On 1 March 2019, the European Banking Authority (EBA) published an opinion on deposit protection issues stemming from a no-deal Brexit.

The Deposit Guarantee Schemes Directive (DGSD) does not contain provisions covering cooperation with third country authorities, nor does it set out how cross-border pay-outs involving a third country branch established in the EU should be carried out.

The EBA notes that the Bank of England (BoE) has proposed that EEA branches of UK credit institutions will no longer be protected by the UK deposit guarantee scheme. This is in line with the UK’s current policy of not covering branches of UK credit institutions in third countries. The BoE recently confirmed this approach in its near-final rules in The BoE’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018 (see pages 32 and 33).

The UK’s approach means that, in the absence of any action taken by EU competent authorities, depositors at branches set up by UK credit institutions in the EU will lose coverage, unless those branches join a local deposit guarantee scheme (DGS) in the EU.

The EBA’s opinion considers depositor protection-related issues in the context of a no-deal Brexit.  Such issues include depositor information, the issue of double coverage and the relevance of any changes in DGS affiliation with regard to the currently required transfers of previous DGS contributions.

The opinion specifically aims to:

  • make EU national competent authorities aware that, if no equivalent protection is provided by the UK at the point of withdrawal from the EU, deposit-taking branches of UK credit institutions established in the EU should be required to join a national DGS operating within the EU;
  • recommend to EU national competent authorities and credit institutions when depositors should be informed about impending changes following the UK’s withdrawal from the EU;
  • remind the EU competent authorities of the applicable provisions regarding transfers of previous DGS contributions where a credit institution changes its DGS affiliation; and
  • make the competent authorities aware of the potential issues associated with deposits in some branches being protected by two DGSs.