Alongside its strategic location, infrastructure, and economy Belgium capitalized on being the official seat of the European Commission, the Councils of Europe and the European Union, and hosting the European Parliament. Belgium is divided in the autonomous regions Flanders, Wallonia and Brussels-Capital speaking different languages. This interplay between the regions, furthered by the international allure of the country creates a diversified financial sector with a corresponding risk profile.
The advanced and liberal banking system of Belgium requires all deposit-taking credit institutions to follow and adopt the same legal framework. Deregulation of the banking sector within an acceptable framework reduces corporate restrictions that allows market participants to operate freely and efficiently. This is beneficial in times of prosperity but my lead to instability in extraordinary times.
Banks in Belgium adopt the Basel III framework to maintain minimum bank capital and implement Solvency II requirements to ensure the quality of this bank capital. As a participant in the Eurozone, the National Bank of Belgium (NBB) is part of the Single Supervisory Mechanism. As a result, the mandate for bank supervision for significant and systemically important financial institutions is held by the European Central Bank (ECB) while its less significant counterparts are supervised by the NBB. The domestic market is further monitored by the Financial Market Supervision Authority (FMSA) and the Banking, Finance and Insurance Commission (BFAC). When credit institutions and banks fail, the EU wide Bank Recovery and Resolution Directive (BRRD), and national banking and bankruptcy law apply.
Legal Framework for Troubled Banks
The goal of financial regulation and bank supervision is to strike a balance between the free market and financial stability. Financial stability is derived from an efficient banking and payment system. A climate of confidence avoid panic and chain reactions that may destabilize the financial system. Sound safety nets aim to provide this public confidence by the provision of prudential supervision and regulation, deposit insurance and a lender of last resort.
Similar to most other civil law jurisdictions, bank intervention in Belgium aims to reduce the impact of a financial crisis for society. Early intervention helps to foster forward looking supervision and crisis prevention while it tries to remove the barriers to resolvability. Prior to a resolution decree and when the bank is still solvent, the National Bank of Belgium may act as a lender of last resort and provide temporary emergency liquidity assistance to troubled financial institutions when all regular means to obtain financing are exhausted. Banks that are insolvent and those that are less significant to the financial system must be resolved while losses may only be born by taxpayers under exceptional circumstances and are preferably absorbed by the creditors and shareholders of the bank.
The first step in a crisis situation is to trigger the deposit guarantee scheme and place the bank under statutory administration. This normally occurs within five business days after the regulator has informed the DGS administration that one of its members is failing or likely to fail. A moratorium on payments is immediately imposed to secure a fair distribution of assets to creditors in the future.
Bank Deposit Protection in Belgium
Bank account holders and small investors are not always able to verify how the financial institution of their choice uses the funds entrusted to them. Furthermore, addressing high-risk conduct and moral hazard by professional market players is challenging for these retail creditors. As a result, alongside the regulatory mechanism and legal framework, the Belgian Guarantee Fund includes a Guarantee Fund for Financial Products, an Investor Compensation Scheme and the National Resolution Fund to provide some relief when their bank or investment firm fails.
Deposit insurance largely protects the financial wealth of households and small businesses. It is one of the safeguards for bank depositors in times of institutional distress and economic crisis. The Royal Decree on the Guarantee Fund for Financial Products was created on the 14th of November 2008. The Belgian deposit guarantee scheme is referred to as the ‘deposito beschermingsregeling’, and is discussed in Book VIII of the Banking Law of the 25th of April 2014.
The hallmarks of the Belgian deposit guarantee scheme are based on the European Directives 94/19, 97/9, and 2014/49/EU. The result is a steady and stable uniform EU wide system. Its characteristics are the maximum effective protection of 100.000 euro per eligible person and financial institution, strict claim verification protocols and repayment to qualified creditors within 7 to 20 business days. Following the EU guidelines some deposits may receive temporarily high protection.
Current, savings, and term accounts are complemented by deposits of funds held on behalf of investors pending allocation to the purchase of financial instruments or pending restitution, nominative or dematerialized cash certificates registered in personal accounts, and bonds or other bank debt securities issued or made before July 2, 2014. Therefore, most bank accounts are covered by the Belgian deposit guarantee scheme. Some deposits and account holders, however, are not covered by this type of deposit insurance. Obvious exclusions include assets whose owner cannot be identified and account holdings derived from activities relating to terrorism and money laundering. Also not included in the Belgian deposit guarantee scheme are the assets of companies in the financial sector, the assets of state and public authorities, bonds and other debt securities issued or made after the 2nd of July 2014, electronic and virtual currencies, and deposits which can only be released in accordance with national law for the sole purpose of repaying a loan contracted for the purchase of a private property from a credit institution or other institution holding the deposit.
When a licensed and regulated credit institution, investment firm, or mutual fund subject to this regulation is unable to reimburse regular account deposits on demand, or when the credit institution is declared bankrupt, the Belgian deposit guarantee scheme is activated. Bank customers are informed by the DGS administration about the forthcoming payout event. The DGS administration then outlines the claim filing procedure to the account holders.
The exact claim submission procedures are case-specific. There are, however, a few formalities. DGS administrators must ensure that repayment is done only to eligible account holders and that abuse is ruled out. For this reason, the identity of the account holder must be confirmed and repayment can only occur to a bank account held at another supervised financial institution in the name of the original account holder. In order to verify their identity and give repayment instructions, Belgian residents with personal accounts at failed credit institutions must log in to the MyMinfin portal. This platform allows individuals to manage their tax file, consult personal documents and use online services of the government. For foreign account holders and corporate creditors have no access to MyMinfin and are therefore subject to a different recovery procedure.
Foreign Creditors, International Accounts and Cross-Border Banking
About one third of the companies registered in Belgium have foreign ownership and engage in cross-border transactions. The substantive group of foreign commissioners, their staff members and other expats further the diversified financial ecosystem. Advanced technological innovation, flexible financial regulation and easy access to the internet allow Electronic Money Institutions to attract an international clientele. This diversity results in a blurred economic risk profile of the domestic financial sector.
The entry of foreign incumbents into the Belgian financial system raises questions about supervision and resolution schemes. Issues such as home state and host state control and the transfer of rights from one DGS to another are material in times of financial crises. Deposit taking credit institutions must be affiliated with the Belgian Guarantee Fund to secure DGS repayment for their clients. Branches and subsidiaries of supervised credit institutions are often protected under the Belgian DGS. Yet, account holders of foreign institutions without an establishment in Belgium or balances at Electronic Money Institutions and neobanks are subject to the rules and procedures of the country of registration of these institutions. Neobanks like N26 and Revolut both with ample customers in Belgium, are subject to DGS coverage in their home countries.
Account Balances Above the Insured Limits
Deposit protection in Belgium is primarily intended to cover account balances held by households, small businesses, and retail customers up to a predefined maximum. The level of coverage is an interplay between the current account and term deposits held by Belgian households, average saving account balances and the harmonized European standard. The current guaranteed amount is 100.000 euro per eligible creditor per member institution.
The European Directive on Deposit Guarantee Schemes allows member states to temporarily provide additional protection. The level of this protection is set at 500.000 euro. It is exclusively applicable and directly related to real estate transactions relating to private residential properties within a 6 month period after the transaction, to particular life events such as principal payments and interest resulting from pension, inheritance, dismissal or disability, insurance benefits, and compensation granted to victims of criminal offenses and miscarriage of justice. Furthermore, investment accounts held at the same institution may be covered under the investor compensation scheme up to 20.000 euro.
Creditors with account balances that exceed the insured limits or who are not eligible for deposit protection in Belgium can take their claim to the commercial court for reimbursement. The financial condition of the failed institution, however, often reveals a mismatch between assets and liabilities. To avoid financial losses, creditors should comprehend the regulatory framework to resolve financial institutions in distress. The Bank Recovery and Resolution Directive (BRRD) and national insolvency laws explain in detail how this works.
Contact us to get Your DGS Claim Awarded
This website is an initiative of Legal Floris LLC. We help non-resident creditors of financial institutions in distress to recover their assets. For local customers of these failed financial institutions claim filing procedures are often easier than it is for international creditors. Our vast experience in different bank failures for a versatile global clientele, we have proven to be able to maximize repayments and minimize risks for our clients. Contact us right now to find out how we can help you too to reclaim your account balance:
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