Trade republic stores the money in your cash account in one of five consolidated omnibus trust accounts held by five banks – Solaris SE, Deutsche Bank, J.P. Morgan SE, Citibank Europe plc and HSBC Continental Europe S.A.
Trade Republic states that all funds in the cash account are legally protected up to €100,000 per investor. They state that money in the Solaris, Deutsche Bank and JP Morgan accounts are subject to supervision by the Deutsche Bundesbank and that Citibank Europe and HSBC are supervised by the Central Bank of Ireland.
Deposit Guarantee Schemes within the EU are regulated by Directive 2014/49/EU on Deposit Guarantee Schemes. The Directive provides that eligible deposits must be subject to protection of €100,000 and contains the following definitions and provisions:
A "deposit" is defined as a credit balance which results from funds left in an account or from temporary situations deriving from normal banking transactions and which a credit institution is required to repay under the legal and contractual conditions applicable, including a fixed-term deposit and a savings deposit, but excluding a credit balance where:
(a) its existence can only be proven by a financial instrument as defined in Article 4(17) of Directive 2004/39/EC of the European Parliament and of the Council (1), unless it is a savings product which is evidenced by a certificate of deposit made out to a named person and which exists in a Member State on 2 July 2014;
(b) its principal is not repayable at par or
(c) its principal is only repayable at par under a particular guarantee or agreement provided by the credit institution or a third party.
A "depositor" means the holder or, in the case of a joint account, each of the holders, of a deposit;
A "financial instrument" is defined equivalently to Directive 2004/39/EC and is defined as:
(1) Transferable securities;
(2) Money-market instruments;
(3) Units in collective investment undertakings;
(4) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash;
(5) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event);
(6) Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF;
(7) Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in C.6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls;
(8) Derivative instruments for the transfer of credit risk;
(9) Financial contracts for differences.
(10) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls.
An "eligible deposit" is defined as deposits that are not excluded from protection pursuant to Article 5. The Deposits excluded from protection under Article 5 are:
(a) subject to Article 7(3) of this Directive, deposits made by other credit institutions on their own behalf and for their own account;
(b) own funds as defined in point (118) of Article 4(1) of Regulation (EU) No 575/2013;
(c) deposits arising out of transactions in connection with which there has been a criminal conviction for money laundering as defined in Article 1(2) of Directive 2005/60/EC;
(d) deposits by financial institutions as defined in point (26) of Article 4(1) of Regulation (EU) No 575/2013;
(e) deposits by investment firms as defined in point (1) of Article 4(1) of Directive 2004/39/EC;
(f) deposits the holder of which has never been identified pursuant to Article 9(1) of Directive 2005/60/EC, when they have become unavailable;
(g) deposits by insurance undertakings and by reinsurance undertakings as referred to in Article 13(1) to (6) of Directive 2009/138/EC of the European Parliament and of the Council (1);
(h) deposits by collective investment undertakings;
(i) deposits by pension and retirement funds;
(j) deposits by public authorities;
(k) debt securities issued by a credit institution and liabilities arising out of own acceptances and promissory notes.
A ‘credit institution’ means a credit institution as defined in point (1) of Article 4(1) of Regulation (EU) No 575/2013. This means "an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account;". The Central bank website also says this includes the concept of an "electronic money institution" which it defines as: "An institution which issues electronic money. Electronic money means monetary value as represented by a claim on the issuer which is: a) stored on an electronic device; b) issued on receipt of funds of an amount not less in value than the monetary value issued; or c) accepted as means of payment by undertakings other than the issuer."
A relevant article from the Directive
Article 7(3) of the Directive provides that "Where the depositor is not absolutely entitled to the sums held in an account, the person who is absolutely entitled shall be covered by the guarantee, provided that that person has been identified or is identifiable before the date on which a relevant administrative authority makes a determination as referred to in point (8)(a) of Article 2(1) or a judicial authority makes a ruling referred to in point (8)(b) of Article 2(1). Where several persons are absolutely entitled, the share of each under the arrangements subject to which the sums are managed shall be taken into account when the limit provided for in Article 6(1) is calculated."
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The situation with Trade Republic seems a bit tricky / complicated.
From what I can tell, you do not have an agreement with any of the five banking institutions Trade Republic puts your deposit with. You have an agreement directly with trade republic that says (i) they will pay 4% interest on the money you store in the cash account and (ii) this money will be stored with the other banks on your behalf. Trade Republic has a separate agreement with these banks to deposit your money.
In this case it appears that Trade Republic is the depositor, rather than you, because it is the holder of the deposit with the banks.
However, it seems that Article 7(3) of the Directive then steps in to say that in these sorts of circumstances, the person who is absolutely entitled to the sums must be covered by a deposit guarantee scheme (providing they can be identified, which is straightforward in the case).
This reflects the Irish implementation of the Directive where the regs provides that: "(4) Where a depositor is not absolutely entitled to the sums held in an account, the person that is absolutely entitled shall be covered by the guarantee, provided that he or she has been identified or is identifiable before the decision date; (5) Where several persons are absolutely entitled to the sums held in an account, the share of each under the arrangements subject to which the sums are managed shall be taken into account when the limit provided for in Regulation 11(1) is calculated."
So it would appear the money must be protected under the German / Irish deposit guarantee schemes because trade republic is a depositor depositing it in a bank account of another who is absolutely entitled to it.
I can't be sure though and it'd be helpful to get the views of someone more familiar with this area.