Investor Compensation Schemes Directive

The Investor Compensation Schemes Directive (ICSD) was first adopted in 1997. It makes it compulsory for EU Member States to have in place a scheme to protect investors in the event of fraud or due to operational or administrative error. In the UK, investors are also covered in the event of being missold an investment or for bad advice.

Unlike retail deposits, which are protected under the Deposit Guarantees Scheme Directive, the ICSD does not protect investors in the event of insolvency of the investment firm. Unlike basic bank saving, investments are higher risk/reward propositions, and investors carry investment risk themselves.

In July 2010, the Commission adopted a proposal to revise the ICSD, as follows:

Introduce swifter payouts to financial consumers – Investors would be compensated within a maximum period of 12 months, or the scheme would be obliged to make partial provisional payments;
Harmonise the level of compensation – Under the new proposals, the first €50,000 of investors’ money would be compensated;
Widen the scope of protection – Protection would be extended to cover investors for the failure of UCITS’ fund depositaries or sub-custodians and third-party custodians for MiFID firms;
Require greater information provision – Investors would be given clearer information about the extent to which their assets were covered by the Investor Compensation Scheme; and
Introduce detailed scheme funding requirements – Under the new proposals, the Commission seeks to address the quality, consistency and funding of schemes across Member States.

For more information on the Commission’s proposals, please see:

Investor Compensation Schemes Directive

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