FACTBOX-EU to improve protection of financial consumers

July 12, 2010

July 12 (Reuters) – The European Union’s executive put forward proposals on Monday to bolster consumer confidence through better and faster protection of investors who face a run on their bank or have been the victim of fraud.

The European Commission’s plans are part of wider efforts to learn from the financial crisis, in which the savings of millions of people were hit by extreme market volatility and some banks had to be rescued by taxpayers.

The Commission has proposed toughening EU rules that protect bank account holders and retail investors. It has opened a public consultation on improving how insurance policy holders are safeguarded.

The 27 EU states and the European Parliament have the final say on the proposals, which seek to encourage investors to save for their retirement and avoid taxpayers having to bail out banks again in any future crisis.

BANK DEPOSITS

* Under EU rules dating to 1994, all states must set up national deposit guarantee schemes to reimburse account holders up to a certain level if their bank runs into trouble.

* During the financial crisis, the EU approved quick-fix changes to increase coverage to at least 50,000 euros ($63,000) by June 2010 and to a uniform level, expected to be 100,000 euros, by the end of 2010.

* The Commission proposes confirming the increase to 100,000 euros per depositor per bank by the end of 2010, which will cover 95 percent of all bank account holders in the EU.

* It would cover small businesses and all currencies.

* From the end of 2013, customers would get their deposits back within seven days, compared to three months at present and four to six weeks by the end of 2010.

* New steps will ensure that national deposit guarantee schemes are well funded by 2020.

* The Commission estimated that even if banks passed on all the extra costs of the new rules, it would increase bank fees by only 7-12 euros a year per account.

RETAIL INVESTORS

* The Commission is proposing amendments to a 1997 EU law on investor compensation schemes in cases where a firm is unable to return assets to an investor because of fraud or negligence.

* The Commission proposes partial or full compensation within nine months compared to several years in some cases at present.

* The Commission proposes that compensation in financial services cases will rise to 50,000 euros from 20,000 euros.

* Consumers would no longer have to pay the first 10 percent of losses.

* Consumers would have better protection against fraudulent misappropriations in which their assets are held by a third-party custodian, such as in the recent Madoff scandal on Wall Street.

* Investor compensation schemes should be funded to a level equivalent to 0.5 percent of the value of assets covered with regular contributions from banks, investment firms and funds.

INSURANCE POLICY HOLDERS

* There are no EU-regulated insurance guarantee schemes to provide last-resort protection to consumers when insurers collapse or are unable to meet their commitments.

* Only 11 EU states operate national insurance guarantee schemes at present — Bulgaria, Denmark, France, Germany, Ireland, Latvia, Malta, Portugal, Romania, Spain and Britain.

* Currently 26 percent of all life insurance policies and 56 percent of all non-life policies are unprotected.

* The Commission’s policy paper sets out different options for a legally binding EU framework for a national insurance guarantee schemes in all member states.

* The Commission wants life and non-life insurance policies to be covered by insurance guarantee schemes, financed by contributions from insurers.

* The Commission estimates the size of a national insurance guarantee scheme should be equivalent to 1.2 percent of gross written premiums per year.

* The Commission will propose a draft law in 2011.

(Reporting by Huw Jones, editing by Dale Hudson) huw.jones@thomsonreuters.com; + 44 207 542 3326)) ($1=.7939 euro)

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