Bank deposit protection is an alternative but mandatory insurance program for account holders of supervised credit institutions. Regulators require these financial institutions to insure eligible account balances and protect them from losses incurred by the failure of the bank. These mandatory insurance programs are referred to as deposit guarantee schemes. Only member institutions participate in these schemes and pay a combination of membership fees, quantitative and risk based premiums. Healthy participants bear the losses of the failure of one of the members of the scheme. Yet, when a bank liquidation is due, the fund at least has the chance to recover part or all of their prepayments by taking over the posited of the insured account holders and their repaid deposit.
Deposit Guarantee Schemes, DGS in short, have a duty towards the fund, the failed member institution and the creditors. The act in the best interest of the scheme participants while ensuring public confidence and stability of the financial system. As a result, the DGS administration scrutinizes every claim that is made to the fund to avoid that account who are not eligible for coverage, or even fraudsters will not receive a wrongful payment from the fund.
The DGS fund is activated when a bank fails or is likely to fail. Such determination is, depending on the jurisdiction, made by a regulator, the DGS administration or the court. The fund will be active for a limited time, often between one and five years upon the announcement of the activation of the scheme. Most schemes only cover the claims submitted during the active claim period and reject claims filed outside these parameters. Some funds however may consider late filings and resubmission after the expiration deadlines. Claimants are asked to prove their identity, submit a claim form, a proof of claim, a proof of debt and a payment instruction to the account of the account holder. This bundle of documents must be verifiable and cannot contain any uncertainties.
DGS claims can be approved, interrupted for further information or rejected. Claim approval for standard account balances often takes place within seven working days, up to a month. Claimants who submit incomplete or unclear claims are requested to provide further information to the DGS administration within a predefined and reasonable time frame. Rejections of a DGS claim may be the result of unintentional incompleteness, ineligibility of coverage, or other infringements of the claim filing procedure. A rejection of the DGS claim is only final when the account holder does not object within reasonable time and within the time constraints of the scheme. Objection against DGS rejections can therefore be made, but only under strict circumstances. The objection can still be followed by ruling of the court, but this ruling is not based on claim eligibility but merely on procedural inefficiencies that impair an account holder.
The are two main determinants to verify a DGS claim. The first is compliance with the procedures and the second is the evidence belonging to the claim. Deposit insurance does not apply to third parties. Only the account holder is the rightful claimant. The account holder is the signatory on the account, or its beneficial owner that is known and verified in the records of the bank. A rejection of a claim is eminent when third parties and those who cannot be identified file the claim. As part of strict anti-money laundering protocols, a DGS fund only pays account holders on their own account at a different supervised credit institution. Fintech firms or Electronic Money Institutions are not considered supervised credit institutions or banks and therefore claimants who try to recover money on inadmissible IBAN accounts find their claim rejected. Corporate account holders are taken some steps further. They must provide recent evidence of the active status of the company and its ownership. For assistance with the resubmission of a rejected DGS claim, consider our free case evaluation and avoid permanent rejection of the DGS claim.