I own securities: compensation process

Created on 03 September 2020
Description

The compensation process is initiated when the Prudential Supervision and Resolution Authority (ACPR i) determines the unavailability of the securities and associated cash entrusted by customers to the bank or investment services firm and the institution's inability to fulfil its obligation to return or repay the securities. 

The customers of the failed investment services provider do not need to take any action. The entire process is handled by the FGDR, which sends them the compensation to which they are entitled within three months, which may be extended once, along with the necessary information. If needed, the FGDR contacts customers directly.

Sommaire

Customers are strongly advised to keep their service provider informed of any changes in their contact information, such as name, postal address, email address and landline and mobile phone numbers.
 
Compensation i sent by the FGDR to an old postal address may be returned to it, and the FGDR may be unable to contact the customer again in order to pay the compensation.

Compensation for securities: a four-step process

Note: an investment services provider may be a bank authorised to provide this type of service or an investment firm. For the sake of simplicity, we will use the term “investments services provider” here. 


 Step 1: initiation of the compensation process

  1. The process is initiated when the ACPR i determines that the securities and associated cash entrusted to the investment services provider are no longer available to customers and that the institution’s financial situation prevents it from fulfilling its obligation to return them or pay compensation to customers. The date on which the ACPR makes this determination is the “unavailability date”.

  2. This is the date on which the securities and associated cash have become unavailable for all practical purposes. Customers lose free access to their securities and associated cash. The ACPR then contacts the FGDR. This sets in motion the investor compensation scheme and results in the immediate suspension of all the institution’s activities. The institution closes.

  3. This date marks the start of the compensation process and the three-month compensation period

  4. It is also the date as of which the value of customers’ securities, the balance of their securities accounts and associated cash accounts, and the amount of their compensation are calculated.
     

Step 2: preparation of compensation, customer account statement 

  1. The failed institution sends the FGDR, as quickly as possible, all the information and documents needed to verify the customers’ situation and the amount, composition and availability of their funds in order to calculate the compensation.

  2. The FGDR verifies the data sent, identifies the securities for which compensation is to be paid and calculates each customer’s compensation. The verifications, particularly of the securities accounts, are performed on an account-by-account, security-by-security basis, and in some cases may require additional time and resources, such as in the event of fraudulent failure, if the number of intermediaries makes data traceability more difficult, or if the securities are deposited with foreign intermediaries.

  3. The FGDR then calculates each customer’s compensation. 

In practice, the three-month period applies to most investors, including all those whose situation does not pose any specific problems and whose contact information is complete and accurate.  

If the situation presents specific problems, such as in case of an incident or fraud, the FGDR performs additional practical or legal verifications in conjunction with the failed service provider and, where relevant, with the customer.

Step 3: payment of compensation within three months

  1. The FGDR prints a compensation letter for each customer and sends it so that compensation can be paid within three months, which may be extended once, of the unavailability date. 

  2. All appropriate information is enclosed with the investor’s compensation. Each compensation letter explains the compensation process and how the compensation was calculated:

    • the securities and associated cash in the accounts and whether they are available or unavailable;

    • the accounts and amounts that fall within the scope of the investor compensation scheme and those excluded from it;

    • the amount of compensation paid;

    • the amounts not compensated (for example, the amount of assets that exceed the €70,000 ceilings of the guarantees);

  3. The compensation payment is sent to the account holder or their legal representative. Payment is made by cheque (default payment method used) or by bank transfer when possible or necessary. 

  4. In practice, the three-month period applies to most investors, including all those whose situation does not pose any specific problems and whose contact information is complete and accurate.  

  5. An additional three-month period may be applied, if necessary.

 Step 4: special cases

  1. After the extendable three-month period during which most customers are compensated, the FGDR handles complex situations, special cases and claims and informs customers of the completion of the compensation process.
  2. Exchanges between the FGDR and customers continue as necessary. 

Amounts compensated by the FGDR

To determine each customer's compensation amount, on the unavailability date the FGDR:

  • checks whether the customer of the bank or investment firm is covered by the guarantee;
  • lists all the unavailable securities held in all the customer’s securities accounts which are eligible for the guarantee;
  • where appropriate, makes a distinction between the customer's business accounts and personal accounts (each account type entitles the holder to the double compensation ceiling);
  • treats an undivided co-ownership or partnership as a specific recipient separate from its members;
  • identifies each co-holder’s share of joint accounts;
  • totals the value of the unavailable securities held in the customer's individual accounts and the customer’s share of their joint accounts;
  • totals the value of the unavailable cash held in the customer's individual accounts and the customer’s share of their joint accounts;
  • applies the €100,000 compensation ceiling for amounts deposited at the same credit institution (or €70,000 for an investment firm).

The calculation includes all investment transactions carried out by the customer on these accounts up to the unavailability date. The value of the unavailable securities for which compensation is paid is the market value on the unavailability date.

Further action by you

Appeal in case of disagreement on the investor’s compensation

  • Customers have two months to file an informal appeal with the FGDR if they disagree with the compensation. 
  • If the appeal is rejected, they have an additional two months to make an application to the Paris Administrative Court based on the rules governing administrative disputes.

 

Declarations to the liquidator

After compensation is paid, the FGDR replaces the customers as the institution’s creditor for the amounts it has paid; it is said to be subrogated to the customers' rights.

  • Customers do not need to make a declaration for the portion of their deposits for which compensation was paid.

  • The FGDR informs customers of the rules and procedures for filing claims with the assignee in bankruptcy or with the liquidator i of the failed investment services provider for those amounts not compensated by the FGDR.

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FAQ

What is the maximum compensation amount under the investor compensation scheme?

In France, the compensation amount offered by the investor compensation scheme may be as much as €70,000 x 2 per customer, per investment services provider.
 
The principle is that financial securities are held by a bank or an investment services provider on behalf of their customers. The securities belong to those customers and must be returned to them, even if the bank or service provider fails. 
However, if the bank or service provider is unable to return or repay them because the securities have disappeared from the accounts, the Fonds de Garantie des Dépôts et de Résolution intervenes to compensate customers for the missing amount, up to a maximum of €70,000 per customer, per institution.
 
Scenario 1: If your securities are held at a bank, the cash accounts associated with the securities accounts are covered by the deposit guarantee scheme, added to all other deposits and compensated up to a maximum of €100,000.
 
Scenario 2: If your securities are held at an investment firm (an investment services provider that is not a bank), the FGDR compensates not only your securities up to €70,000 but also your cash associated with the securities accounts up to a maximum of €70,000.
 
 → Refer to the “Discover my guarantees/I own securities” section

Under what circumstances does the investor compensation scheme become effective?

The FGDR's investor compensation scheme is initiated when the ACPR i determines that the service provider is no longer able to return to its customers the securities and other financial instruments and associated cash entrusted to it.
 
This implies that two conditions have been met simultaneously:

  • the securities have disappeared from your accounts;
  • the institution at which your account is held is in suspension of payments and cannot return or reimburse the securities.

 
In this case, the investor compensation scheme pays compensation based on the value of the financial instruments and cash that are no longer available to the customer.
The cash associated with the securities accounts is also compensated:

  • included in the amounts covered by the deposit guarantee scheme up to €100,000, if your securities account is held by a bank;
  • up to €70,000 if your securities, and therefore the associated cash account, are managed by an investment firm or investment services provider. 

 
The investor compensation scheme does not cover possible changes in the market value of the securities or commercial disputes between the customer and the service provider (for example, relating to management of the portfolio).
 
→ Refer to the “Discover the compensation process/I own securities” section

How do I know if my institution is covered by the FGDR's deposit guarantee or investor compensation scheme?

As a general rule, any credit institution or investment firm that receives authorisation from the Prudential Supervision and Resolution Authority (ACPR i) is a member of the Fonds de Garantie des Dépôts et de Résolution (FGDR). 

Membership in the FGDR is a prerequisite for conducting its business. Customers are then covered by the FGDR's guarantees. 

  • The FGDR also covers customers of branches opened by its members in a country of the European Economic Area (EEA).
  • Conversely, customers of branches of European banks opened in France are covered by the guarantee scheme of the country in which that bank has its head office. 
  • In both cases, the FGDR cooperates with its European counterparts to cover customers of these branches so that they are treated under the same conditions as customers of their bank's head office.

 
→ Refer to the “Document database/Legal framework/International regulation” section

→ Refer to the “Check if your bank is protected” section to check whether your bank or investment services provider is covered by the FGDR 

→ Refer to the “About the FGDR/Members” section