council  with  the  Member  States  it 

became  clear  that  only  investment  firms  in  financial  difficulties  should  trigger  the 

intervention  of  the  scheme  because  if  the  investment  firm  is  still  financially  sound  it 

would  be  up to  it to  repair  the damage  caused  to  investors.  Therefore  the  wording  in  the 

common  position  would  cover,  in  practice,  all  common  causes  (fraud,  etc.)  for 

compensation. 

On  the  other  hand,  it  seems more  prudent  to  leave  it  up to  the  competent  authorities  (or 

judicial  authorities)  alone  to decide when  the scheme  should  intervene. This,  in  addition, 

will  eliminate  the  risk  of  having  disputes  in  case  both  the  authorities  and  the  scheme 

were allowed  to make such a decision. 

Amendment  N° 4 (not  acceptable) 

Parliament  proposes  to  go  back  to  the  concept  of  "market"  value  inserted  in  Article  2.4 

of the initial proposal.  In the DGSD there is nothing equivalent  because securities are  not 

covered  there. 

The  concept  of  market  value  seems  in  principle  attractive,  and  useful  in  some  specific 

cases,  but  often  in  practice  it  may  be  very  difficult  to  apply.  In  some  cases  there  are 

several  markets  for  the  same  instrument.  In  others,  when  securities  are  highly  illiquid, 

the  market  value  is unavailable.  Frequently, there  is no organised  market  for  the  relevant 

security.  In  the  case  of  some  derivatives  (futures  and  options)  the  contracts  may  have 

already  expired. 

Given  these  difficulties,  with  the  use  of  market  value  as  a  general  rule,  it  seems  more 

advisable to give Member  States some  leeway  to devise the precise methods to  calculate 

the most  appropriate  value  in each  situation. 

Amendments  N° 5 and  7 (not  acceptable) 

The  text  in  the  common  position  is  equivalent  to  that  in  Articles  3.3  and  4.4  of  the 

DGSD.  Parliament  proposes to go back  to Article  5 of the  initial  Commission  proposal. 

In  the  case  of  amendment  N°  5,  the  immediate  exclusion  of  an  investment  firm  from  a 

scheme  will  not  be  to  the  benefit  of  the  current  investors  because  it  will  entail  the 

immediate  removal  of  the  authorization  (the  European  passport)  of  the  investment  firm 

and  therefore  it will  have  to  cease  immediately  its operations.  In the  case  of  amendment 

N°  7, it does not produce  the  removal  of the authorization  but  it will  deprive  investors  of 

an extra coverage  ("top-up")  in case they  had to be  compensated. 

Amendment  N° 8 (not  acceptable) 

Parliament  proposes  to  go  back  to  the  text  in  Article  10  of  the  initial  Commission 

proposal.  The  text  in  Article  10  of  the  DGSD  is  not  directly  applicable  here  because 

"investment"  in  relation  to  "deposit"  is  a  less  standardised  and  more  sophisticated 

activity. 

The  text  proposed  by  Parliament  does  not  carry,  in  practice,  any  real  additional 

protection  to  investors  because  the  compensation  is  still  conditional  on  the  fact  that  the 

"eligibility  and  the  amount  of  the  claim  have  been  established"  and  experience  shows 

that  in  the  case  of  securities  it  takes  a  long  time  (sometimes  years)  to  determine  the 

precise liabilities. 

EUROPEAN 

PARLIAMENT 

5 March  1996 

A4-0047/1 

AMENDMENT 1 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

Common position of the Council 

Amendment 

(Amendment 1 j 
Recital 16 

Deleted 

than  those 

16. Whereas market disturbances could 
be  caused  bv  branches  of  investment 
firms  established  in  Member  States 
other  than  their  Member  States  of 
origin  which  offer  levels  of  cover 
offered  bv 
higher 
investment  firms authorized  in their 
host  Member  States;  whereas  it  not 
appropriate  that  the  level  or  scope 
of  cover  offered  by  compensation 
schemes  should  become  an  instrument 
of  competition;  whereas  it  is 
therefore necessary, at  least during 
an initial period, to stipulate that 
neither  the  level  nor  the  scope  of 
cover  offered  by  a  home  Member 
State's  scheme  to  investors  at 
branches  located  in  another  Member 
State should exceed the maximum level 
or scope offered bv the corresponding 
scheme  in  the  host  Member  State; 
whereas  any  market  disturbances 
should be reviewed after a number of 
years, on the basis of the experience 
acquired  and  in  the  light  of 
developments in the financial sector; 

f 

PE 197.378/1 
Or. en 

EUROPEAN 

PARLIAMENT 

5 March 1996 

A4-0047/2 

AMENDMENT 2 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION  SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

Common position of the Council 

Amendment 

(Amendment 2) 
Article 2(2), 1st subparagraph, 1st indent 

the  competent  authorities  have 
determined  that in their view an 
investment  firm appears, for the 
time being, for reasons directly 
financial 
related 
circumstances,  to  be  unable  to 
meet  its obligations arising out 
of  investors'  claims  and has no 
early  prospect  of  being able  to 
do so, or 

its 

to 

the  competent  authorities  or 
investor-compensation scheme have 
determined that in their view an 
investment firm appears, for the 
time being, to be unable to meet 
its  obligations  arising  out  of 
investors'  claims  and  has  no 
early  prospect  of  being  able to 
do so, or 

PE 197.378/2 
Or. en 

EUROPEAN 

PARLIAMENT 

5 March 1996 

A4-0047/3 

AMENDMENT 3 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION  SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

Common position of the Council 

Amendment 

(Amendment 3) 
Article 2(2),  1st subparagraph, 2nd indent 

a  judicial  authority  has made a 
ruling,  for  reasons  directly 
related  to an  investment  firm's 
financial  circumstances.  which 
has  the  effect  of  suspending 
investors' ability to make claims 
against it, 

a judicial authority or investor-
compensation  scheme  has  made  a 
ruling  which  has  the  effect  of 
suspending  investors' ability to 
make claims against it, 

r  tm~  378/3 
Or. en 

EUROPEAN 

PARLIAMENT 

5 March 1996 

A4-0047/4 

AMENDMENT 4 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

Common position of the Council 

Amendment 

(Amendment 4) 
Article 2(4) 

4.  The amount of an investor's claim 
shall  be  calculated  in  accordance 
with  the  legal  and  contractual 
conditions,  in  particular  those 
concerning  set  off  and  counter 
claims,  that  are  applicable  to  the 
assessment,  on  the  date  of  the 
determination  or  ruling  referred  to 
in paragraph 2, of the amount of the 
money or the value of the instruments 
belonging  to  the  investor  which  the 
investment  firm  is unable  to pay  or 
return. 

4.  The amount of an investor's claim 
shall  be  calculated  in  accordance 
with  the  legal  and  contractual 
conditions,  in  particular  those 
concerning  set  off  and  counter 
claims,  that  are  applicable  to  the 
assessment,  on  the  date  of  the 
determination  or  ruling  referred  to 
in paragraph 2, of the amount of the 
money  or  the  market  value  of  the 
instruments belonging to the investor 
which  the  investment  firm  is unable 
to pay or return. 

4 

PE 197.378/4 
Or. en 

EUROPEAN 

PARLIAMENT 

5 March  1996 

A4-0047/5 

AMENDMENT 5 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

Common position of the Council 

Amendment 

(Amendment 5) 
Article 5(2) 

2.  If those measures fail to secure 
compliance  on  the  part  of  the 
investment  firm,  the  scheme  may, 
where  national  law  permits  the 
exclusion  of  a  member,  with  the 
express  consent  of  the  competent 
authorities  exclude  the  investment 
firm  from  membership  of  the scheme. 
The coverage of money or instruments 
belonging  to  investors  and  held  by 
the investment firm or branch thereof 
at  the  date  of  exclusion  shall  be 
maintained for twelve months from the 
date of exclusion. 

2.  If those measures fail to secure 
compliance  on  the  part  of  the 
investment  firm,  the  scheme  may, 
where  national  law  permits  the 
exclusion  of  a  member,  with  the 
express  consent  of  the  competent 
authorities,  give  not  less  than 
twelve months notice of its intention 
of excluding the investment firm from 
membership of the scheme.  The scheme 
shall continue to provide cover under 
the  second  subparagraph  of  Article 
2(2)  in  respect  of  investment 
business  transacted  during  that 
period.  If, on expiry of the period 
of  notice,  the  investment  firm  has 
not 
its  obligations.  the 
compensation scheme mav. again having 
obtained  the  express  consent  of  the 
competent  authorities,  proceed  to 
exclusion. 

met 

41 

PE 197.378/5 
Or. en 

EUROPEAN 

PARLIAMENT 

5 March  1996 

A4-0047/6 

AMENDMENT 6 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

Common position of the Council 

Amendment 

(Amendment 6) 
Article 7(1), 2nd subparagraph 

Deleted 

Until  31  December  1999. neither  the 
level  nor  the  scope,  including  the 
percentage, of the cover provided for 
may exceed the maximum level or scope 
of  the  cover  offered  by  the 
corresponding  compensation  scheme 
within  the  territory  of  the  host 
Member  State.  Before  that  date  the 
Commission shall draw up a report on 
the basis of the experience acquired 
in  applying  this  subparagraph  and 
shall  consider  the need  to  continue 
those  provisions.  If  appropriate, 
the  Commission  shall  submit  a 
proposal  for  a  Directive  to  the 
European Parliament and the Council, 
with a view to the extension of their 
validity. 

•\i 

PE 197.378/6 
Or. en 

EUROPEAN 

PARLIAMENT 

5 March 1996 

A4-0047/7 

AMENDMENT 7 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

Common position of the Council 

Amendment 

(Amendment 7) 
Article 7(2), 2nd paragraph 

If those measures fail to ensure that 
the  branch  meets  the  obligations 
referred to in this Article, after an 
appropriate  period  of  notice  of  not 
less than  12 months the compensation 
scheme may, with  the  consent  of  the 
competent  authorities  which  issued 
the 
the  authorization, 
branch. 
business 
transacted  before  the  date  of 
exclusion  shall  continue  to  be 
covered  after  that  date  by  the 
compensation  scheme  of  which  the 
branch  was  a  voluntary  member. 
Investors  shall  be  informed  of  the 
withdrawal of the supplementary cover 
and  of  the  date  on  which  it  takes 
effect. 

Investment 

exclude 

If those measures fail to ensure that 
the  branch  meets  the  obligations 
referred  to  in  this  Article,  the 
compensation  scheme  may,  with  the 
consent of the competent  authorities 
which  issued  the  authorization, 
exclude  the  branch. 
Investment 
business  transacted  before  the  date 
of  exclusion  shall  continue  to  be 
covered  after  that  date  by  the 
compensation  scheme  of  which  the 
oranch  was  a  voluntary  member. 
Investors  shall  be  informed  of  the 
withdrawal of the supplementary cover 
and  of  the  date  on  which  it  takes 
effect. 

ft 

PE 197.378/7 
Or. en 

EUROPEAN 

PARLIAMENT 

5  M a r ch  1 9 96 

A 4 - 0 0 4 7 /8 

AMENDMENT  8 
tabled by the Committee on Legal Affairs and Citizens' Rights 

RECOMMENDATION FOR SECOND READING 
Rapporteur: Mr Janssen Van Raay 

(A4-0047/96) 

INVESTOR-COMPENSATION SCHEMES 

Common position of the Council 
(C4-0523/95 - 00/0471(COD)) 

• Common position of the Council 

Amendment 

(Amendment 8) 
Article 9(2),  1st subparagraph 

2.  The scheme shall be in a position 
to  pay  an  investor's  claim  within 
three» months of the establishment of 
the eligibility and the amount of the 
claim. 

2.  The scheme shall be in a position 
to  pay  an  investor's  claim  within 
three  months  of  the  date  of  the 
determination  or  ruling  referred  to 
in  Article  2(2)  if  the  eligibility 
and the amount of the claim have been 
established. 

j. 

PE 197.378/8 
Or.  en 

ISSN 0254-1475 

COM(96) 169 final 

DOCUMENTS 

v. 

«.». 

01  10  09 

Catalogue number  :  CB-CO-96-180-EN-C 

ISBN 92-78-02856-8 

Office  for Official  Publications  of the European Communities 

L-2985 Luxembourg 

•is