9. Insurance
If you made a bad investment choice, then that money is gone. However, in situations like your bank or investment platform going bankrupt, there are protections in place to recover some of your money in both saving accounts and investments.
Garantiformuen
After the financial crisis of 2007-2009, the European Union established the Deposit Guarantee Schemes (DGS). In Denmark, this is known as the "Garantiformuen" (formerly known as "Indskydergarantifonden")
Under this scheme, deposited money in bank accounts are insured up to 100.000 EUR or 750.000 DKK per bank. If you have deposited more than 750.000 DKK, it’s advisable to spread it across multiple banks to sums below 750.000 DKK per bank, since each sum is insured isolated from the others.
Protection for Investors
In the event that an investment platform like SAXO or Nordnet becomes bankcrupt, your investments are simply transferred to another platform (e.g. from Nordnet to SAXO). Remember, these companies act as brokers and the investments are registered elsewhere. There are, however, specific details to consider:
- Danish Securities are registered in your name at "Værdipapircentralen" (VP), the Danish registrar for Securities. Since these are registered in your name, you are the proven owner of these shares, and transferring them is not an issue.
- Foreign Securities are registered differently. Given the global market's size, it would be a monumental task for SAXO or Nordnet to register each Security in your name with the respective country's registrar. Instead, SAXO and Nordnet use partners (such as Citi Group) capable of managing these registrations. But when you purchase Securites through SAXO or Nordnet, the Securities are registered in the broker’s name, a practice known as "Street Name" where the broker holds the Security on behalf of a client. If SAXO or Nordnet cannot locate or transfer your Security due to registration errors or other issues, your investments are insured up to 20.000 EUR or 150.000 DKK.
You could of course spread investment over several platforms, just like money deposited in banks. However, you're limited to very few platforms that don't overcharge you for investments and that provide the convenience like SAXO and Nordnet do with for instance tax reporting or no custody fees. That said, SAXO has been enlisted as a Systemically Important Financial Institutions (SIFI) by the Danish Financial Supervisory Authority, which basically means SAXO is designated as "too big to fail" and the Danish state will step in before the bank goes bankrupt. However, that would only help in the case of bankruptcy, not a registration error with foreign Securities.