On 1 March 2019, the European Banking Authority (EBA) published an Opinion on deposit protection issues arising from the UK’s withdrawal from the EU (Opinion). The Opinion seeks to ensure that depositors in the EU are adequately protected also in a no-deal scenario. Most importantly, it recommends that EU branches of UK credit institutions should be required to join local EU Deposit Guarantee Schemes (DGSs) subject to the requirements of national law.
Background: the UK’s approach to deposit protection
The Bank of England (BoE) has set out its proposed approach to Brexit in its Consultation Paper of October 2018 and has confirmed its position in its Policy Statement, which was published on 28 February 2019.
The BoE’s intention is to treat EU branches of UK credit institutions as ‘third country’ branches after exit day. Consequently, these branches will no longer be covered by the UK DGS. Moreover, the BoE will require UK branches of EU credit institutions to join the UK DGS. This may result in ‘double coverage’, whereby some branches are protected by two DGSs.
In light of the UK’s position, the Opinion calls the relevant authorities to ensure that deposit-taking branches of UK credit institutions join a local EU DGS subject to the requirements of national law. Where national legislation does not envisage third country branches joining the local DGS, the Opinion states that authorities should consider ways to meet the DGS Directive’s aim of ensuring that depositors are fully protected and full aware of the guarantee arrangements that affect them.
In addition, the EBA recommends that competent authorities should engage with DGS member institutions and request that institutions should inform depositors of any changes that may affect them, so that they know which DGS covers them in a no-deal scenario. The EBA has recommended that where depositors are no longer protected by a DGS, that “conditions should be created” that would allow depositors to withdraw or transfer to another credit institution without incurring penalties, subject to provisions of EU and national law.
The Opinion also looks at issues relating to the transferring of DGS contributions and highlights future challenges that may arise as a result of double coverage.