Legal framework

The groundwork of the European investor compensation schemes is laid in Directive 93/22/EEC on investment services in the securities field, Directive 97/9/EC on investor compensation schemes and Article 59 of the Treaty on the Functioning of the European Union (TFEU). These directive and the TFEU address the core principles of the European internal market. The freedom to provide financial services as an investment firm in the European single market requires harmonization to ensure mutual recognition of the registration and authorization of investment firms and the prudential supervision of the sector.

The purpose of the directives is to ensure a stable monetary union and proper functioning single market. Directive 93/22/EC covers firms that provide third parties with investment services on a professional basis. It therefore excludes (legal) persons with different professional activities offering investment opportunities on an incidental basis, provided that this regulated and does not prohibit such provision. One of the objectives of the directive is to protect investors and by imposing mutual recognition such protection is warranted in all member states. Directive 97/9/EC relates to the investor compensation scheme and aims to protect as far as possible the rights of investors in respect to money or instruments that belong to them.

One of the principles of the European Union is to guarantee fair competition by elimination of discrimination. This means investment firms and credit institutions with a European license are treated equally and have the same freedom to create branches and provide financial services throughout the European single market. Yet, the use of a branch solely for foreign-exchange transactions is seen as misuse of the European Directives.

The directives on investment services and investor protection render national legislation specific rights as to decide on the requirements for licensing, regulation, and domestic matters, as long as these provisions are not discriminatory in nature and prioritize domestic providers over foreign firms. Therewith, member states retain their full responsibility for the implementation of their own monetary policy whilst respecting the European framework.