About EdWInformation about the legal background
Investors who use securities services in Europe have enjoyed protection under the Council Directive 97/9/EC on investor-compensation schemes since 1997. This Directive established that compensation is owed when a securities trading company is no longer able to return clients´ securities or repay money in accordance with the legal and contractual conditions applicable. It has lead to the creation of a uniform Europe-wide investor compensation system.
The Council Directive 97/9/EC was implemented in 1998 by the Deposit Guarantee and Investor Compensation Act (Anlegerentschädigungsgesetz- AnlEntG; formerly Einlagensicherungs- und Anlegerentschädigungsgesetz - EAEG). The Act has established harmonised minimum protection for investors across the EU and serves to stabilise the banking and financial services sector.
The AnlEntG forms the legal basis for the operations of EdW and assigns to it credit institutions that are not depository credit institutions as well as financial services institutions and investment companies under section 1 (1) of the AnlEntG. The institutions assigned to EdW are generally also referred to as securities trading companies.
Currently some 790 securities trading companies are assigned to EdW (as at March 2020).
EdW is a Federal Government Special Fund without legal capacity that was established at Kreditanstalt für Wiederaufbau (KfW) in accordance with section 6 (1) sentence 1 of the AnlEntG.
For the group of deposit-taking credit institutions incorporated under private and public law, there are four other separate compensatory funds in the Federal Republic of Germany. The German private commercial banks’ statutory compensation scheme for depositors and investors called the EntschädigungseinrichtungdeutscherBankenGmbH (EdB) is assigned to the Association of German Banks, whereas the compensation scheme of public banks in Germany named the EntschädigungseinrichtungdesBundesverbandesöffentlicherBankenDeutschlandsGmbH (EdÖ) is allocated to the Association of German Public Banks. In addition to these compensatory funds, the institutional protection schemes run by the DeutscherSparkassen- undGiroverband (DSGV) (Savings Banks Finance Group) and the BundesverbandderVolks- undRaiffeisenbanken (BVR) (National Association of German Cooperative Banks) are also recognised as deposit guarantee schemes.
All compensation schemes are under the supervision of the German Financial Supervisory Authority (BundesanstaltfürFinanzdienstleistungsaufsicht- BaFin).
EdW provides (small) investors with minimum compensation for their claims under securities transactions against an assigned institution.
EdW compensates investors under the provisions of the AnlEntG when a securities trading company assigned to the EdW is in financial difficulties and no longer able to fulfil its obligations under securities transactions concluded with its clients. The German Financial Supervisory Authority determines when this event has occurred and publishes this determination in the Federal Gazette.
The amount of compensation awarded to each investor under securities transactions is 90% of the claims against the securities trading company (not more than EUR 20,000). Compensation cannot be claimed unless the funds are denominated in a currency of a EU member state or in euros. Further exclusions are regulated in section 3 (2) of the AnlEntG.
The funds used for compensation payments are provided from contributions of the assigned securities trading companies (section 8 (1) of the AnlEntG).
EdW collects annual contributions and one-off payments, as well as special contributions and/or separate payments if required.
Auditing the assigned institutions under section 9 (1) of the AnlEntG
In order to assess the risk of occurrence of a compensation event, EDW conducts audits of the institutions assigned to it in regular intervals and in special circumstances.