Although it seems like nobody pays any attention, it is not true that everyone who files a claim at the Cyprus Deposit Guarantee Scheme gets accepted. There is a variety of reasons for a claim to be rejected. Roughly there are five main reasons for a rejection of a deposit guarantee claim. These five are account beneficiaries & ownership, ESA 2010 statistical classification, administrative mistake, activities and excluded entities.
Customers of FBME Bank Cyprus, Optima Bank Belgium, Nemea Bank Malta or Banca Privada d’Andorra, who are either in the incubation, start or end stages of the domestic Deposit Guarantee Scheme, are invited to study the reasons for rejection closely in order to avoid disappointments
Account beneficiaries and ownership
Deposit Guarantee Schemes are based on bankruptcy law. In bankruptcy law only the exact beneficiary is entitled to receive a compensation but there are circumstances this can be changed. For Deposit Guarantee Schemes it goes even further, the line is thin and it is not possible for others then the beneficiary to receive the compensation. A power of attorney, change in company shareholders, court order or and even death certificate of the beneficiary are not sufficient to receive the insured funds.
ESA 2010 statistical classification
The European System of Accounts (ESA) is the system of national accounts and regional accounts used by members of the European Union. It was most recently updated in 2010 (ESA 2010).
The European Central Bank (ECB) implemented the ESA statistical classification for sector segmentation. The ESA statistical classifications provide the framework for a DGS to exclude specific industries or market segments from payout.
Obviously where humans work, mistakes are possible. Not a neatly experience but it can happen. Often a mistake can be recuperated. It however needs a lot of convincing, legal work and negotiations before changes can be executed.
It is evident that specific industries, specifically the illegal ones, cannot receive insurance funds. Often these customers have a stake in the downfall of the bank as well. It would be strange if they can receive recovery funds from an insurance as well.
Often illegal activities will be scrutinized in a seperate investigation done by the authorities. It happens on a regular basis that these investigations lead to a criminal case. A criminal case and a verdict is advantageous and therefore a first step towards additional claims in a civil suit and claim of liability.
There are a few excluded entities. They can vary per domestic guarantee scheme. In Cyprus, in accordance with Regulation 7 the following categories of deposits are exempted from the payment of compensation:
- deposits made by other banks and cooperative credit institutions on their own behalf and for their own account;
- own funds;
- deposits arising out of transactions in connection with which there has been a criminal conviction for money laundering;
- deposits by credit institutions;
- deposits by investment firms;
- deposits the holder of which has never been identified pursuant to the provisions of the of the Prevention and Suppression of Money Laundering Activities Law, as this is amended or replaced, when these become unavailable ;
- deposits by insurance undertakings and by re-insurance undertakings ;
- deposits by collective investment undertakings;
- deposits by pension and retirement funds;
- deposits by public authorities;
- debt securities issued by a credit institution and liabilities arising out of own acceptances and promissory notes.