History of the FGDR
Born out of the failure in 1999 of a locally systemic bank, Crédit Martiniquais, the Fonds de Garantie des Dépôts (FGD at the time) was built with a sense of urgency. It had to invent and set up a structure, draft the texts needed for its governance and resolve this crisis in the best interests of the customers and local financial stability, all at the same time.
Both young and mature, the FGDR, like the French financial sector, has undergone profound changes over the past 20 years.
A history tied to the development of the banking system and regulatory requirements
|HISTORY OF THE FGDR|
|KEY LEGAL DEVELOPMENTS||IMPORTANT STEPS|
|Decree of 25 March 2019 amending the Decree of 27 October 2015 on the FGDR's financial resources.||2019||New framework establishing the FGDR's ability to borrow over more than one year, as an exception to the rules applicable to public administrations.|
|Decrees of 18 February 2019 defining the rules for the application of the deposit guarantee scheme to factoring activities.||2019||Definition of the coverage of factoring transactions by the deposit guarantee scheme, based on the total net balance of factoring transactions.|
|Provision of Law no. 2018-700 of 3 August 2018 transposing the PSD2 Directive protecting up to €100,000 per PI/EMI customer with deposits in a ring-fenced account at a credit institution.||2018||Ring-fenced accounts of a PI/EMI (payment and electronic money institution) become eligible for the deposit guarantee scheme up to €100,000 per end customer.|
|Decree of 28 April 2017 on the approval of the FGDR’s Internal Regulations.||2017||Adoption of the existing internal regulations of the the FGDR’s Supervisory Board.|
|European Cooperation Agreement for Cross-Border
||2016||Joint adoption within the European Forum of
|Decrees of 27 October 2015:
1/ decree relating to the implementation of the deposit guarantee scheme, the compensation ceiling and the rules for the application of Article L. 312-4-1 of the Monetary and Financial Code;
2/ decree on the notification of depositors regarding the deposit guarantee scheme;
3/ decree implementing para. 4 of Article L. 312-16 of the Monetary and Financial Code;
4/ decree relating to the financial resources of the Fonds de Garantie des Dépôts et de Résolution;
5/ decree relating to savings accounts guaranteed by the French government.
|2015||Regulatory transposition of the provisions of the DGSD Directive
1/ Measures relating to the scope of the guarantee, the ceiling and the compensation process;
2/ Measures for notifying depositors;
3/ ACPR opinion procedure on the Supervisory Board's decisions regarding contributions;
4/ Measures regarding call for contributions procedures at the FGDR;
5/ Measures establishing the FGDR as the French government's operator for the French government guarantee.
|Order 2015-1024 of 20 August 2015 containing various provisions for adapting legislation to European Union financial law.||2015||Transposition into the Monetary and Financial Code of the provisions resulting from the DGSD2 directive (scope and limits of the guarantee, temporary high balances, the FGDR's governance) and the BRRD Directive.|
|Directive 2014/59/EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD).||2014|
|Directive 2014/49/EU of 16 April 2014 on deposit guarantee schemes (DGSD).||2014|
|Single Resolution Mechanism (SRM) regulation adopted by the European Parliament on 15 April 2014 and the related intergovernmental treaty.||2014||Establishment of the Single Resolution Board (SRB) for the euro zone, responsible for resolution decisions, and creation of a Single Resolution Fund (SRF).|
|Decree of 13 March 2014 amending Regulation no. 99-05 of 9 July 1999 on the deposit guarantee scheme or other repayable funds.||2014||Implementation of the obligations related to “
|2013||Preventative intervention in favour of the customers of DUBUS SA (investor compensation scheme).|
|Law no. 2013-672 of 26 July 2013 on the separation and regulation of banking activities.||2013||The FGD becomes the Fonds de Garantie des Dépôts et de Résolution (FGDR).|
|Decree of 29 September 2010 transposing Directive no. 2009/14/EC of 11 March 2009 into French law regarding the FGD’s payment period and payment amount for customers of failed banks.||2010||Intervention in favour of the customers of EGP (investor compensation scheme).|
|European Directive no. 2009/14/EC of 11 March 2009 amending Directive no. 94/19/EC relating to the payment amount (€100,000) and payment period (20 working days) by deposit guarantee schemes.||2009|
|2000||Intervention in favour of the customers of Mutua-Equipement (performance bonds guarantee).|
|1999||Preventative intervention in Crédit Martiniquais (deposit guarantee scheme).|
|French Law no. 99-532 of 25 June 1999 on savings and financial security creating the Fonds de Garantie des Dépôts (FGD) and entrusting it with the management of the deposit guarantee, investor compensation and performance bonds guarantee schemes.||1999||Creation of the Fonds de Garantie des Dépôts (FGD) by the Law of 25 June 1999.|
|European Directive no. 97/9/EC of 3 March 1997 establishing investor compensation systems (investor compensation scheme).||1997|
|Directive 94/19/EC of 30 May 1994 establishing deposit guarantee schemes within the European Community.||1994|
|Prior to the creation of the FGDR, a compensation fund existed within the Association Française des Banques (AFB), the French banking association. This fund covered only AFB member banks, did not have the status of a legal entity and was not operationally autonomous.|
Stage 1: creation of the FGDR
How was the Fonds de Garantie des Dépôts created?
Prior to the creation of the FGDR, a compensation fund existed within the Association Française des Banques (AFB), the French banking association. This fund covered only AFB member banks, did not have the status of a legal entity and was not operationally autonomous. Mutual and cooperative networks were covered by their internal mutual support mechanism.
On this basis, the decision was made at the time to create a universal fund which all mutual and cooperative banks would be required to join, to give it the status of legal entity with its own governance and to increase its resources.
At the same time, all licensed banks in France, including those with a capital structure as well as mutual and cooperative banks, agreed to join the professional association which in 2001 would become the Fédération Bancaire Française (FBF), the French banking federation.
Founding legislative text
The Fonds de Garantie des Dépôts (FGD) was created by Article 65 of Law no. 99-532 of 25 June 1999 relating to savings and financial security. Through the new Articles 52-1 to 52-14 of the Banking Act of 24 January 1984 (which later became Articles L. 312-4 et seq. of the French Monetary and Financial Code), this law entrusted the management of the deposit guarantee scheme to the FGD, required all authorised banks to be members of the FGD, defined its resources and established the key statutory provisions governing the Fund.
From the outset: two intervention methods and three guarantees
The creation of the Fonds de Garantie des Dépôts (FGD) made it possible to respond to the two crises that arose at the time, at Crédit Martiniquais and Mutua-Equipement.
- The FGDR’s scope, which goes well beyond compensation alone, includes the ability to intervene in a troubled institution on a preventative basis: by providing capital or guarantees, before an actual failure, so as to protect the activities that could fail, including customers’ deposits. Like compensation, preventative action, similar to what we now call “resolution”, was designed as a means of achieving the single objective of securing the depositor and improving the stability of the banking sector.
- Furthermore, since its creation the FGD alone has been entrusted with managing the various guarantees for customers of banks and financial institutions to ensure the coherence of these mechanisms and interventions and to optimise the resources allocated to them. The securities guarantee (also called “investor compensation”) and the performance bonds guarantee schemes were therefore added to the deposit guarantee scheme.
How was the investor compensation scheme created?
The principles of the investor compensation scheme were established by Law no. 96-597 of 2 July 1996, known as the Financial Activity Modernisation Act (Article 62). Responsibility for this scheme was assigned to the FGD pursuant to Article 70 of the 1999 law on savings and financial stability.
How was the performance bonds guarantee scheme created?
The performance bonds guarantee scheme is of national origin only. It results from Article 72 of the same law of 25 June 1999.
This article stipulates that the mechanism retroactively covers performance bonds granted by any credit institution for which judicial receivership proceedings were initiated after 1 January 1996.
Stage 2: impact of the financial crisis
With the 2007-2009 financial crisis, the three-month compensation period for the European guarantee schemes seemed to offer far too little security for depositors, while the coverage level seemed too limited and insufficiently harmonised to properly protect customers and avoid bank runs.
The decision was made in 2009 at European level, and transposed into French law in 2010, to reduce the compensation period for customers of a failed bank to 20 working days (then to seven working days from 2014/2015). At the same time, the coverage level was increased and harmonised at €100,000 per customer, per institution.
For the Fonds de Garantie des Dépôts, this was a major turning point which led to its deliberate and in-depth transformation. Without giving up its ability to intervene on a preventive basis, the FGDR worked hard to address the consequences of this new paradigm imposed by a requirement to pay compensation within seven working days.
The work of the banking industry
- The FGDR has built data standards (the “SCV files") together with banks, worked on regulations with the public authorities, developed its own processes and IT resources, established a regular process to monitor credit institutions' ability to operate, expanded its teams and signed contracts with a growing number of external partners.
- It has also focused on customers of institutions by implementing an active communication policy. The FGDR has also made a commitment to conduct stress tests to ensure its operational capability.
Sharing of experience with other guarantee schemes
Lastly, the FGDR seeks out best practices worldwide and shares its own experience with its counterparts. Two professional associations, the EFDI for Europe and the IADI for the entire world, make these stimulating and informative exchanges possible.
Stage 3: the transformation
Post-2007-2009 crisis: from the FGD to the FGDR
In 2013, the creation of a national "resolution" scheme: Law no. 2013-672 of 26 July 2013 provides for the establishment of the banking resolution scheme in which the FGDR is heavily involved. The aim of this scheme is to resolve systemic crises that could affect very large institutions.
This law changed the name of the FGD by adding the word “resolution”, making it the Fonds de Garantie des Dépôts et de Résolution (FGDR), just as the ACP became the Prudential Supervision and Resolution Authority (ACPR).
In addition, the new law contains several clarifications regarding the operation of the deposit guarantee scheme and the FGDR, which concern access to the information it needs to prepare and carry out its mission, including information covered by bank secrecy.
Founding texts of the Banking Union within the euro zone
In 2014, the European framework for handling banking crises was strengthened with:
- a new Directive on deposit guarantee schemes (“DGSD 2”);
- a new Directive on the recovery and resolution of banks (“BRRD”);
- a new regulation on the Single Resolution Mechanism (“SRM”) and the related intergovernmental treaty.
These regulations made the Banking Union project a reality for the entire euro zone and were very quickly applied. Many of the topics covered directly concern the FGDR, which was involved in the transposition and implementation negotiations in 2015 and 2016.
Past interventions by the FGDR
The FGDR has intervened four times since it was created to guarantee securities, performance bonds and deposits. Discover the history of these four interventions.
How did the FGDR intervene on behalf of Crédit Martiniquais?
Crédit Martiniquais, a retail bank established in the French West Indies with close ties to the local economy, saw its operations deteriorate significantly during the 1990s. An interim administrator was appointed in May 1997.
In September 1999, the Commission Bancaire (now the ACPR) requested that the Fonds de Garantie des Dépôts intervene on a preventative basis. The goal was to prevent the bank from being in suspension of payments, which would have resulted in customer deposits becoming unavailable and a shutdown of a portion of the local economy. The intervention mainly entailed reducing the asset shortfall and providing Crédit Martiniquais with the necessary resources to meet its immediate commitments so that the network, along with the associated deposits, could be purchased by a third-party operator.
The FGDR agreed to intervene and, in early 2000, paid nearly 1.7 billion francs (approximately €260 million) in the form of recoverable advances. After recovering a portion of these advances through the sale of the network to the BRED and through the subsequent sale of the assets that could be sold during Crédit Martiniquais’ liquidation, the FGDR still holds a claim of €178 million. It is attempting to collect these funds from the former senior managers.
The legal recovery procedure has seen several twists and turns with rulings made then appealed. This lawsuit is still pending.
In 2018, the liquidator of Financière du Forum, the company that succeeded Crédit Martiniquais, brought an action against certain legal entities that were de jure or de facto senior managers to cover the deficiency in the company's assets. This case is pending before the Commercial Court of Paris. These cases have been described in detail in each of the FGDR's annual reports since 2013.
Why was there an intervention in favour of the customers of Mutua-Equipement?
Mutua-Equipement had granted completion of construction warranties on behalf of builders of single-family homes, in favour of their customers, the future owners of these homes. In 1997, Mutua-Équipement was placed in court-ordered liquidation. By a decision of 28 September 1999, the Commission Bancaire requested that the FGDR intervene in order to compensate the customers/homeowners in case their builder defaulted.
The FGDR therefore took over the performance bonds issued by Mutua-Equipement. It processed 350 project completion applications and paid slightly more than €6 million in compensation.
The FGDR’s intervention in Mutua-Équipement was completed with the closure of all customer files and the end of the lawsuits. The company’s
How did the FGDR intervene in favour of EGP's customers?
The Européenne de Gestion Privée (EGP) investment firm was authorised in 2006 to manage portfolios on behalf of third parties and to receive/transmit orders. Although the company set up its head office in Bordeaux, 90% of its activity was conducted from its Italian branch based in Rome.
The intervention by the Fonds de Garantie des Dépôts et de Résolution for the investor compensation scheme was caused by the company’s insolvency on 15 December 2010 combined with its inability to return any or all of its customer’s holdings. The ACPR appointed a bank
On 10 January 2011, the Bank of Italy placed EGP’s Rome branch in compulsory administrative liquidation and appointed an administrative
On 16 March 2011, the FGDR notified the customers of the Bordeaux head office (80 active customers with €7 million in holdings) that all of their holdings were available. They were therefore able to dispose of them freely, without the FGDR having to compensate them.
For the 800 customers of the Rome branch (approximately €250 million in holdings), the FGDR and the Italian
The Italian courts have filed charges against EGP's former senior managers on various grounds, including fraudulent bankruptcy. The FGDR is a plaintiff claiming damages. Other proceedings have been initiated in France by former EGP customers.
There were 84 appeals filed with the Administrative Court of Paris. However, this number represents slightly less than 10% of the compensation or rejection decisions issued by the FGDR.
After the end of the investigative phase, a single hearing for all the cases took place on 18 February 2014.
Through a series of decisions handed down in March and then in July 2014, the Administrative Court of Paris rejected all 84 appeals, thereby confirming the entire approach taken by the FGDR, in terms of both the customers' eligibility for compensation and the amount of the claimants' compensation.
None of the claimants appealed these decisions, which became final.
Moreover, the criminal lawsuits in Italy against the former senior managers and in which the FGDR is a plaintiff claiming damages continued. In a ruling announced on 2 December 2016, the District Court of Rome sentenced the senior manager at the time and eight other people to prison terms of up to four years for fraud perpetrated against the customers and for unlawful engagement in activities. It also ordered the parties to pay compensation to the FGDR.
The criminal proceeding continued in 2018. The FGDR is represented in the proceeding in the hope that it might recover a portion of the sums incurred for compensation of the customers.
How did the FGDR intervene on a preventative basis in favour of Dubus SA's clients?
Dubus SA was a brokerage firm located in Lille, authorised as an investment firm that provided related account-keeping/custodial services. Its main business was that of an online broker specialising in the equities and derivatives markets. It remained independent and had just over 2,000 clients, most of whom were private individuals.
At the end of 2012, it was found that clients' funds were inadequately ring-fenced and that the company had operated at a loss for several years, draining its cash assets. The ring-fencing fell short to the point that the ACPR decided in July to take coercive measures. By a decision of the Collège on 12 July 2013, the ACPR appointed an interim administrator to determine the source of the inadequate ring-fencing and verify the amount thereof.
At its meeting on 11 October 2013, the Supervisory Board approved the preventative intervention by the FGDR in favour of Dubus SA. On 18 October, the ACPR took the required preventative measures and set 30 November as the date on which the company would discontinue operations.
The ring-fenced account was opened at the Banque de France on 23 October and transfer of the clients' funds to the account began on 25 October.
The total reduction of the ring-fence shortfall made by the FGDR was €3,806,722.75.
The business and most of its clients were transferred to Bourse-Direct. The interim administrator appointed by the ACPR then declared a suspension of the company's payments before the Commercial Court of Lille on 4 February 2014. The court placed the company in court-ordered liquidation on 17 February 2014 and appointed a liquidator while the interim administrator was being appointed as bank liquidator by the ACPR. On 27 March, the FGDR declared the amount of the ring-fence shortfall it paid as the amount owed to it.
As there has been no lawsuit affecting the FGDR's intervention and the ring-fencing mechanism created to separate clients’ cash, this matter can be considered closed.