Investor Protection


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One question we have been asked over and over again this year is whether savings are safe in a Spanish bank. Some people are also concerned about whether the situation in Spain and G

One question we have been asked over and over again this year is whether savings are safe in a Spanish bank. Some people are also concerned about whether the situation in Spain and Greece could impact the stability of UK and offshore banks. Confidence in the financial strength of institutions like banks has been severely undermined over recent years, and may never fully recover.

While it is unlikely that a major bank will be allowed to go bust, we cannot completely rule it out. Each one of us should exercise increased diligence over where and how we hold cash deposits and investment assets.

Under an EU Directive, every Member State provides a bank deposit guarantee of ?100,000, per depositor per banking group. Each State has its own scheme, and here in Spain it is the Fondos de Garantia de Depositos. How reliable the scheme is has not been tested.

In the UK the deposit guarantee is ?85,000. The Isle of Man, Jersey and Guernsey have a lower guarantee of ?50,000.

The only certain way for investors to achieve security from institutional failure is through a state controlled investor protection regime.

Luxembourg stands out among EU Member States with its exceptionally strong culture of investor protection. It has a regime which provides maximum security to investors without limit.

The cornerstone of Luxembourg?s unique investor protection regime is the legal requirement that all clients? assets must be held by an independent custodian bank approved by the State regulator, the Commissariat aux Assurances (CAA). This arrangement involving the CAA, custodian bank and insurance company is known as the ?Triangle of Security?.

These are the key points:-

? The regime ensures that the legal separation of clients? assets from the insurance company?s shareholders and creditors, so investors are protected from exposure to the company?s credit risk.

? The insurance company maintains a register of all assets and how they are invested, which is monitored by the CAA.

? All policyholder assets are deposited with a custodian bank.

? The bank is required to ring-fence clients? securities (eg investment funds, shares, bonds etc), so they are off its balance sheet. If the bank fails, these securities remain in segregated client accounts.

? The bank is bound by the regulator?s legal powers to protect the assets on behalf of investors.

? 100% of the policyholder?s securities are protected. Cash deposits are not securities and so are not segregated, but cash held in monetary funds is treated as securities and are protected.

Luxembourg is the second largest investment funds centre after the US and the leading private banking centre in the Eurozone. It has built a reputation for investor protection, tax certainty, anti money laundering practice and banking confidentiality.

Historically many high net worth individuals used offshore financial centres for confidentiality and tax mitigation. However, apart from a lack of regulation and investor protection, they have also been under attack from European and international bodies, with the result that investors who use them are placing their assets at risk for no real or sustainable benefits.

In contrast, Luxembourg?s regulations are governed by EU directives that require strict financial controls and supervision to provide investors with a secure onshore regime that still offers tax benefits.

Blevins Franks? clients have access to Luxembourg?s high level of investor protection, in a manner that combines safe custody for their assets with tax planning opportunities to enhance their wealth. Ask your Blevins Franks Partner for full details.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.