Do EMI have insurance on deposits?
- Thread starter carlob
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Unlike a bank, an EMI is required to hold 100% reserves. EMIs cannot lend or engage in fractional reserve banking. Everything is prepaid and funds placed with an EMI are held in separate, ring-fenced accounts (Client Funds accounts) which must not be used for anything other than reserve. Most regulators check these reserve accounts on a monthly, quarterly, or annual basis. Some even check in real-time via API provided by the EMI's financial institutions.
So if an EMI fails, the funds held in the EMI should be fully recoverable by the customers, regardless of the amount. Short of fraud (the EMI stealing money), this should mean EMIs are safer than banks in case of a failure. If the EMI runs away with the money, you have legal recourse to sue the owners and the regulator would be on your side.
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This is the probably the answer to your question.
So if an EMI fails, the funds held in the EMI should be fully recoverable by the customers, regardless of the amount. Short of fraud (the EMI stealing money), this should mean EMIs are safer than banks in case of a failure. If the EMI runs away with the money, you have legal recourse to sue the owners and the regulator would be on your side.
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This is the probably the answer to your question.
that is really not bad. But, would you really trust an EMI more then a regulated bank? What are chances to get your money out from an EMI you sue compared to a bank if something get wrong?
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It really depends on which EMI and which bank we are comparing and what the realistic choices are in a given situation.
I would trust TransferWise more than most tiny little offshore banks and I would trust BNP Paribas more than most EMIs.
Pretty much impossible to answer in any meaningful way since there are so many variables to consider. Not all EMIs are equal, nor are all banks.
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This is the probably the answer to your question.
are you 100% sure about that? That would mean an EMI is more secure than a bank is?
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Yes.
Yes, in terms of holding reserves.
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This is the probably the answer to your question.
What is the problem with the EMI's then where we read people have not received their money. Are that because they are unlicensed or licensed in some banana republic?
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Bit hard to answer such a vague/broad question, since there are probably lots of possible answers.
But there is no such thing as loss of funds when it comes to EU/EEA licensed EMIs. Funds may be held due to compliance reviews and I suppose technical glitches can happen at times, but nothing that would lead to a permanent loss of funds due to fault or misdoing by the EMI.
When an EMI shuts down due to insolvency, loss of license, or any other reason, account holders will be able to withdraw 100% of their deposits. Unlike with a bank, where deposit insurance is your only guarantee.
I'm not saying it's impossible for an EU/EEA licensed EMI to try to run away with everyone's money. It's just very hard to pull off and even harder to stay hidden.
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This is the probably the answer to your question.
What happens if the bank where the EU-EMI holds the money goes bankrupt?
For example, Revolut used Loyds Bank in the UK in the past (before brexit and before they switched to LT-IBAN).
What would happen to my money with Revolut if Loyds Bank goes bankrupt?
Will Revolut be compensated by the Deposit Protection Fund for banks up to £85,000 in total? And can Revolut then divide this money among its customers?
Or will Revolut not be compensated at all and I will lose my money?
For example, Revolut used Loyds Bank in the UK in the past (before brexit and before they switched to LT-IBAN).
What would happen to my money with Revolut if Loyds Bank goes bankrupt?
Will Revolut be compensated by the Deposit Protection Fund for banks up to £85,000 in total? And can Revolut then divide this money among its customers?
Or will Revolut not be compensated at all and I will lose my money?
The funds are ring-fenced even within the bank in this example.
Very few banks accept fintech companies, for this reason. It's a lot of extra work and the banks don't make much money on them, unless there is enormous volume and low risk.
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This is the probably the answer to your question.
How do you know they are the only EMI ?
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They are not the only ones, all banking fintechs in US offer FDIC protection because their underlaying banks offer it.
Mercury for example offers 5M FDIC protection.
Maybe I am wrong, but when I search on Google, I don't find any other Emi with deposit insurance; generally, Emi doesn't provide deposit insurance.
I would never hold a large amount in EMI for a long time.
EMI is great option for operational purposes, much more convenient than traditional banking in my opinion.
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