Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Own funds
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Disclose name of institution / entity:
Name of institution / submitter:
Depositor Compensation Scheme Malta
Country of incorporation / residence:
Type of submitter:
Subject Matter:
Application of the DGS Directive to Financial Institutions

Based on the definition provided in Article 4(1)(26) of Regulation (EU) No. 575/2013 (CRR), should financial institutions which deal on own account only be excluded from DGS compensation?

Background on the question:
In terms of Article 5(1)(d) of the DGS Directive, deposits by financial institutions as defined in Article 4(1)(26) of Regulation (EU) No. 575/2013 (CRR) shall be excluded from any repayment by a DGS.
The definition referred to in the abovementioned Regulation reads as follows: " 'financial institution' means an undertaking other than an institution, the principal activity of which is to acquire holdings or to pursue one or more of the activities listed in points 2 to 12 and 15 of Annex I to Directive 2013/36/EU, [ 26]".
Point 7 of Annex I covers, inter alia, "Trading for own account". The MiFID Directive 2004/39/EC also lists "Dealing on own account" as an investment service, but Article 2(1)(d) of that Directive exempts its application to "persons who do not provide any investment services or activities other than dealing on own account unless they are market makers or deal on own account outside a regulated market or an MTF on an organised, frequent and systematic basis by providing a system accessible to third parties in order to engage in dealings with them".
Clarification is therefore sought as to whether this exemption should also be applied for DGS purposes, e.g. for determining whether a 18personal investment company 19 which trades solely for its own is eligible for compensation under the DGS.
Another exemption granted in Article 2(1)(b) of the MiFID Directive states that the Directive shall not apply to "persons which provide investment services exclusively for their parent undertakings, for their subsidiaries or for other subsidiaries of their parent undertakings".
Again, therefore, we wish to clarify whether this principle should also be extended to the application of the DGS Directive, e.g. where a company is providing services to another entity within the same Group. It seems to us that if such a company does not require a licence under MiFID, then its deposits should be eligible for compensation under the Scheme.
Date of submission:
Published as Final Q&A:
Final Answer:
The reason for excluding financial institutions from DGS coverage (see Article 5(1)(d) of Directive 2014/49/EU (DGSD)) is that these companies are better equipped to scrutinise risk than retail depositors or non-financial corporates.
An institution which deals on own account only still has as its principal activity one of the activities listed in points 2 to 12 and 15 of Annex I to Directive 2013/36/EU (CRDIV) and falls under the definition of "financial institution" of point 26 of Article 4(1) of Regulation (EU) No. 575/2013 (CRR). Its deposits would thus be excluded from the coverage of the DGS.
This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Financial Stability, Financial services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.
Final Q&A
Answer prepared by:
Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A:

Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).