FSCS / Depositor Compensation Schemes

Discussion in 'The talk about everything lounge' started by jackfrost, Oct 30, 2018.

  1. jackfrost

    jackfrost Building Trust Entrepreneur

    I was looking to spread some assets over more banks / emi / brokers that take part in depositor compensation schemes. Most brokers e.g. in the UK will take part in the FSCS scheme or Einlagensicherung in Switzerland.

    Financial Services Compensation Scheme |FSCS

    Deposit Insurance

    If you stash some cash from your e.g. Maltese Limited in one of the covered banks, emis or brokers it seems that they are covered under the FSCS according to:

    FSCS mainly helps individuals, although some businesses and charities may also be eligible, depending on the type of claim.

    'A limited company would be treated as having a claim, and hence protection in its own right up to the £50,000 limit, if it fell within the definition of a small company.'

    The definition of a 'small company' is one that satisfies two or more of the following requirements: It must have a turnover that does not exceed £6.5m; its balance sheet total must not be more than £3.26m; its total number of employees must be not more than 50.

    Is that true for all EU Ltds? So if my Ltd is below 6.5mln etc pp would it be covered with 50k per bank / broker?

    If you have accounts with two brokers - 50k each - and they happen to stash the money into the same bank and the bank goes bust?

    Any knowledge about the Switzerland Scheme / Germany? I know that Germany is going hard at scraping it for business clients from 2020 on.
     
  2. Martin Everson

    Martin Everson Offshore Consultant Business Angel

    You need to rethink your strategy and understand how big companies and investors holding cash protect their cash. Your going in the wrong direction. I have actually discussed already on this forum what to do.

    Most companies for their reserves buy AAA rated government treasury notes. However if you need even shorter term liquidity (i.e 24 hours notice to your money) and safety you simply park money in a AAA rated liquidity fund call it a day - that is why they exist. JPM Euro Liquidity fund is a good example. Better to lose i.e 0.5% a year to euro negative yields than loose 100% thu&¤#.
     
  3. jackfrost

    jackfrost Building Trust Entrepreneur

    Oh yes with you on that i was just wondering as i have fx/cfd trading accounts with a few larger brokers in the UK and Switzerland and they all operate under either depositor scheme if i could just keep a few funds there without worrying in case the broker goes bust like Alpari did or FXCM almost did after the SNB fiasco.

    Doesn't cost anything, no EMI bit of diversification as a "by product" was my thinking there.
     
  4. Martin Everson

    Martin Everson Offshore Consultant Business Angel

    The account shouldn't be a margin account. The account type has to be a basic (non-lending) custody account under which those assets are held in EU. Custody accounts fall outside assets that the bank can report on their balance sheet. They are also outside the scope of the EU Bank Recovery and Resolution Directive (BRRD) so are protected from any bail-in.thu&¤#

    If you want examples of how what I say works even for non-EU assets. Then just look at Berkshire Hathaway and Mr Warren Buffet. If you look at his 2017 SEC filing you see how he keeps all $90bn of his cash pile in exactly the way I describe (see below). No large company keeps cash on account or spreads it around different banks. They employ the strategy I described above thu&¤#

    http://www.berkshirehathaway.com/2017ar/201710-K.pdf

    --------------- Page K-67----------
    "(c) Cash and cash equivalents and Short-term investments in U.S. Treasury Bills
    Cash equivalents consist of demand deposit and money market accounts and investments with maturities of three months or less when purchased. Short-term investments in U.S. Treasury Bills have remaining maturities exceeding three months at the time of purchase and are stated at amortized cost. Our aggregate investments in U.S. Treasury Bills at December 31, 2017 were $90.1 billion, which consisted of $5.7 billion included in cash and cash equivalents and $84.4 billion included in short-term investments in U.S. Treasury Bills in our consolidated Balance Sheet"

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