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Procedure : 2010/0199(COD)
Document stages in plenary
Document selected : A7-0167/2011

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Debates :

PV 04/07/2011 - 22
CRE 04/07/2011 - 22

Votes :

PV 05/07/2011 - 7.18
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Explanations of votes

Texts adopted :


Monday, 4 July 2011 - Strasbourg OJ edition

22. Investor-compensation schemes (debate)
Video of the speeches

  President. − The next item is the report by Olle Schmidt, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a directive of the European Parliament and of the Council amending Directive 97/9/EC of the European Parliament and of the Council on investor-compensation schemes (COM(2010)0371 – C7-0174/2010 – 2010/0199(COD)) (A7-0167/2011).


  Olle Schmidt, rapporteur. (SV) Madam President, Commissioner.

Madam President, in this case I urgently need a broad consensus, so I will take another tone in this debate.

(SV) I would like to thank all of the shadow rapporteurs, the Commission, the committee and the group secretariat for their excellent work. We had hoped to achieve our objective, but we are not quite there yet. Investor protection is a form of consumer protection for securities and money that banks and investment firms handle on their customers’ behalf. It enables the customer to receive compensation by the State if an institution that goes bankrupt cannot release the customer’s assets as a result of fraud or negligence or of serious erroneous assessments and mistakes. However, compensation is not provided for risk investments, for example if investments in shares fall in value.

I will go through the committee’s amendments point by point. Firstly, the committee wishes to increase the level of compensation to EUR 100 000 per investor and it wants the level of compensation to be the same for all EU Member States. The most compelling reason for proposing a level of EUR 100 000 is that there are countries with levels of compensation higher than the proposed EUR 50 000, including the United Kingdom, France and Spain. Thus, we do not wish to reduce the level of compensation and thereby worsen consumer protection in these countries. The level of protection should also be as high for investments as it is for bank account savings. We need people who want to invest in the enterprise of the future.

Secondly, the committee wants to extend protection to include cases where it has been proven in a court of law that an investment firm has given bad advice. It should be possible for a situation where investment firms mislead investors and give bad advice in investment decisions to constitute grounds for compensation. An example of this is if a fund advisor were to advise elderly people to invest in high-risk funds with a long investment horizon.

Thirdly, the committee considers it important to create schemes that have sufficient funds to be able to pay out the compensation. Taxpayers must not subsequently have to pick up the bill. Therefore, we should introduce ex ante funding so that there is money in the funds if a firm should go bankrupt. It is proposed that the target fund level be reduced from 0.5 to 0.3% of the investment firm’s assets. The process is being accelerated so that all Member States are to achieve full financing of their funds in five years instead of 10 years. The calculation of the fees is to be based on the potential compensation risk incurred by a firm. Those investment firms that take the biggest risks will also have to contribute more to the funds than those firms that take smaller risks.

Fourthly, the borrowing mechanism must be adjusted. The Commission has proposed a compulsory borrowing mechanism in which schemes can borrow from one another, between countries. In order to avoid moral hazard, in other words deliberate underfunding, we propose that the compulsory borrowing mechanism not be launched until all the schemes have built up their funds and reached the target level. After a five-year period, a scheme is to have the right to borrow from other schemes within the European Union, provided that the scheme that finds itself in this situation has previously achieved the target funding level.

Fifthly, the committee would like the Commission to investigate the UCITS funds, including in the directive. We have had an intense debate in committee about whether mutual and bond funds – UCITS funds – should be included or not. We believe that we need to look more closely at how this is to be done. We obviously do not want Madoff-style dealings, but the committee thinks that the Commission should investigate the advantages and disadvantages of supplementing or replacing existing schemes with insurance-based solutions, in other words a system of insurance contracts.

Finally, the committee would also like to increase transparency by introducing a reporting obligation for the Member States of the European Union, in other words a duty to report to the Commission and the European Securities and Markets Authority on how the national schemes are working.

The issue of investor protection is important for consumers and investors and for financial stability. Tomorrow, I need a strong message from Parliament. I hope that I will receive support in the vote so that we can begin negotiations with the Council as soon as possible.


  Michel Barnier, Member of the Commission. (FR) Madam President, I would firstly like to extend warm thanks to Mr Schmidt, and also to the Committee on Economic and Monetary Affairs and its Chair Sharon Bowles, for the very ambitious and, may I say Mr Schmidt, very clear signal being sent out in regard to this important piece of work by Parliament.

Strengthening investor-compensation schemes is just one of the components of a consistent package which – may I remind you – also includes Deposit Guarantees and the White Paper on Insurance Guarantee Schemes. This comprehensive package was adopted by the Commission a year ago now.

What we have here today is an important proposal in terms of our response to the crisis. Consumers, or retail investors, are some of the financial system’s most vulnerable stakeholders and they are also the main victims of the crisis. Not only is it fair to protect them, it is also logical. Moreover, our fellow citizens would not understand if we failed to protect them. A trouble-free investment requires the guarantee of being properly compensated in extreme circumstances, such as fraud or operational mistakes leading to the loss of securities. Compensating investors therefore helps to restore confidence in the financial system – that is one of the lessons of the crisis – and also to establish a genuine internal market for financial services.

This is the rationale which led the co-legislators to adopt the very first directive on investor compensation, on the basis of a 1997 Commission proposal. This 1997 directive has been helpful, but it needs improving; that is what we are doing here together today.

Honourable Members, I have for a very long time now been in favour of what we call in French a ‘providential’ policy, that is to say a preventive policy; prevention always costs less than repair, and I have, in my own country, devised preventive mechanisms in other fields such as ecology. That is why I would like to see this guarantee scheme mechanism implemented.

First of all, Mr Schmidt, I share the ambitious approach outlined in your report. Parliament’s agreement on the pre-funding principle is a very positive point. As far as we in the Commission are concerned, pre-funding is a prerequisite for a credible system. Indeed, what is the point of planning a high level of cover if there is not enough money available for it? To say that we could raise the money on an ad hoc basis is rather unrealistic in these times of tension.

Secondly, Mr Schmidt, I am also well disposed to bringing the level of cover on Deposit Guarantees into line at EUR 100 000, as you proposed. We in the Commission proposed EUR 50 000, that is to say a lower level than Deposit Guarantees in the banking sector, because we feel that the risks to financial stability are greater in this latter sector than in the investment sector. The bank run phenomenon that we experienced with Northern Rock, in 2008, particularly comes to mind. I am, however, willing to consider your proposal, which is more ambitious.

Finally, I welcome the fact that Parliament is maintaining the mutual lending mechanism between schemes. I see this as a further demonstration of your commitment to developing a more harmonised and a more shared approach, which is crucial to overcoming the challenges of the crisis.

There are, of course, several points, here and there, which are subjects for debate or which diverge from the Commission’s initial proposal. I believe, for example – as you pointed out in your speech – that extending the cover to UCITS, considering how attractive this product is to retail investors, is a natural step. You have called for this measure to be postponed. That said, I have taken good note of your wish for it to be re-examined under the revision of the UCITS Directive in a few months’ time. You can count on the Commission to concur with that, Mr Schmidt.

Moreover, the proposed reduction in pre-funding to 0.3% should be carefully assessed if you genuinely want to increase cover to EUR 100 000. Honourable Members, there is no secret here, increasing cover while also reducing funding could, potentially, bring the system into difficulty or under stress.

Finally, I have several reservations as regards introducing an amendment aimed at covering what is known as ‘bad advice’. I share your objective: finance is a complex discipline and there are a number of charlatans who readily deceive the least informed consumers. However, this situation comes under the rules of conduct of the Markets in Financial Instruments Directive (MiFID), the breach of which opens up the right to take liability action.

Moreover, providing cover for ‘bad advice’ would be difficult to implement. It could lead to a considerable increase in the number of situations in which we would be driven to activate compensation funds without funding being revised accordingly. Therefore, Mr Schmidt, quite frankly, as it stands, this ‘bad advice’ concept is rather dubious in our view, and could lead to significant differences in interpretation, from one country to another, and to renewed market fragmentation. That is why we find it difficult to accept the inclusion of this concept in the text.

However, overall, Mr Schmidt, as well as generally renewing my thanks for the excellent work which has been done by yourself, the shadow rapporteurs and the coordinators, I can say – and this is the important point in my view – that Parliament and the Commission clearly share a common vision on this issue. This is an ambitious solution and a Europe-wide solution, and the Council should take that into account. That is the signal you are sending out to Member States, so that they can approve an overall approach quickly. I am also counting on the Polish Presidency to do all it can and to convince the countries that have still not done so to adopt this more Europe-wide approach, which is more favourable to retail investors. At the end of the day, any credible agreement must include a sufficiently high level of cover, a credible level of pre-funding and easy access to compensation. These are the lines along which we are working, Mr Schmidt, and I would like to thank you for that.


  Sebastian Valentin Bodu, rapporteur for the opinion of the Committee on Legal Affairs. − Madam President, the functioning of the investor compensation schemes has been improved and brought into line with banking scheme standards. I would like to mention that we cannot send a signal of equivalence of treatment between capital market investors and depositors in commercial banks. Although both categories have to be protected, with regard to protection for investors in securities it should be considered that the risk of the latter is taken by choice. I do not think it is a good idea to increase the threshold to EUR 100 000 because this will put too much burden on broker dealers.

I welcome the introduction of the lending system between the schemes and I hope that Parliament in plenary will maintain my own amendment regarding the postponement of reaching the guarantee ceiling by Romania and Bulgaria, in order to respect the terms of the accession treaties.


  Jean-Paul Gauzès, on behalf of the PPE Group.(FR) Madam President, Commissioner, ladies and gentlemen, the aim of this text is clearly to protect private investors from the fraudulent or deeply flawed practices of investment firms.

This text is designed to increase confidence after a crisis in which retail investors, as you said, Commissioner, were definitely the most vulnerable stakeholders and the ones who suffered the most.

It is important to understand that this text provides for the payment of compensation as a last resort. It is not paid out on an ad hoc basis, but as a last resort. That is why our committee unanimously adopted this report, which seeks to fully harmonise the rules and to increase the ceiling to EUR 100 000.

In the specific case of undertakings for collective investment in transferable securities (UCITS), the Commission’s feeling was not that measures to protect investors should be overlooked, but that this very specific product, which, incidentally, has an excellent reputation, deserved its own rules to be laid down as part of the revisions of the UCITS Directive. That is why the Committee on Economic and Monetary Affairs has asked your Commission to undertake a study to discover what the advantages and disadvantages would be of extending the scope of this Directive on compensation for private investors to include UCITS.

It is now up to the Council to agree so that the text that we adopted at first reading – since we will also be voting on the legislative resolution – can quickly be applied. I repeat: for Europeans and private investors, there is also a feeling of belonging to the European Union which must take the form of equivalent protection for all.


  Pervenche Berès, on behalf of the S&D Group.(FR) Madam President, Commissioner, this review of the Directive on investor-compensation schemes follows on, unfortunately, from the crisis and also from the Madoff scandal, which hit some small investors in Europe hard.

It is taking place, as you said, at the same time as the review of the Directive on Deposit Guarantee Schemes and the implementation of an equivalent directive in the field of insurance. This is important to us; it is also what led us to ask for the ceiling to be raised to EUR 100 000. Indeed, the original ceiling in the banking sector was EUR 25 000, and it is now being raised to EUR 100 000. Why create a gap in the field of investment at the very time when we want Europeans to be able to diversify their savings in secure conditions, including by promoting investment that will help us to finance our long-term investment needs?

You said that ‘bad advice’ is an issue that falls under the Markets in Financial Instruments Directive (MiFID), but it was in fact the MiFID that inspired us to include it here, because we believe that, here too, we need to apply this useful concept that was included in the MiFID. Therefore, we are not contradicting you; we are asking you to draw on what is in the MiFID and to apply it to this text.

Regarding the situation of undertakings for collective investment in transferable securities (UCITS), as everyone has said, we do not want anyone who is currently in possession of UCITS to end up in a less favourable position than non-UCITS investors, when this savings product adds real value to the European financial market.

I should like to say a couple of things by way of conclusion, in order to draw your attention to the way in which this text might be applied to local authorities also – during the crisis we saw how severely they could be affected – and to ask you, as the European Parliament will do during its vote tomorrow, to examine the conditions in which an insurance system could be much more effective, efficient and, in a way, useful, when it comes to financing this ex ante fund.

Commissioner, you said that the citizens would not comprehend any failure in this area. We are counting on the strong vote of this Parliament tomorrow and on your pressure to ensure that the Council resolves this situation, because it is obvious that it does not want to progress as quickly as we would like.


  Sven Giegold, on behalf of the Verts/ALE Group.(DE) Madam President, Mr Schmidt, ladies and gentlemen, may I express my thanks for your positive cooperation and also for the position that you took on this. This reform of the directive on the protection afforded to investors is necessary in order to improve consumer protection in the financial markets. We have experienced a number of major scandals. This reform is a consequence of those scandals. I would also like to thank the Commission for having tabled a strong, demanding proposal.

I should like to briefly discuss two points on which there was not a consensus. Mr Barnier, you mentioned the issue of bad advice. Ultimately we agreed that it makes sense to include this in the directive. We are not saying that the definition of bad advice and the structures for preventing bad advice belong in the directive, because naturally they belong in the Markets in Financial Instruments Directive (MiFID); however, if an undertaking demonstrably gives bad advice and cannot be held liable for this – perhaps because it has already gone bankrupt – then there is no financing for that at present. Until now, there has been no protection for the savers who suffer as a result. Representatives of the Commission also appeared to be very open to this in the discussions and consultations that took place in the Committee on Economic and Monetary Affairs. I would therefore ask you, Mr Barnier, to now once more reconsider your position of rejecting this. We will also need to look at this matter again in the context of the Undertakings for Collective Investment in Transferable Securities Directives (UCITS). Thank you for being willing to accommodate this.

One central issue in my view, however, is that there is currently a blocking minority in the Council. The German Government is part of this minority. It should reconsider again whether it really wants to maintain this blocking minority. We need this reform of the directive on protection for investors. After the crisis we have been through our citizens will find it incomprehensible if consumer protection remains weak.


  Syed Kamall, on behalf of the ECR Group. – Madam President, Madoff is often cited as a reason for these sorts of measures, but actually, in the Madoff affair, the SEC in the US was warned a number of times. So arguably they had the tools at their disposal, they just chose not to use them.

What I am worried about in this particular directive, though, is creating moral hazard and encouraging investors not to practise due diligence. They can invest willy-nilly knowing full well that they will be compensated for a bad decision, and that is what we have to be very careful about.

I would like to thank the other groups for accepting my amendment on transparency. It is important that investors see the cost of regulation, but also understand how much they are being charged for compensation so that, when they buy an investment, they are not being hoodwinked into paying more than they need to.

But what I am worried about is the high level of compensation. It is fine for places like London, Frankfurt and Paris, but many of the small Member States are very worried about a harmonised level of EUR 100 000 and worry about concentration of financial services and financial products in the big centres. I welcome the fact that London is such a centre, but I am worried about that from a competitive point of view. For that reason we will be abstaining but look forward to a healthy debate in the trialogues.


  Andreas Mölzer (NI).(DE) Madam President, as we are all aware, the financial markets and the securities traded on them are becoming increasingly complex, and thus increasingly opaque and incomprehensible to investors. The financial crisis emanating from the US made it clear that this is not just true of conventional small investors; it brought to light the fact that European banking institutions, too, were shifting vast quantities of nested securities that ultimately proved to be worthless.

Alongside strict control of the financial markets – including restrictions on certain speculative practices such as naked short selling – I therefore feel it is necessary to bolster the various compensation schemes for investors. In my view, consumer protection should be a major consideration when amending this directive. The proposals drafted by the rapporteur in this respect as regards the Commission’s text are therefore to be thoroughly welcomed. Those investing internationally, in particular – and in fact, most investors are likely to be doing so – must have legal certainty and predictability in respect of any claims. That is why we need a common level of protection, as mentioned previously.


  Michel Barnier, Member of the Commission. (FR) Madam President, I would like very briefly to express my view on that point too to Mr Bodu, and to voice my concern with regard to a number of issues he raised.

Objectively speaking, there are, Mr Bodu, differences between Deposit Guarantees on the one hand and investor compensation on the other. However, as I said earlier, if sufficient funding was available, I would be in favour of the alignment that both you and Mrs Berès mentioned.

Mr Gauzès, I confirm that we will examine the extension of cover to include UCITS. I am aware of Parliament’s reservations on this matter. However, I believe, Mr Gauzès, that it would be useful to plan its inclusion in the scope of the directive. We will nevertheless try to convince one another mutually and debate this issue.

I also think, Mr Gauzès, that all investors should be put on an equal footing. In any case, I would like to thank you for having again highlighted the need to protect investors properly, as Mr Mölzer also reminded us in his speech a few moments ago.

As Mrs Berès herself said, I was pressing for the adoption of the comprehensive package to which this text belongs. Therefore, we have not yet come to the end of the road, and investors and insurance holders are both affected. I would like to point out, Mrs Berès, that the future text on central securities depositories will provide a further opportunity to learn a number of lessons from the Madoff affair.

I have also taken note of two points which captured my attention and which I believe to be important, even though they involve technical aspects. The first one concerns the inclusion of insurance contracts. I think that is a good question; I am going to look into it and also study the difficulties and technical problems that it may entail. Secondly, there is an issue to which I am obviously sensitive, that is the excessive, or in some cases exorbitant, debt into which some local authorities have managed to get themselves. I will follow your debate closely on that too, and we will look at how we can deal with this issue.

Finally, Mrs Berès, you raised the issue of ‘bad advice’, as did Mr Giegold; I think it is a legitimate issue. I too want people to be safeguarded or protected. I ask though, is this the appropriate legal instrument to achieve that? This is a technical legal issue which may lead to divergence, and that would require us, in particular, Mr Giegold, to have a consistent and harmonised definition of what should be considered as ‘bad advice’. However, I sensed your insistence. I see that there is broad agreement on this issue, and we are therefore going to look into it in light of your debate today and your objections, which I have duly noted.


  Olle Schmidt, rapporteur.(SV) Madam President, even if you have perhaps not noticed it before, I have confidence in the free market and in people’s abilities to make free choices. However, at the same time I would like to make it very clear that I also firmly believe that consumers must be protected. It is clear that, from this point of view alone, this directive is an extremely important one. Therefore, ladies and gentlemen, you can criticise me in other respects, but on this matter we are in complete agreement with one another. It must be possible for the ordinary investor to know that the investments he or she makes are reasonably safe. This is extremely important for the future of Europe. That is how I see it, and how I view confidence in the financial markets.

Mr Barnier, you talked about undertakings for collective investment in transferable securities (UCITS) and forms of financing; 0.3% can be discussed if we also go up to EUR 100 000. I agree with that, but, at the same time, the Council’s view is that we should have a very much lower-level financing mechanism. We probably do not know exactly where we will end up. I also think that it is reasonable to include UCITS in the context of the Markets in Financial Instruments Directive (MiFID) and also with regard to UCITS 5, but I am sure that we will be able to reach agreement on that. With regard to bad advice, I, too, hope that we can find a solution, because I believe that this is an important issue for ordinary investors in Europe at the moment.

Finally, I would like to express my gratitude to the Commissioner, Mr Gauzès, Ms Berès, Mr Kamall and Mr Giegold for their very fruitful cooperation, and I hope that we can close this dossier in the autumn.


  President. − The debate is closed.

The vote will take place on Tuesday, 5 July 2011.

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