Financial compensation schemes contested by European institutions

The European Council (EC) is at odds with other European institutions over the funding model and maximum guaranteed compensation levels of the investor compensation scheme directive.

The council says the maximum guaranteed level of compensation should be increased from the current €20,000 (£16,788) to €30,000, while the European Commission and the European Parliament say the new maximum guaranteed limit should be €50,000.

The three bodies agree that individual compensation payouts should be capped at €100,000.

The council does not want schemes to be pre-funded while the EC wants national schemes pre-funded within 10 years and the parliament within five years.

The three bodies will try to resolve their differences in a meeting early next year. Analysts say the three bodies want a deal in this round of trilogue talks and if no agreement is reached, the process will start again, possibly delaying the final agreement by years.

Tim Gieles, analyst at Cicero Consulting Brussels, warns that any UK demands that cause a sticking point in discussions to finalise the directive could be sidelined after the Government’s refusal to agree a new treaty to shore up the eurozone last week.

Gieles says: “There is pressure to get this through before really weighty pieces of legislation like Mifid get to the trilogue stage late next year. Any sticking points dear to the UK could now be sidelined to achieve that. The UK is seen as having overplayed its hand in last week’s negotiations.”

The Financial Services Authority is waiting on the result of these negotiations before restarting its review of the Financial Services Compensation Scheme (FSCS). The FSCS is currently post-funded with a maximum compensation level for investments of £50,000.