The Depositor Compensation Scheme (“DCS”) has been in force since 2003 through Legal Notice 369 of 2003, following the transposition of the EU Directive 94/19/EC on Depositor Guarantee Scheme obligations amended by EU Directive 2009/14/EC, with the scope to provide a rescue fund for depositors of failed banks licensed by the Malta Financial Services Authority (“MFSA”).
The Scheme is managed by a Committee appointed by MFSA with individuals representing the MFSA, Central Bank of Malta, licensed credit institutions, investment firms and customers, who in their capacity, would follow a due diligence process in considering whether such depositors are eligible for compensation in situations where their bank would not be able to meet its obligations towards the said depositors or has otherwise suspended payment.
Depositors with institutions licensed by the MFSA are entitled to a maximum compensation amounting to €100,000 per depositor, per bank. Credit institutions in turn, are urged to be transparent, clearly specifying whether customer deposits are covered by such scheme.
During May 2012, the Government published a Legal Notice 159 of 2012 entitled ‘Depositor Compensation Scheme (Amendment) Regulation, 2012’, whereby such amendments provide for locally licensed Banks:
- To increase the Supplementary Contribution from 0.1% to 0.2% while the Special Contribution (pledged reserves) will increase from 0.67% to 0.8%. This increase will be ‘proportionately’ spread over three years and will become effective as from 1st January 2012; and
- To be offered further flexibility in the Pledging of Admissible Assets in Favour of the Scheme in instances where the Bank’s Reserve is more than €100,000. In such case, Banks may place at least 60% or more, (as opposed to the previous 40% threshold), of such admissible assets in the form of ‘Deposits with the Central Bank of Malta’.
The above-mentioned DCS amendments seek to further strengthen Malta’s financial stability and resilience. This is evident following the publication of the Central Bank of Malta’s 2011 and first months of 2012 – Financial Stability Report. Although this report concludes that the local financial system remained resilient during 2011, following the positive economic growth and low unemployment; nonetheless, credit institutions were urged to strengthen the DCS’s medium-term funding so as to enhance the scheme’s resources in view of the size of eligible deposits and the increased number of banks operating in Malta, and to further strengthen financial stability across the European Union.