Investor Compensation Scheme Explained
The investor compensation scheme (abbreviated: BCS) is a scheme that limits the financial loss of investors when the investment company ( broker or bank) can no longer meet its obligations. This scheme is very similar to the deposit guarantee scheme. Want to know more? You can read it below.
The functioning of the investor compensation scheme
Banks and investment firms can also go bankrupt. To protect savers, there is a deposit guarantee scheme. Each account holder can then count on an insured amount of €100,000. This gives a feeling of security.
A similar system also exists for investors. Investment accounts are protected by the so-called investor compensation scheme up to a value of €20,000. This amount is calculated per account holder and per bank.
The purpose of the investor compensation scheme is to protect both individuals and companies. It ensures that your risk as an investor is not unnecessarily increased. After all, the risk that an investment company goes bankrupt should not be borne by the investor.
It is relevant to know that directors of the failed bank cannot claim compensation within the meaning of the investor compensation scheme. The same applies to persons who have an interest of more than 5% or are otherwise (directly) interested in their relationship with a director.
Who is behind the investor compensation scheme?
The investor compensation scheme did not just come out of the blue. The management of this scheme is in the hands of De Nederlandsche Bank (DNB). This party will also pay the compensation in the event of bankruptcy. The DNB will provide further information to investors in order to provide as much clarity as possible about the course of events.
Separation of assets
Investment firms are required to separate their assets. This means that their equity must be separated from investors’ funds. The Netherlands Authority for the Financial Markets (AFM) monitors whether this actually happens. Why is this relevant? When a company goes bankrupt, this bankruptcy affects the company’s assets. When investors’ funds are separated from their equity, the investors’ funds will remain ‘intact’.
The separation of investors’ securities from the bank’s assets is a consequence of the Act on Giro Securities Transactions. The investor compensation scheme offers compensation in the event that a bank or institution does not adhere to the rule of asset separation. Here too, this risk should not be borne by the investor. The same applies to the case in which the assets are separated, but somehow prove to be inadequate.
‘Rules of the game’ investor compensation scheme
There are a number of ‘rules’ or principles that must be observed if you want to claim under the investor compensation scheme. These are as follows.
- You will receive compensation to the extent that the amount (and the investments) are actually in your investment account.
- The investments may not be in someone else’s name.
- Securities that have not been delivered are only covered by the investor compensation scheme.
- There is a maximum compensation of €20,000. This compensation applies per person and per bank or investment firm.
- Only the DNB can implement the investor compensation scheme.