European Banking Authority Recommends Changes to EU Deposit Guarantee Scheme Directive

The European Banking Authority has published an Opinion on the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes. The EU Deposit Guarantee Scheme Directive requires the European Commission to report on the implementation of the Directive. The EBA's Opinion is the first of three opinions that it will issue to support the Commission in preparing the report. The other two opinions are expected before the end of 2019, one covering deposit guarantee scheme pay outs and the other DGS funding and uses of DGS funds.

The EBA recommends the following changes to the DGS Directive:

• Removing protection of deposits held at EU banks' branches in third countries (which would, notably, exclude UK bank branch deposits after Brexit);
• Requiring EU bank branches of third country firms to join the relevant EU DGS, but allowing a member state derogation from the requirement;
• Mandating the EBA to develop a new methodology for calculating risk-based contributions and adopting that through new technical standards;
• Amending the depositor information sheet (Annex I of the DGS Directive) and the essential elements required for inclusion as well as the information that is provided to depositors in the event of a merger or acquisition;
• Clarifying how the see-through approach apply to deposits placed with a bank by account holders who are excluded from eligibility; and
• Introducing more flexibility for repayment of funds to a depositor that, through no fault of their own, has never been identified.

The EBA does not consider that changes are needed to the DGD Directive in the areas of: (i) home-host cooperation and cooperation agreements; (ii) DGSs' cooperation with various stakeholders; (iii) the current coverage level (EUR 100,000.00) or the options for currency of repayment; (iv) the approach to identification of the person absolutely entitled to the sums; and (v) the possibility of deferring the pay out of dormant accounts.

The EBA also recommends that further assessment of the treatment of structured deposits is required as well as the scope of the public authorities included in the list of exclusions from eligibility. In addition, the EBA considers that the complex topic of absolute entitlement to sums needs to be analyzed in the context of different pieces of EU legislation.

View the Opinion.

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