DIRECTIVE 2014/49/EU ON DEPOSIT GUARANTEE SCHEMES

Transcription

1 DIRECTIVE 2014/49/EU ON DEPOSIT GUARANTEE SCHEMES Public Consultation MAY 2015 Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 1

2 Public Consultation Paper: Directive 2014/49/EU on Deposit Guarantee Schemes Department of Finance May 2015 Financial Services Division Department of Finance Government Buildings, Upper Merrion Street, Dublin 2 Ireland DGSD.Consult@finance.gov.ie Website:

3 Contents 1. Introduction Background to the Deposit Guarantee Scheme (DGS) Overview of the DGS and its transposition... 6 Article 1: Subject matter and scope... 6 Article 2: Definitions:... 6 Article 3: Relevant administrative authorities... 7 Article 4: Official recognition, membership and supervision... 7 Article 5: Eligibility of deposits... 7 Article 6: Coverage level... 9 Article 7: Determination of the repayable amount Article 8: Repayment Article 9: Claims against DGSs Article 10 - Financing of DGSs Article 11: Use of funds Article 12: Borrowing between DGSs Article 13: Calculation of contributions to DGSs Article 14: Co-operation within the Union Article 15: Branches of credit institutions established in third countries Article 16: Depositor information Article 19: Transitional provisions Article 20: Transposition: The Consultation Process Appendix Article 10: Temporary High Balances, UK approach Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 2

4 Introduction The objective of this consultation is threefold: (i) To provide some background to the Deposit Guarantee Scheme (DGS) and to put its role into context. (ii) To provide a description of the most important Articles. (iii) To provide an opportunity for stakeholders to give their views on how discretions should be applied. In this regard, there are question boxes underneath the relevant Articles. It should be noted that this document does not seek to address every element of the DGS. In addition, where it expresses the Minister s views, these are of a preliminary nature and are subject to further consideration of the legal requirements of the DGS. It is important to be aware that while we are happy to take comments on any aspect of the Directive and its transposition, there are certain areas such as Article 16 on depositor information, where there is no discretion as to how we apply such a provision. Therefore, while we will note such comments and may use them in formulating our drafting, where appropriate, it will not be possible to make any fundamental change in policy approach. The Directive which applies to all credit institutions, whether banks or credit unions, entered into force on 4 July 2014 and is required to be transposed into Irish law by 3 July 2015 in order to be applied from 4 July It can be found at the following link Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 3

5 Background to the Deposit Guarantee Scheme (DGS) In order for a banking system to operate effectively, it relies on a reliable and regular source of funding to enable it to make loans to the general economy, whether to individuals or companies. There are a range of funding options available to credit institutions, but it is generally accepted that deposits provide one of the more stable means for credit institutions to finance their lending operations. In depositing their monies with credit institutions, depositors are primarily seeking security that their money will be safe and will be available for withdrawal on demand, in most instances in order for them to meet their day to day needs. A return on their money may also be a factor in a decision to deposit their money in a bank or credit union account, but in general it is probably fair to say that it is a secondary factor in comparison with the certainty that their money will be safe. Consequently, one of the most important developments in financial services legislation over the last 30 years or so, is the introduction of deposit protection schemes which define what deposits are eligible for protection, and then set a limit on such deposits for the purpose of coverage. The essential purpose of a DGS is therefore to provide the necessary confidence to depositors that their money is safe in the event that a credit institution gets into financial trouble. By doing this it contributes significantly to financial stability and operates to lessen the likelihood of widespread contagion including runs on credit institutions. In an EU context, Directive 94/19/EC represented the first attempt at introducing such an arrangement at EU level through what is known as a minimum harmonisation regime, in other words Member States within certain limits had discretion as to how apply such arrangements. The original Directive prescribed a limit of up to 20,000, which was increased to 50,000 in 2009 by amending Directive (2009/14/EC), with a requirement that it be increased to 100,000 by the end of In this country, we increased the limit to 100,000 with effect from July 2009 as a result of powers provided in the Financial Services (Deposit Guarantee Scheme) Act 2009 and extended the scheme to include credit unions. As part of the ongoing review and development of EU banking legislation, in particular the Bank Recovery and Resolution Directive (BRRD), a decision was made to introduce a new DGS directive which in broad terms has the following objectives: consolidate the existing Directives, due to the number of changes which have taken place since it was first introduced in 1994; Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 4

6 introduce greater harmonisation in areas such as the funding mechanism of DGSs, the introduction of risk-based contributions, level of coverage and the harmonisation of the scope of products and depositors covered. This was considered important because the minimum harmonisation approach adopted in the first Directive had resulted in Member States adopting different approaches to requirements such as financing mechanisms; allow the DGS greater flexibility in how it is used, e.g., it is just not to be confined to a pay box function, but also can be used in a resolution context for banks (i.e. under BRRD where a bank can be resolved in such a way that critical functions such as access to covered deposits are maintained on an ongoing basis). BRRD does not apply to credit unions and therefore the Central Bank and Credit Institutions (Resolution) Act 2011 will continue to apply to them for resolution purposes. It should be noted that some consideration was given to introducing a pan-european deposit guarantee scheme as part of the broader banking union project, however this was opposed by a number of Member States. Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 5

7 Overview of the Deposit Guarantee Scheme (DGS) and its transposition The purpose of this section is to provide an overview of the most relevant Articles in the Directive and to set out a number of questions to which we would like your views. Article 1: Subject matter and scope The purpose of this Article is to make clear what types of bodies the Directive shall apply to e.g. statutory DGSs, and what it does not apply to e.g. contractual schemes that are not officially recognised as DGSs. Article 2: Definitions: The purpose of this Article is to provide definitions of the important terms used within the Directive. The definitions are generally self-explanatory. It is acknowledged however, that the definition of deposits has drawn particular attention and the question about whether structured deposits (such as tracker bonds) are removed from eligibility under the new Directive has been raised with us. Consequently, we sought the views of the EU Commission who indicated that MIFID II introduces a definition of structured deposits. Pursuant to Article 4(1) (point 43) of MIFID II, a structured deposit is a 'deposit as defined in point 3 of Article 2(1) of Directive 2014/ /EU on deposit guarantee schemes, which is fully repayable at maturity on terms under which interest or a premium will be paid or is at risk according to a formula involving factors such as: a) an index or combination of indices, excluding variable rate deposits whose return is directly linked to an interest rate index such as Euribor or Libor b) a financial instrument or combination of financial instruments c) a commodity or combination of commodities or other physical or non-physical non-fungible assets, or d) foreign exchange rate or combination of foreign exchange rates'. Since "structured bonds" are defined in Art. 4(1) (43) MIFID II by reference to "deposits" within the meaning of Art. 2(1) (3) of DGSD, they fall within the DGSD by definition. Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 6

8 The Commission further stated that whether "tracker bonds" are "deposits", "structured deposits" or none of the two depends on their specific design. However to the extent the funds are left in an account and the principle is repayable at par they will satisfy the elements of the deposit definition. Article 3: Relevant administrative authorities The purpose of this Article is to identify the relevant administrative authorities for making the decision that a credit institution is unable to repay its deposits. In Ireland this will be the Central Bank, or the Courts where they have made a ruling for reasons related to the credit institution s financial circumstances and which has the effect of suspending the rights of depositors to make claims against it (see also Article 2(1) (8) of Directive). Article 4: Official recognition, membership and supervision This Article requires that each Member State shall ensure that within its territory one or more DGSs are introduced and officially recognised. It requires that credit institutions shall not accept deposits unless they are a member of such a scheme and outlines the measures that can be taken if a credit institution does not comply with its obligations as a member of the DGS. Furthermore, Article 4 provides that a designated DGS authority can request data at any time from its members containing all the necessary information to compensate depositors in the event of an invocation of the DGS. The major change between this provision and what was in the previous Directive is the requirement that DGSs perform stress tests of their systems at least every three years. The first stress test is required to take place by 3 July Article 5: Eligibility of deposits This Article streamlines considerably what deposits qualify as eligible deposits as it now protects all deposits held by individuals and companies no matter what their size, subject to the exclusions outlined in this Article. This change is a significant one as it makes the scheme much simpler from an administration and operational perspective. Consequently it will be possible to verify deposits for pay-out considerably quicker, which will mean that it will be possible to reimburse people more Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 7

9 promptly. The concept of excluded persons and connected persons is also removed 1. It should be noted that marking eligible deposits for immediate identification will be a new departure for credit unions. Legal advice has confirmed that under the new Directive, it is not possible to provide DGS coverage of up to 100,000 for deposits held by credit unions with banks as is currently permitted. This will have to be reflected in the transposition. The rationale for this is that credit unions are classified as credit institutions and Article 5(1) of the Directive excludes from any repayment by a DGS, deposits made by other credit institutions on their own behalf and for their own account. There is a derogation in 5(2) allowing discretion to cover deposits held by personal pension schemes and occupational pension schemes of small or medium-sized enterprises and deposits held by local authorities with an annual budget of less than 500,000. The current position in relation to pension schemes is that we use the derogation to include small self-administered pension schemes (SSAPs) within the scope of the DGS. The Minister s initial view is that this position should be maintained. We do not believe that any Irish local authority would have a budget of less than 500,000, and therefore are of the view that this derogation cannot be applied. Article 5 also provides that Member States may exclude deposits that may be released to pay off loans on private immovable property. The Commission has confirmed that private immovable property is a synonym for real estate that is, or is designated to be, privately owned. It covers both the property for the personal use of the depositor and the investment property that has been purchased with the intention of earning a return on the investment, as long as such immovable property is not, or is not designated to be, publicly owned, i.e. by state entities. Furthermore, Recital (25) of the Directive outlines that these deposits are not at the disposal of the depositor in the sense that it is contractually agreed that the deposit would serve only to pay off a loan contracted for the purchase of the property. 1 Certain people who were on the Board of a bank were deemed excluded persons and therefore could not obtain protection under the DGS. People connected to these excluded persons such as spouse or children were also excluded Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 8

10 Q.1 Should the derogation under 5(2) (a) to cover deposits held by personal pension schemes and occupational pension schemes of small or medium-sized enterprises be limited to maintaining the current inclusion of SSAP s within the scope of the DGS? Have you any other views on how this pension s derogation should be applied? Have you any views on the subject of potential exclusion of deposits held to pay off loans on private immovable property? Article 6: Coverage level This Article provides for the coverage level. In this regard it maintains the level of protection for deposits at 100,000. However, it introduces an additional feature to cover what are known as temporary high deposit balances, which stem from a) deposits resulting from real estate transactions relating to private residential properties; b) deposits that serve social purposes laid down in national law and are linked to particular life events of a depositor such as marriage, divorce, retirement, dismissal, redundancy invalidity or death; c) deposits that serve purposes laid down in national law and are based on the payment of insurance benefits or compensation for criminal injuries or wrongful conviction. The Directive permits such deposits to be protected above 100,000 for at least 3 months and no longer than 12 months after the amount has been credited to an account. There are a number of aspects to this proposal therefore which need to be considered: (i) What precise temporary high balances qualify for this additional protection? (ii) What level should this protection be set at? and (iii) What period of time should this additional protection last for? In relation to what temporary high balances qualify for additional protection, the Directive is reasonably prescriptive and therefore our approach will probably be quite similar to that adopted in the UK (see appendix 1). In other words, we will cover all the specific headings outlined in 6(2) and Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 9

11 will also probably include some general catch-all provision which will pick up anything not directly referenced but for which a case can be made that it falls within the scope of 6(2). In relation to the level that the protection should be set at, the best way of looking at this arguably, is to consider the residential property category which is likely to generate the highest values on a consistent basis and is also likely to be the most common temporary high balance category and use this as the basis for the determination of how high we should go. In this regard, house prices vary considerably depending on location, however, the majority of transactions come under the 500,000 threshold when looked at on a national basis. However account probably also need to be taken of the limited number of houses, particularly in the Dublin area which fall into the price category of between 500,000 and 1m. Therefore a cap of 1m could be imposed which would cover the vast majority of such balances and such an amount if chosen would remain relevant for a reasonable period of time. An argument can be made that it is not appropriate to place a limit on personal injury compensation cases because of the particular nature of such balances. Such cases at any one time are likely to be small enough in number. On the period of time for which temporary high balances should be covered, 6 months would likely strike a balance between giving people sufficient time to spilt their deposits between credit institutions whilst also taking account of the need not to impose excessive levy costs on the contributors to the DGS should an institution get into trouble. Q.2 The temporary high balance provision is heavily prescribed in the Directive, so most of what will be contained in the final regulations is fairly self-evident. However, we have a number of questions: (i) (ii) The temporary high balances which qualify for additional protection under the UK approach match what is contained in the Directive. It is proposed that we follow a broadly similar approach. Identification of any additional circumstances where a temporary high balance in line with the Directive is generated in an Irish context would be appreciated. On the question of what level the temporary high balance protection should be set at, we would like your views on whether 1m is an appropriate level. A case can be made that it will capture the vast majority of residential property transactions, and will also Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 10

12 remain a relevant figure for the next number of years. If you disagree, please explain why you think this should not be the case, and outline an alternative level. (iii) Do you agree with the time period proposed of 6 months for which people should qualify for the additional protection? If not, please state reasons supporting your argument. Article 7: Determination of the repayable amount The main underlying principle in this Article remains the same compared with the previous Directive, namely that the limit of 100,000 to deposits per depositor per credit institution applies; in other words the limit of 100,000 applies to all aggregated accounts at the same credit institution. In the case of joint accounts, the share of each depositor will be taken into account up to the 100,000 limit. The principle of the entitlement rights of an underlying beneficiary to benefit from the protection of the scheme is retained. As a general rule Article 7 precludes set-off of liabilities against deposits when calculating the repayable amount. However, it also provides that Member States may decide that the liabilities of the depositor to the credit institution are taken into account when calculating the repayable amount, where they have fallen due at the time of invocation of the DGS, to the extent the set-off is possible under the statutory and contractual provisions governing the contract between the credit institution and the depositor. Q.3 Please provide your view on whether this discretion should be transposed i.e. that setoff should take place in the case of arrears in circumstances where it is possible under the statutory and contractual provisions governing the contract between the credit institution and the depositor. Article 8: Repayment The main change introduced under this Article is the reduction in the number of days that a DGS must pay out within, from 20 working days to 7 working days. A transitional period has however been introduced which allows Member States provide repayment periods as follows: Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 11

13 20 working days until 31 December working from 1 January 2019 until 31 December working days from 1 January 2021 until 31 December 2023 A pre-condition for the application of such a transitional arrangement however, is that where a DGS cannot make a repayable amount available within seven working days, it shall ensure that depositors have access to an appropriate amount of their covered deposits to cover the cost of living within 5 working days of a request. The Minister and the Central Bank favour the application of the transitional regime, because of the very tight constraints that a seven day turnaround would impose on both the credit institutions and the DGS as operators of the system. Notwithstanding this, in the event of an invocation of the DGS, it should be noted that the Central Bank always endeavours to make compensation payments to depositors well within the current timeframe of 20 working days. The Directive provides that payments may be deferred in situations such as where there is a legal dispute as to who is entitled to the money, or where the amount is part of a temporary high balance (THB). In the case of THBs, assessment of such cases will be made by the DGS after invocation on receipt of claims by affected depositors together with provision of supporting documentary evidence. Q.4 Do you have any views on the application of the transitional regime as set out in the Directive? Article 9: Claims against DGSs This Article provides that a depositor s right to compensation may be the subject of an action against the DGS. It also provides the basis for a DGS to recover money it has paid out both in a winding up situation, and a resolution one. It also allows Member States to put a time limit on the time in which depositors whose deposits were not repaid or acknowledged by the DGS within the timelines prescribed in the Directive can claim the repayment of their deposits. Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 12

14 An argument can be made for putting in place a time limit on a depositor s right of compensation in order to bring closure to the liquidation of a credit institution. An appropriate time limit could be the conclusion of the liquidation process by the liquidator. It can be argued that this will take quite a considerable period of time and thus will provide ample opportunity for a depositor to seek repayment of his or her deposit. Equally, an argument can be made, from a consumer perspective, that no time limit should apply and that consumers should not face rejection of a claim as a result of not meeting a deadline. Q.5 Do you have any views on whether a time limit for repayment of deposits under the DGS should be imposed? Article 10 - Financing of DGSs The purpose of this Article is to ensure that DGSs have in place financial means proportionate to their liabilities. There is a requirement that by 3 July 2024 each DGS shall reach a target level of at least 0.8% of the amount of covered deposits of its Members. It is estimated based on current covered deposit levels that a target level of 0.8% will result in a fund of approximately 680m, which is significantly larger than the amount of 390m currently in the Deposit Protection Account (DPA). The structure of the financing arrangements under Article 10 is different to our existing arrangements under the Financial Services (Deposit Guarantee Scheme) Act 2009 insofar as the new arrangement will be a cost to banks and credit unions, whereas the existing arrangement is in the form of a deposit maintained by the credit institution in the DPA and is considered as an asset on their books. This difference in approach raises the question of how we move smoothly from one funding regime to another while at the same time maintaining an adequate level of resources to be able to manage a DGS pay-out during the early years of the new arrangements. In this regard, the Directive provides that DGSs shall raise the available financial means by contributions to be made by their members at least annually. Furthermore, it confirms that this shall not prevent additional financing from other sources. As a consequence, we are giving consideration to legislating for maintaining the availability of the deposit protection account in the early years of the build-up of the new fund, in such a way as to generally maintain the level of overall funds Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 13

15 available for DGS purposes which are available as at the end of the old regime. This approach is considered preferential from a depositor point of view as it avoids the perception that the DGS fund no longer exists. This matter is still the subject of legal advice and it is almost certain that if it is permissible, primary legislation will be required in order to achieve this objective. The alternative is we start from scratch and build the new DGS fund up to the requisite level by 2024, at the rate of 75m a year. This would mean that should there be a call upon the fund in the early years and there are insufficient monies available, then we handle it in a way equivalent to current arrangements. This would require the Central Bank to get the approval of the Minister for Finance to enable it advance the necessary amount to the DGS and the Exchequer would then recoup the Central Bank within a short period of time. It would seem that such an approach is permitted by 10(9) of the Directive where it states that "Member States shall ensure that DGSs have in place adequate alternative funding arrangements to enable them to obtain short-term funding to meet claims against those DGSs" In such a situation, an ex-poste levy (Article 10(8)), in addition to the standard levy would be placed on the banking and credit union sector to recoup the money advanced by the State. It should be noted that there is an option subject to certain conditions for a DGS to have a target level not lower than 0.5% of covered deposits (Article 10(6)). These conditions relate to a situation where (i) the reduction is based on the assumption that it is unlikely that a significant share of available financial means will be used for measures to protect covered depositors, other than in a resolution context and (ii), the banking sector is highly concentrated and in the case of failure the credit institutions would likely be resolved under BRRD rather that liquidated under normal insolvency proceedings. The Commission is currently reviewing the methodology for making such an assessment, and this is unlikely to be completed before mid-june. This is therefore something that can be considered at a later stage. Q.6 Do you agree with the view that it is appropriate to put in place a transitional regime for moving from the existing Deposit Protection Account arrangement to the new contribution based approach? Please provide comments to support your views. Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 14

16 Article 11: Use of funds This Article sets out what the DGS funds should be used for. It covers the following situations (i) To repay depositors pursuant to this Directive (ii) To finance the resolution of credit institutions in accordance with Article 109 of BRRD Directive i.e. in circumstances where the DGS is required to contribute to a resolution process on behalf of covered deposits (iii) Where Member states allow a DGS to use funds for alternative means in order to prevent the failure of a credit institution in the first place where permitted under national law. Situations (i) and (ii) are relevant in an Irish context. Situation (iii) relates to a situation where it is permitted under national law for a DGS to go beyond a pure reimbursement function and to use the available financial means in order to prevent the failure of a credit institution with a view to avoiding the costs of reimbursing depositors and other adverse impacts. It is understood that these measures could be used in the context of an institutional protection scheme (IPS) arrangement as exists in Germany for small banks. Article 12: Borrowing between DGSs This Article allows the DGS of a Member State to lend to other DGSs within the Union on a voluntary basis provided that certain conditions are met. Article 13: Calculation of contributions to DGSs This is an important Article as it determines the contribution levels that each individual credit institution will pay to the DGS, based on their level of covered deposits and the degree of risk incurred. The starting point for the calculation is the target of 0.8% of the overall amount of covered deposits which has to be reached by As mentioned above, we understand that this figure will be in the region of about 680 m based on covered deposit levels at the moment, which would mean an annual contribution from the banks and credit unions of approx. 75m per annum. The Article provides a discretion for Member States to use a lower level of contribution for low risk sectors which are regulated under national law. This therefore provides us with a means to put in Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 15

17 place a lower contributions for a particular sector, e.g. the credit union sector, if it is decided by the Department of Finance that such a sector is a low risk one. The Article also allows Member States the option to decide that credit institutions pay a minimum contribution, irrespective of the amount of their covered deposits. This would mean that for instance we could place a minimum charge on all banks, thus reducing the administration for wholesale banks with a very low level of covered deposits. It also provides flexibility to a DGS to use their own risk based methods for determining the basis for calculating the risk based contributions for each individual member. There is a requirement that the calculation shall be proportional to the risk of the individual members and shall take due account of the risk profiles of the various business models. The risk adjustment factor is a technical issue which will be determined by the Central Bank in co-operation with the EBA. However the Minister will have a policy input in particular in relation to whether credit unions can be classified as a low risk sector. The EBA published a consultation paper regarding draft guidelines on the methods for calculating contributions to the DGS in November Finally, it should be noted that Article 20 provides that if after a thorough examination, a DGS is not in a position to comply with Article 13 by the transposition date it shall have up to 31 May 2016 at the latest to agree an approach. This means that there is an extra 10 months to agree an appropriate contributions regime, and because of the complex nature of developing an approach for individual risk weightings, it is likely that we will avail of this extra time. Your views on this approach are sought in the section dealing with Article 20 below. If a decision is taken to avail of the time limit extension afforded under Article 20, consideration is being given to imposing a non-risk based contribution on all credit institutions in the first year so as to begin the process of building up the available financial means of the DGS as required under the Directive. Q.7 Should a particular sector, such as the credit union one, be considered a low risk sector and thus qualify for a lower level of contributions? Please provide a justification for whatever position you take on this issue. 2 EBA/CP/2014/35 Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 16

18 Q.8 Should a decision be made that credit institutions pay a minimum contribution, irrespective of the amount of their covered deposits? Please provide comments to support your views. Article 14: Co-operation within the Union The primary purpose of this Article is to enable a host authority to make a DGS payment to depositors of a branch in their country on behalf of a home authority. The repayment shall be made on the instructions of the home authority who will also provide the necessary funding prior to payout and shall reimburse the host authority for any expenses that it has incurred. Article 15: Branches of credit institutions established in third countries This Article requires Member States to check that third country branches established in their State have equivalent protection to what is provided in the Directive. If they are not equivalent there may be a requirement for such branches to join the local DGS. Article 16: Depositor information This Article requires that credit institutions make appropriate information available to actual and intending depositors about the nature of the deposit guarantee scheme and what it covers. main requirements are The (1) Member States to ensure that credit institutions inform actual and intending depositors of basic information about the scheme by means of a Depositor Information Sheet which must be provided before a deposit account is opened and at least annually thereafter. (2) Where a deposit is an eligible deposit for the purpose of the DGS then credit institutions must ensure a statement to that effect is included on the relevant deposit statement of account. It is appreciated that this Article will place additional demands on credit institutions, however, it is a mandatory provision over which we have no discretion. Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 17

19 Article 19: Transitional provisions This Article deals with the fact that under the new DGS regime certain previously covered categories of deposits or other instruments, cease to be wholly or partially covered by the DGS after its transposition, for instance where its principle is not repayable at par (certain tracker bonds). There is a discretion however for Member States to allow such products which have an initial maturity date to be covered until their initial maturity date if they were paid or issued before 2 July Q.9 Where certain deposits or categories of deposits or other instruments cease to be covered wholly or partially by DGSs after the transposition of this Directive, what is your view on whether to allow deposits and other instruments which have an initial maturity date to be covered until their initial maturity date if they were paid in or issued before 2 July 2014? Article 20: Transposition: This Article requires that the Directive be transposed by 3 July It also however provides that if after a thorough examination, it is not possible to comply with Article 13 (Calculation of contributions to DGSs) by this date then we have up to 31 May 2016 to bring it into effect. It is likely that this some of this extra time will be availed of in order to ensure a contribution system is put in place which reflects the underlying risks of credit institutions. Q.10 Please provide your view on the availing of this deadline extension. In addition, please provide your view on the imposition of an initial, non-risk based contribution, in the first year if a decision is taken to avail of the time extension above to finalise the risk based contribution methodology by the May 2016 deadline. Q.11 Do you have any other comments on the transposition of this Directive? Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 18

20 The Consultation Process Consultation Period The consultation period will run from 22 May to 12 June 2015, a period of three weeks. Any submissions received after this date may not be considered. How to Respond The preferred means of response is by to: DGSD.Consult@finance.gov.ie Alternatively, you may respond by post to: Deposit Guarantee Scheme Directive Public Consultation FSD 2 Division Department of Finance Government Buildings Upper Merrion Street Dublin 2. Please include contact details if you are responding by post. When responding, please indicate whether you are contributing to the consultation process as a professional adviser, representative body, corporate body or member of the public. Freedom of Information Responses to this consultation are subject to the provisions of the Freedom of Information Acts. Parties should also note that responses to the consultation may be published on the website of the Department of Finance. Meetings with key stakeholders? The Department of Finance may also invite key stakeholders to meet with them, including representative bodies, tax professionals and other interested groups or individuals. Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 19

21 Appendix Article 10: Temporary High Balances, UK approach 10.1 This Chapter applies only to the FSCS In order to qualify as a temporary high balance, a part of an eligible deposit in excess of the coverage limit provided for in 4.2 must meet at least one of the following additional criteria: (1) it comprises: a) monies deposited in preparation for the purchase of a private residential property (or an interest in a private residential property) by the depositor; b) monies which represent the proceeds of sale of a private residential property (or an interest in a private residential property) of the depositor; or c) monies which represent the proceeds of an equity release by the depositor in a private residential property; (2) it comprises sums paid to the depositor in respect of: a) benefits payable under an insurance policy; b) a claim for compensation for personal (including criminal) injury; c) State benefits paid in respect of a disability or incapacity; d) a claim for compensation for wrongful conviction; e) a claim for compensation for unfair dismissal; f) their redundancy (whether voluntary or compulsory); g) their marriage or civil partnership; h) their divorce or dissolution of their civil partnership; or i) benefits payable on retirement; (3) it comprises sums paid to the depositor in respect of: a) benefits payable on death; b) a claim for compensation in respect of a person s death; or c) a legacy or other distribution from the estate of a deceased person; (4) it is held in an account on behalf of the personal representatives of a deceased person for the purpose of realising and administering the deceased s estate; or (5) it otherwise serves a social purpose provided for, or of the type provided for, in the law of a part of the United Kingdom, which is linked to the marriage, civil partnership, divorce, dissolution of civil partnership, retirement, incapacity, death of an individual, or to the buying or selling of a depositor s only or main residence that is not freehold, heritable or leasehold property. Department of Finance EU Directive on Deposit Guarantee Schemes: Public Consultation Paper May 2015 Page 20