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The investor compensation scheme for all investors

The investor compensation scheme protects and compensates investors in the event of the failure of their bank or investment firm, excluding those provided by portfolio management companies. 
 
The investor compensation scheme covers all financial securities (stocks, bonds, units of UCITS, open-end investment companies (SICAV) or mutual funds (FCP), negotiable debt instruments) up to €70,000 per customer, per institution.
This guarantee is initiated when the investment services provider is no longer able to return to its customers the securities that they have entrusted to it.
In this way, the investor compensation scheme strengthens everyone's confidence in the stability of the financial system.

Go to the ACPR website for more information

Sommaire

All financial securities are covered by the investor compensation scheme

An investment services provider merely has custody of securities and may be responsible for their management and for carrying out transactions (payment of dividends or redemptions, purchases/sales, new subscriptions). However, the customer remains the owner of the financial instruments at all times. The service provider's failure does not change this form of ownership. The customer remains the owner of the securities and has free access to them.

Stocks, bonds, units of investment funds, etc. with no exclusions 

Note: the investor compensation scheme is initiated only when two conditions are met:

The securities have disappeared from the accounts;
The institution at which the account is held is in suspension of payments and cannot return or reimburse the securities.

PRODUCTS COVERED BY THE INVESTOR COMPENSATION SCHEME

“FINANCIAL SECURITIES”, which include: 

  • equity securities (for example, 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: 
    - ungible Treasury bonds (OAT), Treasury bills, bonds in any form,
    - negotiable debt instruments (TCN, including commercial paper and certificates of deposit);
  • units or shares of undertakings for collective investment such as: 
    - UCITS: open-end investment companies (SICAV), mutual funds (FCP) and real estate investment trusts (REIT).
    - UCITS: undertaking for collective investment in transferable securities
    - SICAV: open-end investment company
    - FCP: mutual fund
    - REIT: real estate investment trust

Securities are compensated up to €70,000 per customer, per institution regardless of the currency in which they are denominated.

The cash associated with securities accounts is also compensated:  

  • up to €70,000 if the institution at which your account is held is an investment firm and your account is denominated in euros or another currency of the EEA;
  • included in the other amounts covered up to €100,000 under the deposit guarantee scheme if the institution at which your account is held is a bank.
Note: the FGDR’s investor compensation scheme is initiated only when two conditions are met:
  1. the securities have disappeared from the accounts (fraud or computer system crash);
  2. the institution at which your account is held is in suspension of payments and cannot return or reimburse the securities.

 

70 000 €

par client et par établissement pour tous les titres financiers.

70 000 €

par client et par établissement pour les espèces quand le prestataire est une entreprise d’investissement.

100 000 €

incluses dans le total des dépôts couverts jusqu’à 100 000 € par client et par établissement quand le prestataire est une banque dûment habilitée à cette fin.

Protecting your accounts in the event that your bank fails
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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 investor compensation scheme covers all securities regardless of the currency in which the securities are denominated. 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.
  • The FGDR’s investor compensation scheme covers only cash accounts associated with securities accounts denominated in euros, CFP francs or another currency of the European Economic Area.
  • Cash accounts denominated in the currency of a non-EEA country are not covered by the FGDR. Such currencies include the US or Canadian dollar, Swiss franc, Japanese yen, etc.
     

30 countries of Espace Economique Européen

European Economic Area (EEA) i: Germany, Austria, Belgium, Bulgaria, Cyprus, Croatia, Denmark, Spain, Estonia, Finland, France, Greece, Hungary, Ireland, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Norway, Netherlands, Poland, Portugal, Czech Republic, Romania, Slovakia, Slovenia and Sweden.

 

Compensation only if securities are not returned to the investor

All financial securities are covered by the FGDR’s guarantee, without exception. However, the investor compensation scheme is initiated only when two conditions are met: the securities have disappeared from the accounts and the institution that provided custodial services is no longer able to return or repay them to its customer. 

 

What does “unable to return” the securities mean?

Under French law, the customer remains the owner of their securities at all times.
The customer’s investment services provider (bank or investment firm) merely has custody of the securities and may be responsible for their management and for carrying out transactions (payment of dividends or redemptions, new subscriptions). 

 

Important note:
The FGDR's investor compensation scheme applies only when the Prudential Supervision and Resolution Authority (ACPR) has determined that the service provider's financial situation prevents it from returning the securities.

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 the value of 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. 

What happens to securities if the institution that has custody of them fails?

The investment services provider's failure 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 have been met simultaneously:

  • The customer, although the owner, no longer has access to the securities entrusted to the service provider: the securities are no longer in the account, they have disappeared;
  • In addition, the service provider's financial situation (suspension of payments) prevents it from returning the securities or paying back the customer.

The FGDR then intervenes through the investor compensation scheme to compensate the customer based on the value of the missing securities as of the unavailability date determined by the ACPR.
 


Under what circumstances can a bank or investment firm's failure cause securities to become unavailable? 

In practice, the unavailability of securities must be concurrent with the failure of the investment services provider (investment firm or bank). 

Securities may become unavailable in the following situations:

  • a serious failure of the computer systems of the service provider or one of its suppliers, which causes a high volume of securities to disappear;
  • the service provider's fraudulent conduct resulting in the misappropriation of customers' securities;
  • the improper conduct of the service provider who apparently used its customer's securities for purposes other than those for which it was authorised (for example, for lending/borrowing transactions).

Guaranteed compensation amounts for securities: up to €70,000 x 2 per customer, per institution

The securities in all the customer's securities accounts which are unavailable and eligible for the guarantee are assessed and added together to determine the base compensation amount. The FGDR pays compensation in this amount up to a maximum of €70,000 per customer, per institution (investment services provider or bank).

A securities account must operate with an associated cash account to allow purchases and sales, payments of interest, dividends, etc. That is why the investor compensation scheme covers the securities themselves and the cash associated with the securities accounts. 

The FGDR determines the total amount of the unavailable cash associated with the customer's securities accounts. It pays compensation for cash associated with securities accounts:

  • up to €70,000 if the investment services provider is an investment firm (and not a bank);
  • by adding this cash to all the other covered deposits of this same customer, up to the deposit guarantee scheme’s €100,000 ceiling, if the investment services provider is a bank.
     

Investor compensation that benefits all customers of banks and investment firms

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

  • private individuals who are adults, minors, under guardianship or represented by a third party;
  • companies of any size regardless of their status, including limited companies (SA), limited liability companies (SARL), one-person limited liability companies (EURL), limited liability individual business owners (EIRL), etc. ;
  • associations, civil partnerships, foundations and other 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 possible extent. This is consistent with the objective of preserving financial stability.
 
However, the laws and regulations provide for some exceptions.

 

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

The following are not covered by the scheme that covers securities or financial instruments:

  • central governments and administrations, supranational institutions;
  • all banks, investment firms, UCITS and other companies operating in the financial sector;
  • insurance companies; 
  • the partners, senior managers, directors and statutory auditors of the failed institution; 
  • persons convicted of fraud or money laundering.

 

How does the investor compensation scheme work for a joint account? 

A joint securities account is shared equally among the co-holders unless otherwise specified in the account agreement. Each co-holder combines their share of the joint account with their other personal securities accounts.
 
Example of compensation for joint securities accounts:
Let's assume a joint securities account held by Person A and Person B in the total amount of €9,000.
Person A also has a securities account and the securities are valued at €6,000.

  • The compensation paid to Person A is €6,000 + one-half of €9,000 = €10,500;
  • The compensation paid to Person B is one-half of €9,000, i.e. €4,500. 

The compensation paid to the co-holders for the cash associated with the securities accounts is calculated in the same way. 

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.

faq fgdr

FAQ

Under what circumstances does the investor compensation scheme become effective?

The FGDR's investor compensation scheme is initiated when the ACPR determines that the service provider is no longer able to return to its customers the securities and other financial instruments and associated cash entrusted to it.
 
This implies that two conditions have been met simultaneously:

  • the securities have disappeared from your accounts;
  • the institution at which your account is held is in suspension of payments and cannot return or reimburse the securities.

 
In this case, the investor compensation scheme pays compensation based on the value of the financial instruments and cash that are no longer available to the customer.
The cash associated with the securities accounts is also compensated:

  • included in the amounts covered by the deposit guarantee scheme up to €100,000, if your securities account is held by a bank;
  • up to €70,000 if your securities, and therefore the associated cash account, are managed by an investment firm or investment services provider. 

 
The investor compensation scheme does not cover possible changes in the market value of the securities or commercial disputes between the customer and the service provider (for example, relating to management of the portfolio).
 
→ Refer to the “Discover the compensation process/I own securities” section

How are investors protected when the account holder is not the beneficiary?

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

Founding legislation of the investor compensation scheme

Law no. 96-597 of 2 July 1996, known as the “Financial Activity Modernisation Act”,
introduced the principle of an investor compensation scheme to protect investors' financial
securities in the event of the failure of their investment services provider.
 
In 1997, Directive no. 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 Law no. 99-532
of 25 June 1999 on savings and financial security.

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

To prevent the fraudulent use of financial instruments belonging to customers, French
regulations also require investment firms to keep financial instruments belonging to
customers and those belonging to the firm itself separate in their accounting system which is
called “segregation”

LEARN MORE

How are the securities of an investor who is an individual business owner guaranteed?

If an individual business owner (craftsman, merchant, self-employed professional, etc.) conducts business through a separate legal entity, for example a one-person limited liability company (EURL), or under the status of limited liability individual business owner (EIRL), the securities and associated cash held in their business accounts are covered separately from their personal accounts. 
 
The investor compensation scheme therefore covers the business owner’s securities accounts and cash held in the name of the EURL or EIRL, on the one hand, and their personal accounts, on the other.
 

How does the investor compensation scheme work for a joint signatory account or a partners' account?

  • A “joint signatory account” is an account that belongs to a group of people (“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 undivided co-ownership exists.This type of account may include both securities and cash.
    The guarantee covers the undivided co-ownership and not the portion belonging to each of its individual members.
  • Account holders that have rights as partners of a company, members of an association or a similar group, and are not legal entities (for example, undeclared partnerships and similar groups), are treated as a separate investor. 
    They benefit collectively from a second compensation ceiling, in addition to the ceiling applicable to them individually.

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