Investment Compensation Schemes

Investment Compensation Schemes

Although the name does suggest the ICS would impact the investment banks it targets the private individuals and small investors which are most often allocated in the retail banking branches. Although professional investors also are entitled to the extra protection they will probably not care much about it, as investments are only covered up to €50.000, which is very close to zero for a professional investor. Besides that, professionals take the extra protection into account with their valuation, as it reduces the counterparty credit risk, so the new ISC is of little importance to them.

Lamfalussy Directives (MAD, MiFID, PROSP and TD)

The Lamfalussy process was set up to create a general framework to create harmonized financial regulations. Therefore the directives following from this process influence the entire financial sector. At the moment, the current directives target the entire sector as a whole, but mostly affect the securities and derivatives market. These were traditionally the most unregulated markets, and given the turmoil in these markets during the financial crisis, it’s logical that these were target most in the first few directives. Also, in a market with little regulations the impact is always more severe than in markets that were already regulated.

The fact that it affects the securities and derivatives market, consequently targets the commercial and investment banking operations, as these are most involved in these markets. One exception is PROSP, which sets out regulations for prospective requirements. Most of these requirements are exempt for investment over €100.000 and therefore only target relatively small investors, like private individuals and some SMEs. These are typically the same investors that would benefit from the Investment Compensation Schemes as discussed above and are often allocated to the retail branches.

Basel III/CRD IV

Basel III, and its European implementation directive CRD IV has the objective to “improve the banking sector’s ability to absorb shocks arising