The European Banking Authority has released its opinion on the treatment of client funds under Deposit Guarantee Schemes Directive (DGSD).
The regulator explored the treatment of client funds placed with banks by payment institutions, e-money institutions, investment firms, other banks, and other types of financial institutions.
It found discrepancies in the relation to the protection of client funds by DGSs across the EU and within Member States, depending on what type of entity deposits them on their client’s behalf.
In reaction to this, the EBA recommends the Commission should clarify the DGSD to ensure funds deposited on behalf of clients are equally protected in the EU. It hopes the clarification will help clients understand when they will and will not be covered.
Furthermore, the opinion recommends how to avoid a risk of contagion spreading from a failed bank to entities, which placed client funds with the bank. It also urges for credit institutions contribute to the DGS based on the amounts of protect client funds they hold.
The EBA stated its opinion does not include more prevalent cases, when depositors place their funds directly with a bank.
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