Beneficiary Accounts: Challenges for Deposit Insurance Schemes

Accounts opened by financial institutions in banks on behalf of their clients ('beneficiary accounts') have become a common tool used by such institutions to safeguard and segregate from its own funds the money they received from clients. The rapid evolution of Fintech has fostered the use of beneficiary accounts, particularly by e-money institutions and payment institutions (hereinafter, 'EMI&PI'), which are regularly subject to these safeguarding requirements. In beneficiary accounts, EMI&PI can hold funds of a high number of clients. Thus, the protection of these funds and, where appropriate, coverage by the deposit insurance scheme (DIS) is acquiring greater relevance. Beneficiary accounts are deposits, and therefore and in principle they count with protection of DIS. However, the eligibility of these accounts for DIS coverage depends on the eligibility of the holder and/or the beneficiary of the balances deposited in the bank account. This Brief sets out possible approaches for DIS towards beneficiary accounts and identifies the main risks and challenges for DIS in the case of failure of the bank and EMI&PI where the funds are placed.