Deposit Guarantee Scheme Directive (DGSD)
The Deposit Guarantee Scheme Directive (DGSD) mandates that each EU Member State establish at least one deposit guarantee scheme (DGS) to protect depositors in the event that an authorised credit institution (bank) fails. The directive provides a harmonised level of protection across the EU, ensuring that eligible deposits are protected up to EUR 100,000 per depositor per institution. Understanding the DGSD is particularly important for victims of fixed-term deposit scams, where fraudsters impersonate legitimate banks to collect deposits that are not actually placed with any authorised institution.
How Deposit Guarantee Schemes Work
Deposit guarantee schemes are funded by contributions from member banks and are activated when a credit institution is unable to repay its depositors (i.e., when it is declared unavailable by the competent authority). When a DGS is triggered, the scheme must repay eligible depositors within 7 working days (this timeline has been progressively shortened from the original 20 working days).
Each depositor is covered up to EUR 100,000 per credit institution. Joint accounts are covered up to EUR 100,000 per account holder. Temporary high balances (e.g., from property transactions or insurance payouts) may be covered above the standard limit for a period of up to 12 months, depending on national implementation.
What Is Protected
- Current accounts and demand deposits.
- Savings accounts, including fixed-term and notice deposits.
- Structured deposits where the principal is repayable at par.
- Deposits held by individuals (natural persons) and, in most cases, by small and medium-sized enterprises.
What Is Not Protected
- Deposits with institutions that are not authorised as credit institutions (banks). This is the critical distinction in fraud cases involving clone firms.
- Investments in securities, bonds, shares, or collective investment schemes (these are not deposits).
- Deposits by financial institutions, public authorities (above certain thresholds), and certain professional investors.
- Deposits in non-EU branches of EU banks, unless those branches are covered by a DGS in the host country.
DGSD and Fixed-Term Deposit Fraud
Fixed-term deposit scams exploit the public's trust in the deposit guarantee system. Fraudsters create clone firms that impersonate legitimate banks, offer deposit rates above market levels, and collect funds that are diverted rather than placed in genuine deposit accounts. Because the funds were never actually deposited with an authorised credit institution, the deposit guarantee scheme does not apply.
This distinction is a source of significant distress for victims who believed their funds were protected. Understanding that DGS protection applies only to deposits actually placed with authorised institutions is essential for assessing the situation and pursuing appropriate recovery pathways.
Relevance to Fraud Victims
- If you placed a genuine deposit with an authorised bank and that bank fails, the DGS protects your deposit up to EUR 100,000.
- If you transferred funds to a clone firm impersonating a bank, the DGS does not apply because the funds were never actually deposited with an authorised institution.
- Verifying whether an entity is an authorised credit institution is essential before making a deposit. This can be done through the ECB's register of credit institutions or the relevant national register.
- In clone firm fraud cases, the recovery pathway involves banking recalls, regulatory complaints, and law enforcement reports rather than DGS claims.
- EFPG helps clients understand whether DGS protection is applicable and guides them to the appropriate recovery mechanism.
Official Source
EBA Deposit Guarantee Schemes Overview
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