Investor compensation scheme

Investor compensation scheme

Protect investors against their investment services provider's failure

The investor compensation scheme covers the unavailability of financial instruments such as stocks, bonds, units of UCITS, etc. in an amount up to €70,000 per customer and per institution.


When an investment services provider, an investment firm or a bank is no longer able to return to its customers the securities (or financial instruments) that they entrusted to it, the FGDR compensates the customers subject to certain conditions and limits.


In this way, the investor compensation scheme strengthens everyone's confidence in the stability of the financial system. 

What does "unable to return" the securities mean?

An investment services provider merely has custody of securities (or financial instruments) and may be responsible for their management and for carrying out transactions (payment of dividends or redemptions, new subscriptions). However, the customer remains the owner of the securities at all times.


The service provider's bankruptcy does not change this form of ownership. The customer remains the owner of the securities and has free access to them.


The FGDR's investor compensation scheme becomes effective when the ACPR determines that the service provider is no longer able to return to its customers the financial instruments entrusted to it. This implies that two conditions are met simultaneously:


- the customers, although the owners, no longer have access to the securities entrusted to the service provider (for example, the securities are no longer in the account, they have "disappeared");

- in addition, the service provider's financial situation prevents it from fulfilling its obligation to return the securities to the customers or to pay them compensation.


In this case, the investor compensation scheme pays compensation based on the value of the financial instruments that are no longer available to the customer.


Important note:


- The investor compensation scheme does not cover disputes between the customer and the institution resulting from the mismanagement of the customer's portfolio or changes in value of the securities as a result of market trends.

- Moreover, any disagreement between the service provider and the customer as to whether securities are actually registered in the account is a commercial dispute between the parties. The FGDR's investor compensation scheme applies only when the ACPR has determined that the service provider's financial situation prevents it from returning the securities.

What are the main circumstances under which an investment firm's failure causes securities to become unavailable?

For all practical purposes, the unavailability of securities must be concurrent with the investment firm's bankruptcy.

Securities may become unavailable in the following situations:

- a serious failure of the service provider's computer systems of the service provider or on of its suppliers, which causes a high volume of its customers' securities to disappear;

- the service provider's fraudulent conduct resulting in the misappropriation of its customers' securities;

- the improper conduct of the service provider who apparently used the customer's securities for purposes other than those for which it was authorised (for example, for lending/borrowing transactions).

Why was the investor compensation scheme established?

The principal of an investor compensation scheme was originally introduced by Act 96-597 of 2 July 1996, known as the Financial Activity Modernisation Act, to protect investors in the event of the failure of their investment services provider.


In 1997, Directive 97/9/EC of the European Parliament and of the European Council established the framework and harmonised at Community level the mechanisms that were beginning to emerge. The creation of an investor compensation scheme in France was included in Act 99-532 of 25 June 1999 relating to savings and financial security.


In late 2008, the Madoff affair, together with the role played by securities in the failure of the US Lehman Brothers bank, prompted a review of the 1997 directive. A proposal for revision was filed by the European Commission in the summer of 2010.


In France, there are also regulations aimed at limiting fraud. Hence, to prevent the fraudulent use of financial instruments belonging to customers, French regulations require investment firms to keep financial instruments belonging to customer and those belonging to the firm itself separate in their accounting system which is called "segregation".


This obligation to separation of securities (or segregation of assets) is not systematically mandatory in other countries, which creates an inherent risk in the retention of foreign securities in countries where the segregation of assets is not mandatory.

Investor compensation scheme: approximately 325 institutions covered

All investment services providers (investment firms or credit institutions authorised to provide investment services) operating in France are covered by the investor compensation scheme. Membership in this scheme is a prerequisite for conducting their business in France.


Search for your service provider among the institutions covered 


Learn more about the categories of institutions covered

Up to €70,000 x 2 guaranteed per person, per service provider

A securities account can only operate with an associated cash account to allow purchases and sales, payments of interest, dividends, etc. For this reason, the investor guarantee scheme covers both the securities themselves and the cash associated with operating the securities account.


All unavailable securities and eligible for coverage in all the customer's securities accounts are assessed and added up to determine the base compensation amount. The FGDR pays compensation in this amount, up to €70,000.


Furthermore, FGDR determines the total amount of the unavailable cash associated with the customer's securities accounts. 


The FGDR compensates the cash associated with the securities accounts up to €70,000 if the investment services provider is an investment firm only (and not a bank);

- by adding this cash to all the other deposits, up to €100,000, if the services provider is a bank.


What principles are used to calculate the compensation?

To determine each customer's compensation amount, the FGDR, as of the date on which the funds become unavailable:


- checks whether the customer of the bank or investment firm is covered by the guarantee;

- lists all the unavailable securities held in all the 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 compensation);

- treats the indivision (undivided co-ownership) or partnership as a specific recipient separate from its members;

- for joint accounts, identifies the portion accruing to each of the co-holders;

- totals the value of the unavailable securities held in the customer's individual accounts and the portion of his joint accounts accruing to him;

- totals the value of the unavailable cash held in the customer's individual accounts and the portion of his joint accounts accruing to him;

- applies the €100,000 coverage level for the sums deposited at a single 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 date of unavailability. The value of the unavailable securities for which compensation is paid is the market value as of the date of unavailability.

The investor compensation scheme benefits all customers of investment services providers

The recipient of the compensation is always the account holder, even if this person is a minor, under guardianship or represented by a third party.


As a general rule, all customers of investment services providers are covered by the investor compensation scheme.


The investor compensation scheme covers:

- natural persons whether minors, adults under guardianship or represented by a third party; 

- companies (limited companies (SA), limited liability companies (SARL), one-person limited liability companies (EURL), ...) of any size, regardless of their status; 

- associations and other professional groups, non-trading partnerships, foundations and professional groups;

- public institutions, local governments and their own institutions. 


The scope of this coverage is designed to strengthen the public’s confidence in the financial system to the greatest extent possible. This is consistent with the goal of preserving financial stability.


However, the laws and regulations provide for certain exceptions and special cases.

Exceptions: what customers are excluded from the investor compensation scheme?

The following are not covered by the guarantee:


- central governments and administrations, supranational institutions;

- all banks, insurance companies, investment firms, UCITS and other companies operating in the financial sector;

- the partners, senior managers, directors and statutory auditors of the failed institution.

An investor compensation scheme for all financial instruments

The investor compensation scheme covers all "financial instruments", i.e., in accordance with Article L. 211-1 of the French Monetary and Financial Code:


- "Financial securities" in particular:


- Equity securities (listed or unlisted stocks, whether in registered or bearer form) issued by limited companies;

- claims in the form of securities issued by the French government or a local government, a limited company or a securitisation fund, such as fungible Treasury bonds (OAT), Treasury bills, bonds in any form, negotiable debt instruments (TCN, including commercial paper and certificates of deposit);

- units or shares of investment funds such as UCITS (open-end investment companies (SICAV), or mutual funds (FCP), and real estate investment trusts (REIT);


- "Financial contracts", also called "financial futures", such as options, swaps, hedging contracts, etc., listed in Article D. 211-1 A of the French Monetary and Financial Code.


The investor compensation scheme covers all categories of securities and financial instruments, with no exclusions.


View the list of products covered and not covered by the FGDR, click here.


To view the list of member institutions, click here.

Are securities covered regardless of the currency in which they are denominated?

A distinction must be made between the currency of the securities account and the currency of the associated cash account.


The currency in which the securities are denominated has no impact on coverage by the investor compensation scheme. However, the compensation paid for securities in foreign currencies will be calculated and converted into euros at the rate in effect on the unavailability date.


On the other hand, the currency in which the cash accounts associated with the securities accounts are denominated is important: to be eligible for compensation, these accounts must be denominated in euros, CFP francs or another currency of the European Economic Area countries.

→ To view the list of currencies of the European Economic Area countries, click here.


However, cash accounts denominated in a currency of a non-EEA country, such as US or Canadian dollar, Swiss franc or Japanese yen, are not covered by the FGDR.

How does the investor compensation scheme cover securities held in a business owner's business account?

Individual business owners (craftsmen, merchants, self-employed professionals, etc.) sometimes use securities accounts for business purposes which are separate from their personal accounts.


If a business owner conducts business through a separate legal entity, such as a one-person limited company (EURL), or under the status of limited liability individual business owner (EIRL), a double coverage level is made available for the securities and associated cash held in his/her business accounts.

How does the investor compensation work for a tenants-in-common account or a partners' account?

An "tenants-in-common account" is an account that belongs collectively to a group of people (indivision or undivided co-ownership), none of whom may act independently of the others or claim ownership of a portion of the account so long as the indivision exists. This type of account may include both securities and cash.


Three examples of tenants-in-common accounts are:

- an account of a deceased person before the notary has settled the estate and the amounts have been shared among the heirs;

- an account in which several people have formed a partnership for a common purpose, but without giving this partnership a specific legal form, and which requires the mutual agreement of the joint owners for all transactions;

- an account created in this form by two people which requires both their signatures for all transactions and where the name of the account includes the words "person A and person B".


In all cases, the guarantee covers the indivision and not the portion belonging to each of its individual members.


Moreover, account holders who have rights as partners of a company, members of an association or any similar group and who are not legal entities (for example, undeclared partnerships and similar groups) are treated as separate investors. They benefit from a second collective coverage level, in addition to the ceiling applicable to them individually.

How are securities guaranteed when the account holder is not the person entitled to them?

When the account holder is not the person entitled to the securities (for example, multiple owners accounts opened by a professional), the account holder is not covered by the guarantee. The investor compensation scheme benefits the individuals entitled to the securities, each of whom has a double coverage level, provided these individuals are identifiable prior to the bank's failure.

How does the securities guarantee work for a joint-tenants account?

Each account holder's compensation is calculated based on his/her personal accounts and his/her portion of the joint account (joint tenants account). Unless otherwise specified in the account agreement, a joint account is shared equally among the co-account holders.


Example of the calculated compensation of the joint securities accounts:

- Let's assume that a compensation amount of €9,000 must be paid to Person A and Person B for securities registered in a joint account.

- Person A also has a securities account in his own name and the securities are valued at €6,000.

     > The compensation paid to Person A will be €6,000 + one half of €9,000 = €10,500,

     > The compensation paid to Person B will be one half of €9,000, i.e. €4,500,


The same is true for cash associated with securities accounts.

How does one recognise a joint account?

The name of a joint account generally includes the words "Person A or Person B". The account can be opened for more than two people.