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Cyprus DGS Compensates FBME Bank Depositors

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19 October 2016

After nearly two years the word of redemption is out. Customers of FBME Bank with an account in Cyprus can finally file a claim with the Deposit Guarantee Scheme (DGS) to receive insured deposits up to 100.000 Euro.

The DGS was triggered by the Central Bank of Cyprus in April 2016 to protect customer deposits, after the Central Bank suspended the license of the Cyprus branch of FBME Bank in December 2015. The Tanzania lender, with a branch office in Cyprus allegedly breached banking standards. US based watchdog, the Financial Crimes Enforcement Network (FinCEN), accused the bank to be a ‘primary money laundering concern’. Thus, US banks holding correspondent accounts on behalf of FBME terminated their relationships with the bank, and other banks abroad held FBME’s US Dollar correspondent accounts in suspension pending imposition of the ‘Final Rule’.

FBME challenged the ruling in the US court, followed by an appeal to FinCEN, the US anti-money laundering agency. Until now, US judge Cooper from the District of Columbia ordered in summary judgment that FBME lost the case on all counts except to the extent where FinCEN failed to respond to FBME’s significant comments regarding the analysis of the Suspicious Activity Report (SAR) data. The Final Rule therefore shall remain stayed until FinCEN furnishes adequate responses to FBME’s significant comments.

Although the case in US court is still pending, the central bank started paying customers of the bank their insured deposits. To date, a verifiable amount of 30 million Euro was paid out to almost 450 of the banks’ customers. Customers who cannot follow up on the requirements to file a claim at the DGS, should wait for the official liquidation of the bank starts. The Central Bank must file its case in court and request the judge to liquidate the bank. Upon approval, the judge appoints a liquidator and starts the process. It is expected that customers of the bank do not get their full deposits returned in the liquidation stage.

Floris Alexander from Legal Floris LLC, a legal recovery specialist with extensive experience in bank failures and investment fraud said, "misinformation, false assumptions, biased opinions and a lack of understanding in the mechanics of a DGS, completed with fresh memories about the collapsed Cyprus based Laiki bank, feed the feelings of uncertainty for the banks' customers."

It is understandable that when customers are presented with different information, they wait until they have certainty. In a statement on the 26 th  of May 2016, the Central Bank of Cyprus clarifies: ‘In case of covered deposits exceeding 100.000 Euro, the depositor maintains the lawful right to demand any amount more than 100.000 Euro in accordance with the procedure and the ranking provided for in national legislation.’ This undermines the biggest concern of bank customers who are afraid they waive their rights for deposits in excess of 100.000 Euro.

Another advantage of filing a claim is that the availability of funds at the bank improves per individual DGS pay-out. Alexander continues 'The more FBME customers with an account in Cyprus who apply for the Deposit Guarantee Scheme, the better. By filing a valid claim to the DGS, the total liquidity percentage of the bank goes up. This means that account holders who don't qualify for the DGS or with amounts that exceed the guaranteed sum are more likely to see a substantial portion of their funds returned.'

To conclude, it seems to be now, over a very long timeframe or maybe even never, until customers of the bank with accounts in Cyprus can get their account balance returned. It is therefore advisable for all customers of the bank with accounts in Cyprus to file their claim with the Central Bank of Cyprus. This must be done before April, upon maturity of the Deposit Guarantee Scheme for FBME Bank, Cyprus branch.

There is a straightforward procedure to apply for the Deposit Guarantee Scheme in Cyprus. The beneficiary of the account, who is known in the records of FBME Bank, must visit FBME Bank in person to verify the identity and (if applicable) the company documents. After the FBME visit, customers need to go to the Central Bank to file their claim with the DGS. On average, it takes between 10 and 20 days before payment is received by the customer.

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