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.
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.
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.
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.
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.
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 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.