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Europe moves step closer to pre-funded compensation schemes

The European Parliament has moved a step closer to requiring investor compensation schemes to be pre-funded across Europe.

The economic and monetary affairs committee has published draft text to amend the investor compensation scheme directive, which will be used as the foundation to bring all European compensation schemes under common rules. It will cover investment claims relating to fraud, negligence, systems and controls and poor investment advice.

The committee calls for the minimum guaranteed level of compensation to go from €50,000 to €100,000 and says schemes should be pre-funded within five years rather than the 10 years originally suggested. At present, UK investors are protected up to £50,000 for investments.

Investment firms would be required to contribute 0.3 per cent of their assets towards the scheme and to set out the cost of the scheme to each investor.

Aifa policy director Andrew Strange says: “Originally, Europe was talking about 0.5 per cent of assets to fund schemes. Based on Investment Management Association statistics and the level of retail funds in the UK, that equates to a pre-funded compensation scheme of around £4bn.”

An FSCS spokesman says: “We are watching these developments with interest. There is still a significant level of debate to be had around the issues involved, including the pre-funding issue.”

The European Parliament will vote on the draft text in July. Delegates from member states will then debate the text to reach a common agreement. Changes to investor protection follow the increase to the deposit compensation limit from £50,000 to £85,000 in December, the equivalent of the €100,000 limit in European member states.

A separate directive is also going through the European Parliament looking at changes to compensation relating to life and pension business.

The FSA is awaiting developments in Europe before pushing ahead with its review of the Financial Services Compensation Scheme later this year.

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  1. The FSA is becoming ever more impotent as the EU tells them what to do.
    Usually I am totally against EU directives, but when it comes to the FSA I love it!

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