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Safeguarding Customer Funds

Find out how customer funds are safeguarded under European Banking regulations

How does Lemonway secure customer funds? 🇫🇷 🇪🇺

Lemonway SAS is a regulated Payment Institution registered with the European Banking Authority (EBA). Our mission as defined in the Payment Services Directive 2 (PSD2), (4) is to provide and execute payment services throughout the European Union.

We operate in a highly regulated space and are subject to multiple checks and balances at the European and national levels. Lemonway SAS is headquartered in Paris, France and is subject to ACPR (French Prudential Supervision and Resolution Authority) regulation and supervision.

Segregation of Funds

Lemonway funds are completely separate from Customer funds. Segregated funds are held with 4 tier-1 banks, headquartered in:

  • France 🇫🇷
  • Germany 🇩🇪
  • Spain 🇪🇸
  • Poland 🇵🇱

Depositor Guarantee

Garantie des Dépôts et de Résolution or GDR is the Deposit Guarantee Scheme for France. It protects depositor funds in banks and other financially regulated institutions. It is managed by the Fonds de Garantie des Dépôts et de Résolution (FGDR), which is the crisis operator for the banking and financial sector scheme. Its sole mission is to deal with compensation and solutions for customers and organisations impacted by financial crises. Read more...

What happens if the Marketplace goes into bankruptcy?

In the context of Marketplace bankruptcy, Lemonway will protect funds that are stored on our platform. The Marketplace owner(s) are unable to access the funds as they are segregated by Lemonway. One of our key roles is to be the custodian between the Marketplace and the Customer. Lemonway ensures that Customers trust the system they operate in the event of a business collapse.

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Know Your Business (KYB)

Lemonway spends a lot of time on due diligence (known as KYB) to ensure we are working with legitimate organizations that are not engaged in any form of criminal activity. Read more...

What happens if Lemonway goes into bankruptcy?

Customer funds are secure with Lemonway. We strictly separate Customer funds from our funds in accordance with the ACPR regulations. Customer funds are therefore ring-fenced from any financial matter that may impact Lemonway, whether it be bankruptcy or any other financial issues.

In an attempt to minimize risk and ensure Customer funds are protected, Lemonway segregates Customer funds into 4 tier-1 EU banks under GDR provisions, within the European legal framework (DIRECTIVE 2014/49/EU).

Lemonway use case

Let's assume a marketplace on the Lemonway platform goes bankrupt. It has 1000 Customers, all have Lemonway wallets (accounts) containing funds. Under the GDR scheme, all 1000 Customers will be able to recover up to €100,000.

The protection covers all deposits held by individuals and businesses in France, regardless of whether the account is denominated in euros or another currency.

What happens if a Bank goes insolvent?

Customer funds regardless if an EU bank goes insolvent are guaranteed (up to EUR 100,000 per depositor) under provisions outlined by European Union regulation.

The EBA Stress Test and Why it is Important

Since the 2008 banking crises regulators around the world have been under increasing pressure to ensure that customers are protected from serious financial shocks. History has demonstrated, on more than one occasion, that no financial system is bulletproof!

Since 2010 the EU has applied stress testing to try to countermeasure financial shocks. The stress test is an EBA-built framework that helps national supervisors (like the ACPR), banks and other financial institutions annually assess and test resilience against financial shocks or fluctuations. Why is this important? Simply put, a financially stable bank is key to ensuring trust in the financial system for everyday users and borrowers.

Extract of the EBA 2023 Stress test scenario:

...The adverse scenario is based on a narrative of hypothetical heightened geopolitical tensions, with high inflation and higher interest rates having strong adverse effects on private consumption and investments, both domestically and globally. Regarding GDP decline, the 2023 adverse scenario is the most severe used in the EU-wide stress up to now. The severe nature of the adverse scenario reflects a deliberate choice and reflects the purpose of the stress test exercise, which is to assess the resilience of the European banking system to a hypothetical severely deteriorated macro-environment. The EBA expects to publish the results of the exercise at the end of July 2023.

Source:https://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing

Summary

To recap, no system is perfect however, the EU has some of the most stringent banking regulations in the world. Most sources agree that all major EU banks (in terms of liquidity) are well-placed to face market volatility.

Lemonway operates in this environment and we feel assured and confident about the strength of the EU banking system.

"The six largest French banks have sound liquidity buffers to absorb potential liquidity pressures that could come from the current volatile market conditions and they are well-positioned to absorb the short-term negative impacts of higher interest rates" Fitch Ratings-London-23 March 2023

Source: https://www.fitchratings.com/research/banks/large-french-banks-are-resilient-to-current-market-stress-23-03-2023

Further Information and Sources

Regulatory websites should be consulted for the most up-to-date information concerning rules and legislation.

Updated 2 months ago