Law Society calls on EU to boost protection for bank customers

28 April 2010

Law Society President Robert Heslett has called on EU Commissioner Michel Barnier to improve the legal protection given to customers' money when a bank collapses.

Following the collapse of banks across Europe and the world during the global economic crisis, the Law Society says more must be done by the EU Commission to protect customers’ money.

In a letter to Commissioner Barnier, Law Society President Robert Heslett calls for a number of reforms, including greater protection for bank customers’ money, particularly where they have deposited large funds into a bank which subsequently collapses.

Speaking in London today, Robert Heslett says:

"Solicitors frequently encounter situations where a large amount of client's money is deposited in a bank for a short period of time. These can include proceeds from house sales, sums left as part of an inheritance or compensation payments for personal injury.

“What worries us is that if a bank fails and a consumer has deposited a large sum of money on a temporary basis for a specific purpose they could be ruined financially or find they have lost their home if there is no adequate compensation available. There will be no compensation beyond the amount prescribed by the EU.”

The Law Society says that the EU has already come a long way in increasing the guarantees given to bank deposits when a bank fails. From 1 January 2011, deposits of up to €100,000 will be guaranteed thanks to EU legislation.

The Society fears that this amount is insufficient as it would not protect, in particular, large amounts of client money deposited in a bank for relatively short periods, such as n relation to property transactions or litigation settlements.

Heslett adds: “The current guarantee threshold will not be sufficient to protect what may be thousands of consumers at difficult and stressful times of their lives. The Financial Services Authority's proposals address this problem and we urge the EU to adopt this position. The EU should be more ambitious or should let Member States be so.

"That is why I have written to the Commissioner to ask him to ensure these short-term deposits, which are often transactional in nature, may benefit from greater protection."

Heslett also calls for a number of reforms in relation to anti-money laundering measures, as well changes to EU company law and corporate governance in the letter to the Commissioner.

Notes:

Background

Directive 2009/14 amending Directive 94/19 on deposit-guarantee schemes increases the minimum level of protection afforded to bank deposits across the EU to €50,000. For 31 December 2010 the limit will then be fixed at €100,000, rather than being subject to a minimum amount.

Concern has been expressed that this amount is insufficient. It would not protect, in particular, large amounts of client money deposited in a bank for relatively short periods, such in relation to property transactions or litigation settlements.

The Directive obliges the European Commission to submit an impact assessment on matters, such as temporary high balances, to the European Parliament and Council by the end of 2009. To this end consultations were held by the Commission and the UK Financial Services Authority. The Society has submitted a response to both consultations calling for substantially higher levels of protection for temporary high balances. The Commission has published a summary of the results of the consultation.


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