A compensation process is initiated when an institution’s failure can no longer be avoided. On the basis of this determination, the Prudential Supervision and Resolution Authority (ACPR ) officially initiates an intervention by the FGDR to allow the customers of the institution to be compensated based on the guarantees set out in the regulations.
The FGDR has seven working days to compensate bank customers in the event that their bank fails (deposit guarantee scheme) and three months for customers of investment services providers (investor compensation scheme).
Principle of intervention for the purpose of compensation
When their bank or financial institution fails, customers lose access to their accounts, deposits, securities or the benefit of a performance bond by which they are protected.
The declaration of the failure is followed by the liquidation of the institution. The result is that customers have a claim against the liquidation in the amount of their funds that have become unavailable.
Without the FGDR's intervention, they would only be able to recover any or all their funds after the total liquidation of all the institution's assets and after compensation is paid to the preferential creditors, based on a process that can last several years.
Instead, through the deposit guarantee, investor compensation and performance bonds guarantee schemes, the FGDR compensates them very quickly up to the maximum amount for each scheme:
- €100,000 for current accounts, term accounts and savings accounts and schemes;
- €100,000 for regulated savings accounts (Livret type “A”, “LDDS”, “LEP”);
- €70,000 for securities.
Customers whose funds exceed these coverage limits become “creditors” of the liquidation for the amounts not compensated and may therefore be able to receive additional compensation at the end of the liquidation.
In the event of compensation, the contact information of the liquidator in charge of the proceeding is provided to customers.
Deposit guarantee scheme: compensation within seven days
When a bank failure cannot be avoided, the FGDR compensates customers within a maximum of seven working days and up to an amount of €100,000. To this end, the FGDR has developed specific tools and processes together with member institutions.
In the event of compensation, customers do not need to take any action. The FGDR invites them to log on to a secure compensation platform accessible from its website. Customers simply need to have an account at another bank where they can receive their compensation and transfer their other banking services and day-to-day transactions.
How is compensation provided within seven working days?
- All French banks must be able to send the “SCV file” (Single Customer View), in a very specific format, to the FGDR within two days; this file contains all the data and information as of the date of the failure which the FGDR needs in order to provide compensation. The FGDR verifies banks’ ability to meet this requirement every year.
- Once this banking data is uploaded, the FGDR has implemented processes and an innovative IT system, the CCS (Integrated Compensation and Communication System), which enable it to calculate the compensation amount payable to each of the bank’s customers.
- In addition, the CCS has an electronic payment interface called the SCA, “Secure Compensation Area”, which allows customers to enter the details (IBAN) of a new bank account where they can receive their compensation quickly and securely. The SCA is a portal on which customers can view their compensation file and communicate with the FGDR via secure messaging.
- Customers who are unable or unwilling to use the SCA receive their compensation by cheque sent by registered post with acknowledgement of receipt.
The Integrated Compensation and Communication System (CCS)
The FGDR’s CCS is designed to compensate all the depositors of any bank declared as having failed by the ACPR within a very short time period.
Almost immediately, the FGDR collects all information from the failed bank enabling it to compensate customers, as well as the information needed to process complex cases: accounts with beneficiaries, undivided co-ownership accounts, account seizure orders, etc.
This allows it to quickly open a Processing Centre for complex compensation cases, which searches for the additional information and supporting documents needed to finalise their compensation as soon as possible, usually by contacting customers directly.
The Secure Compensation Area (SCA)
The Secure Compensation Area (SCA) is a secure web portal designed specifically to pay compensation to customers of a failed bank under the deposit guarantee scheme. When a failure occurs and a compensation process is initiated, the FGDR opens this Secure Compensation Area within no more than seven working days from the unavailability date of deposits on this website www.garantiedesdepots.fr.
- Customers must have an account at another bank which can be used to receive their compensation and transfer their regular banking transactions.
- Customers who have provided the failed bank with an email address or mobile phone number will receive a personal message once the Secure Compensation Area (SCA) is opened so that they can log on to it.
Only customers who have provided their bank with an email address or a mobile or landline phone number will be able to access the SCA.
Customers who have provided only their postal address will not be able to access the SCA. They will automatically be compensated by cheque without needing to take any other action.
- Once the SCA is open, customers must log on to the FGDR website securely. There they can find all the data about their savings and other accounts used to calculate their compensation and select their payment method (bank transfer or cheque).
- After entering the details of the bank account where they wish to receive compensation in the SCA, the FGDR automatically transfers the funds to this account.
Customers who are entitled to compensation can also communicate directly with the FGDR (ask questions, send additional documents, etc.) via secure messaging.
- The seven-day period can only be extended in cases where additional information or processing is required.
Investor compensation scheme: first an investigation
When the ACPR 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 them, the FGDR intervenes to compensate the institution's customers. Compensation is paid within three months, which may be extended once, up to a maximum amount of €70,000 for the securities and €70,000 for the associated cash (if the service provider is a bank, the cash associated with the securities is covered by the deposit guarantee scheme, along with other cash accounts, and is included in the €100,000 ceiling of that guarantee).
Reasons for initiation of the investor compensation scheme
- In most cases, securities disappear as a result of fraud or a computer malfunction and the information required for compensation is not necessarily available immediately.
- The compensation process is therefore longer than for the deposit guarantee scheme: the FGDR must first conduct an investigation to determine exactly which securities have disappeared and to whose detriment, help customers recover those securities that are still available and pay compensation for the other securities.
Compensation process for the investor compensation scheme
- Customers of the failed institution do not need to take any action other than have a bank account at another institution to receive their compensation and, where applicable, a securities account to recover those securities that are still available.
- The FGDR conducts the research and contacts customers, if necessary, to obtain additional information before providing compensation. In the meantime, it keeps customers informed of the situation through a press release or letter.
Performance bonds guarantee scheme: assumption of commitment until the bonded project is completed
The procedure is initiated when the ACPR determines that a financial institution is unable to honour the performance bonds it has issued to business professionals in order to provide customers with a guarantee that the projects carried out for them by such professionals are properly completed.
When the financial institution fails, there is no impact on the business professionals or their customers. The FGDR simply replaces the institution and assumes the performance bond that it had issued. It is only if the business professional itself subsequently defaults that the FGDR intervenes to compensate customers in an amount capped at 90% of the harm sustained, with an excess of €3,000 payable by the customer.
Initiation of the performance bonds guarantee scheme
- When the financial institution fails, the performance bond will not need to be enforced if the business professional completes the project for which the bond was issued.
- However, if the business professional itself fails, the FGDR acts in the same way as the original financial institution that issued the performance bond and compensates the customers.
- The performance bonds guarantee takes effect on the date on which the ACPR notifies the FGDR of this determination, the so-called “intervention” date.
Compensation process for the performance bonds guarantee scheme
The determination by the ACPR of a failure results in the assumption by or transfer to the FGDR of the performance bonds provided by the failed institution to business professionals in favour of their end customers.
As a first step, the FGDR identifies the performance bonds issued by the failed institution to business professionals. Within two months, it informs these professionals of the procedure to follow and the documents to provide in order for the commitments to be assumed. This period may be extended once by two additional months.
Then, if the covered professional defaults and the performance bond is called or has already been called but has not yet been honoured, the FGDR compensates the end customers.