Pursuant to Section 3:259 of the Financial Supervision Act (Wet op het financieel toezicht or Wft), there is a deposit guarantee scheme and investor compensation scheme. The DGS seeks to compensate account holders if a bank is unable to meet its obligations ensuing from claims from deposits. The investor compensation scheme has been created to compensate persons who have entrusted money or financial instruments to a bank or other financial undertaking as part of a (portfolio investment) service if a bank is unable to comply with its obligations ensuing from these (investment) services.
Pursuant to Section 3:258 Wft in conjunction with section 8(1) of the Decree on Prudential Measures, Investor Compensation and Deposit Guarantee Scheme (Besluit prudentiële maatregelen, beleggerscompensatie en depositogarantiestelsel Wft), and Section 18 of the Decree, an undertaking holding an authorisation under section 2:11(1) of the Wft to operate as a bank falls within the scope of the investor compensation scheme and the deposit guarantee scheme. The obligations imposed on a bank are listed in Part 3.5.6 of the Wft and the Decree. The text below explains the practical consequences of the DGS for a bank.
Conditions for coverage
Whether the funds entrusted by the account holder to his or her bank are covered by the DGS depends on three conditions:
- The bank falls within the scope of the DGS
- The account holder is eligible for compensation under the DGS
- The account or accounts are eligible for compensation under the DGS.
All banks operating under an authorisation issued by DNB and included in the register fall within the scope of the DGS. You can access the register via www.dnb.nl/registers.jsp (Click than on ‘Banks’ in the left column. You will see the option ‘Search registers’. Under 'Financial services' select ‘Deposit guarantee scheme (DGS)’ and enter the name of the bank as the search term. If the name of the bank appears it is covered by the DGS.
Private individuals can resort to the DGS. The DGS applies irrespective of place of residence, nationality and/or age of the account holder. This means that both adults and children are independently covered by the DGS. A small group of private individuals does not qualify for compensation. This group includes executives of the insolvent bank, individuals holding an interest of five per cent or more in the bank in question, or close relatives of these individuals.
Business accounts of small, non-financial enterprises are also eligible for compensation under the DGS. Small enterprises are enterprises that may publish a summary balance sheet. From 1 July 2015 onwards, large, non-financial enterprises will also fall under the scope of the DGS.
Financial undertakings and government bodies are excluded from coverage under the DGS.
The DGS in principle applies to balances on checking accounts, current accounts, savings accounts, and special savings accounts such as term deposits, tax-efficient bank saving, life-course savings, and employee savings accounts. Possible accrued interest (between the last date of interest pay-out and the date of declaration of insolvency of the bank) is also covered by the DGS. Shares and other financial instruments, bearer bonds and (life) insurance policies are not eligible for compensation under the DGS.
The DGS applies per person per bank, i.e. not by account. If an account is registered in the name of two (or more) account holders, e.g. in the case of a joint account, the account holders are each separately eligible for compensation under the DGS. The coverage in case of a joint account applies proportionally (in equal parts), unless the account holders prove to have made different arrangements with the bank in advance.
The above information on the DGS is general information. If you want to make sure whether a specific account or product is covered by the DGS, you should consult the relevant product conditions and the specific rules and regulations.
Based on sections 19 and 20 of the Decree, DNB establishes which claims of deposit holders on the insolvent bank are eligible for compensation. The maximum compensation under the DGS is EUR 100,000. The maximum amount applies per (legal) person per licensed bank, regardless of the number of accounts.
The deposits of the account holder at the bank are eligible for compensation under the DGS up to a maximum amount of EUR 100,000. The bank’s claims on the account holder are not set off against this amount.
If the DGS has been activated and account holders take recourse to the scheme, they must declare that they relinquish their entitlement to set-off. This is a legal requirement. The declaration will only concern the amount due to the account holder under the DGS. If the account holder does not provide this declaration, DNB will be unable to pay out the compensation.
Pay-out procedure and term of pay-out
If DNB establishes that a bank is insolvent, it will activate the DGS. DNB will then inform account holders on its website and by means of advertisements how they can claim compensation under the DGS. In principle they can submit their applications on a website made available by DNB especially for this purpose. On this website account holders can check and update their details, access the available information on their account or accounts, and specify to which account they want their compensation transferred. The maximum term of pay-out is 20 working days, plus 10 working days in exceptional circumstances.
Obligations for banks
The banking authorisation granted by DNB entails that the institution falls within the scope of the DGS. This means that the deposits of the institution’s account holders are covered by the DGS if and to the extent that they satisfy the criteria of this scheme. It also means that the institution must meet specific conditions with respect to its funding, its administrative organisation and its supply of information to account holders.
First of all, the institution contributes to the funding of the DGS. Under the current Dutch DGS, the costs of compensation to account holders are retrospectively apportioned to the participating banks. Each bank’s share is proportional to its share in the total DGS-covered deposits. On 1 July 2015, the Netherlands will move to a DGS whose funding will be partially advanced by the participating banks on the basis of risk-dependent premiums. DNB and the Ministry of Finance are preparing the transition. From 1 July 2015, banks will be obliged to send quarterly reports to DNB on their deposit balances covered under the DGS. Partly based on these reports, banks will be required to make quarterly contributions to the Stichting Depositogarantiefonds, a not-for-profit organisation to be created to hold the DGS funds.
Secondly, the administrative system of an institution must enable the DGS payments to be made within 20 working days. Consequently, a bank must be able to provide a complete and correct listing of client and account balance data to DNB within 7 working days. The structure, content and delivery mode of this file must meet the specifications set out in the annexed ‘Manual on Supply of Data for the Deposit Guarantee Scheme’. This document also provides details on the supervision exercised over the management and testing of this file. If a bank expects difficulties, especially regarding the implementation of the requirements set out in the Manual, it is advised to contact DNB.
A third explicit obligation is that a bank must, if requested to do so, provide information on the DGS to current and future account holders enabling them to check whether a claim is covered. It is, however, not permitted to use information on the DGS for advertising purposes.
Execution of the DGS
DNB is entrusted with the administration of the DGS in the Netherlands. This means that DNB will activate the system on establishing that a bank is insolvent. Based on the information provided by the bank in question, DNB will determine the size of the claims that the account holders have on the insolvent bank. On request of the account holders, DNB then pays out compensation under the DGS and will subsequently apportion the costs of this compensation across the banks. From 1 July 2015 it will first charge the costs to the Stichting Depositogarantiefonds, which will hold the DGS funds. If these funds are insufficient, DNB will apportion the remaining costs across the banks. DNB will try and reclaim these costs from the assets of the failed bank as much as possible. Any payments that DNB receives from the liquidators of the bank’s assets will be returned to the banks and in due course to the Stichting Depositogarantiefonds.
For further details we refer you to the Financial Supervision Act (Wft), Part 3.5.6, and the ‘Decree on Special Prudential Measures, the investor compensation scheme and the deposit guarantee scheme pursuant to the Wft’, Section 18 ff. For specific queries regarding the DGS, please feel free to contact DNB.