5th September 2021
By Thomas Marron, Partner
06 14 24 61 29
Banks can – and do – fail.
The financial crisis of 2008 may feel like a distant memory now, especially after all we have had to contend with over the last couple of years, but this does not mean we should forget the lessons learnt back then. We trust banks and other financial institutions to look after our precious savings – indeed many people consider bank deposits to be ‘no-risk’ investments – but unfortunately banks can and do fail.
It is therefore important to understand what protection you have with all of the financial institutions you use, banks, investment companies, insurance companies etc, and take steps to improve your position where you need more peace of mind.
At least the situation is better now than when the banking crisis started. We have an EU directive which ensures that all member states have a guarantee scheme to compensate savers in your event your bank is declaring as having failed and cannot return your assets.
France’s Fonds de Garantie des Dépôts et de Résolution
As with all EU countries, the FGDR’s ‘deposit guarantee scheme’ offers protection up to €100,000. All banks authorised in France are required to contribute to the fund.
This covers bank accounts (current and savings); savings plans such as the Plan d’Epargne Logement (PEL) and Plan d’Epargne Populaire (PEP); savings accounts such as Livret ‘A’ savings, Livret Bleu, Livret Développement Durable et Solidaire (LDDS) and Livret d’Epargne Populaire (LEP); cash accounts associated with an equity savings scheme (PEA) or pension savings scheme (PER), etc. It aims to make the payable amount available within seven working days.
If a bank fails, you could lose savings above the €100,000 limit. You may receive additional funds following distribution of assets as part of the insolvency process, but this would depend on the bank’s situation.
However the guarantee is per depositor, so couples with joint accounts have €200,000 protected. It is also per banking group, so you have up to €100,000 protected with one bank and up to €100,000 with another – but be very careful as some banks with different names form part of the same group.
France will extend the €100,000 limit with an additional €500,000 for ‘temporary high deposits’, for example, when you sell a property or receive a lump sum compensation payment. There is three-month limit though.
The FDGR also covers the ‘investor compensation scheme’ which guarantees French authorised investments up to €70,000 per customer, per institution. Compensation is generally paid within three months.
This covers capital investments held directly or in a savings plan in shares (PEA); units or shares of investment funds, certificates of deposit etc.
UK bank accounts
If you have deposits in a UK regulated bank, they are protected by the Financial Services Compensation Scheme (FSCS). The amount protected matches that offered by the EU and is currently £85,000.
Protection is per depositor (accounts in joint names are protected up to £170,000), and per banking institution. It aims to pay compensation within seven days of a bank or building society failing, though complex cases will take longer. The FSCS also provides a £1 million protection limit for temporary high balances (up to six months).
According to the FSCS website, there are currently no plans to change the £85,000 limit post Brexit. It explains its protection “is not dependent upon the depositor’s place of residence, but where the bank, building society or credit union holds the deposit”, so nothing changes for UK nationals in France with savings in a UK authorised bank. However, since 1 January 2021, protection for deposits held in EU/EEA branches of UK firms are now covered by the local EEA deposit guarantee scheme in that country, not the FSCS.
UK offshore centres
Many British expatriates in France keep some savings in the Channel Islands or Isle of Man. Be aware that they are not covered by the UK scheme, even if they are divisions of UK banks. Instead you rely on their local guarantee schemes, which offer lower levels of protection.
The Isle of Man’s Depositors’ Compensation Scheme provides compensation of up to £50,000 for covered banks. The amount of compensation paid and timing of payments will depend upon the size, asset quality and profile of the failed bank and the amount of funding contributed. There is no standing fund for the DCS; it is funded if and when and capped at £200 million for a 10-year period.
The limit of Jersey and Guernsey’s depositors’ compensation schemes is also £50,000, capped at £100 million in any five-year period. They aim to pay compensation within three months.
Many savers with larger cash deposits have spread them out over more than one bank. It results in more paperwork but is worth it for peace of mind.
Others have opted to move capital into arrangements which provide a higher level of investor protection than banks can offer. For example, if you have an assurance-vie issued by a Luxembourg regulated insurance company, your investment assets are protected should the insurance company fail.
Luxembourg provides very robust protection for life assurance policy holders. Its investor protection regime requires that all clients’ assets are held by an independent custodian bank approved by the regulator. The bank must ring-fence clients’ securities – investment funds, shares, bonds etc – so they are off its balance sheet. If the bank fails, these securities remain in segregated client accounts. 100% of the policyholder’s securities are therefore protected. This does not include cash deposits, but cash held in monetary funds are treated as securities and protected.
In any case, you should always ensure you have adequate diversification across different investment assets. This reduces risk as well as increasing the potential for improved returns.
And as always, your savings and investment decisions should be based around your personal objectives, circumstances, time horizon and risk profile. For the best results, take personalised, regulated advice on asset protection and a suitable tax-efficient investment approach for you in France.
All information contained in this article is based on our understanding of legislation and practice, in the UK and overseas at the time of writing; this may change in the future.
You can find other financial advisory articles by visiting our website here
Blevins Franks accepts no liability for any loss resulting from any action or inaction or omission as a result of reading this article, which is general in nature and not specific to your circumstances.
Blevins Franks Group is represented in France by the following companies: Blevins Franks Wealth Management Limited (BFWML) and Blevins Franks France SASU (BFF). BFWML is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks France SASU (BFF), is registered with ORIAS, registered number 07 027 475, and authorised as ‘Conseil en Investissements Financiers’ and ‘Courtiers d’Assurance’ Category B (register can be consulted on www.orias.fr). Member of ANACOFI-CIF. BFF’s registered office: 1 rue Pablo Neruda, 33140 Villenave d’Ornon – RCS BX 498 800 465 APE 6622Z. Garantie Financière et Assurance de Responsabilité Civile Professionnelle conformes aux articles L 541-3 du Code Monétaire et Financier and L512-6 and 512-7 du Code des Assurances (assureur MMA). Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of retirement schemes. This promotion has been approved and issued by BFWML.
BLEVINS FRANKS BREXIT UPDATE
Now that the UK has fully left the EU, Blevins Franks’ latest Brexit video explores:
- The 90-day rule for visitors and holiday homeowners
- The new rules for UK nationals relocating to Europe, particularly retired people
- Some of the residency and freedom of movement permits available in Europe
- Form S1 route for subsidised healthcare coverage
It is important to seek personalised, professional advice on financial matters. For questions about completing your tax return, speak to a tax accountant. For advice on effective tax planning in France, to lower liabilities on savings, investments and pensions, speak to a cross-border tax and wealth management specialist like Blevins Franks. www.blevinsfranks.com