Deposit guarantee schemes and investor compensation

Bank Recovery and Resolution Directive

With the entry into force of the Recovery and Resolution Act (RRA) at the beginning of 2017, Liechtenstein has significantly improved its financial stability, in that a statutory mechanism is now available to counteract the “too big to fail” risk of large, systemically important banks in a crisis. The EEA country has thus transposed the Directive 2014 / 59 / EU on the recovery and resolution of financial institutions (the Bank Recovery and Resolution Directive (BRRD)) into national law. The RRA designates the Liechtenstein Financial Market Authority (FMA) as the resolution authority. For this function the FMA created a separate organisational unit within its organisational structure on 1 January 2017. This authority’s primary objectives are to avoid significant adverse effects on the stability of the Liechtenstein financial market and to protect client funds and client assets.

The RRA requires LLB, as a systemically important bank in Liechtenstein, to submit a recovery plan to the FMA. The recovery plan contains an analysis of measures determined as part of an overall bank stress test that can be taken to restore its financial position under various crisis scenarios.

Deposit Guarantee Schemes Directive (DGSD)

The DGSD requires EEA member states to recognise at least one national guarantee scheme that is responsible for the implementation of the deposit guarantee scheme at banks. All banks must belong to a deposit guarantee scheme which is supervised by the competent national authorities; this function should remain with the FMA. The new Deposit Guarantee and Investor Compensation Act (DGICA) is expected to enter into force in the first half of 2019. It provides for broadened and clarified scope of coverage for deposits, faster repayment periods, improved information and more robust funding requirements. The aim is to strengthen depositor confidence in the financial system. Among other significant changes introduced by the DGICA are the gradual changeover from a pure ex-post funded deposit guarantee system to a system where the assets to finance compensation cases are accumulated ex-ante through the contributions of the banks, as well as much faster repayment periods in the event of a deposit compensation case.

In the event of a compensation case, the Deposit Guarantee and Investor Compensation Foundation PCC (EAS) that has been established would ensure that the financial consequences for depositors and investors are at least mitigated by covering depositor and investor claims by up to a maximum of CHF 100'000. Deposits are all kinds of account balances as well as call money and time deposits.