Enhanced Guidance for Effective Deposit Insurance Systems - Reimbursement Systems and Processes
This paper responds to an FSB request of IADI to provide additional guidance on effective reimbursement processes. Using the experiences of IADI deposit insurers, surveys, case studies of practitioners, and academic literature, the paper identifies 16 supplemental guidance points aimed at updating and enhancing its guidance related to depositor reimbursement:
- A deposit insurer should have access to depositor records at all times and undertake preparatory reviews of bank deposit liability records to ensure prompt and accurate reimbursement of insured deposits.
- Authorities should issue guidelines or regulations to ensure that banks can provide accurate deposit liability records, within a specific timeframe, for aggregation of depositors' funds and when required by law or regulation (i.e. a "single customer view").
- Authorities should eliminate impediments to prompt reimbursement. These could include eliminating the application of set-off and disaggregation of multiple ownership accounts, removing the need for claims to be made by depositors, and to review and possibly eliminate any inefficient or counterproductive regulations applicable to the deposit insurance reimbursement process.
- Transit items of banks should be subject to agreements with all clearing and settlement system agencies to ensure that the items after a bank failure are dealt with in an appropriate and consistent manner, and as quickly as possible.
- To expedite the reimbursement process, a deposit insurer should rely on technology-based systems to process depositor information in a systematic and accurate manner.
- The limits and scope of coverage and product insurability must be set out in law, clearly defined and communicated to depositors to mitigate confusion.
- Funding arrangements for the deposit insurance system should ensure the prompt reimbursement of depositors' claims and include a pre-arranged and assured source(s) of back-up funding for liquidity purposes.
- A deposit insurer should consider a range of payment methods that would expedite the reimbursement process.
- Depositors should be provided access to their insured funds as quickly as possible and no longer than one month from the event triggering reimbursement (e.g. closure of the bank).
- A deposit insurer must communicate clearly the payment methods and timing for payments to depositors as part of a comprehensive communications strategy to manage public expectations.
- A deposit insurer may, on its own decision, provide interim payments in circumstances where the deposit insurer is of the view that insured depositors require urgent access to their funds before the start of actual reimbursement is made (e.g. where there may be extended delays in reimbursements), provided it has the technical capacity to do so without impeding the overall payout process.
- For deposit insurers that do not have the authority to act as a receiver or liquidator (or choose not to exercise such powers) it is an effective practice to have in place arrangements (e.g. pre-arranged contracts) for the receiver/liquidator to assist the deposit insurer, if requested, in the execution of the deposit insurer's duties.
- An audit of the reimbursement process should be conducted by an independent party to confirm that appropriate internal controls have been applied during the reimbursement process and that reimbursements are accurate.
- Adequate resources and trained personnel dedicated to the reimbursement function should be made available to ensure readiness in undertaking reimbursements. Where internal resources are insufficient, a contingency plan should be in place to augment resources in times of need.
- Where reimbursement-related cross-border issues exist, such as who would perform a reimbursement in an affected jurisdiction, these should be addressed well in advance to ensure that effective and timely reimbursements can be implemented. This would involve developing coordination protocols to define the responsibilities for performing reimbursement-related activities, developing consistent communication messages and strategies, and addressing other reimbursement-related issues.
- Effective practices should be in place to conduct regular contingency planning and simulation exercises to test the operational readiness of the deposit insurer in carrying out reimbursements.