Banking Fraud Schemes Explained: How Andorra Protects Depositors and Investors

Introduction

In 2018, the Principality of Andorra took a significant step towards aligning its banking regulations with European Union standards. By approving Law 20/2018, Andorra transposed two key directives to protect deposit holders and investors in banks and financial institutions operating within its borders.

Deposit Guarantee Fund (Fagadi)

The law establishes the Andorran Deposit Guarantee Fund (Fagadi), which is responsible for protecting deposits of up to €100,000 per account holder. Banks operating in Andorra are required to be members of Fagadi, and all depositors - regardless of nationality or place of residence - are eligible for coverage.

• Annual contributions from banks will ensure that Fagadi has sufficient resources to meet its obligations.
• The goal is to reach an ex-ante reserve of 0.8% of guaranteed deposits by June 2024.
• This percentage is significantly higher than the 0.5% target allowed for highly concentrated banking systems like Andorra’s.

Investor Compensation Scheme (Sagi)

Andorra also has an investor compensation scheme known as Sagi. This ex-post guarantee system covers investments in investment firms and management companies of collective investment undertakings, with a coverage limit of €100,000 per investor. This is higher than the €20,000 coverage limit established by the EU directive.

Oversight

The Andorran Financial Authority (AFA) oversees both Fagadi and Sagi to ensure that they are functioning effectively and providing adequate protection for deposit holders and investors.

Conclusion

With these measures in place, Andorra has taken a major step towards enhancing financial stability and protecting its citizens from banking fraud schemes. By understanding how these systems work, individuals can feel more confident when doing business with banks and financial institutions operating within the Principality.