The legislation governing banking activities in France is designed to promote a flexible framework for lending and other banking activities while providing a high degree of legal certainty and a strong supervisory framework.
Over the past 20 years, French banking and finance legislation has evolved from a national set of rules to a modernised legal framework integrating EU initiatives and the development of global capital markets. More recently, the digital transformation of the banking and financial services has appeared to be an unavoidable structural shock which has brought its share of regulatory changes.
Three main layers of rules and regulations apply to banking activities:
Most of EU regulations is directly applicable in France. This includes principally:,
Most of this is codified into the Monetary and Financial Code (Code Monétaire et Financier) (M&FC) which has recently been amended, in particular in relation to:
Other French legislation
Regulatory Authority Rregulations
Banking activities are also regulated by detailed regulations enacted by regulatory authorities such as the European Central Bank (ECB), the Prudential and Resolution Control Authority (Autorité de Contrôle Prudentiel et de Résolution) (ACPR) or the Financial Markets Regulator (Autorité des marchés financiers) (AMF).
Types of Licences for Which a Firm Can Apply
There are several types of banking and financial services licences, depending on the type of business being carried out by the relevant institution. The main licences are the credit institution licence, the investment services licence and payment service-provider licence.
The conduct of banking and financial activities in France is generally restricted to French and European licensed institutions. Credit institution licences have been granted, since 2014, by the ECB, while the provision of investment services requires a licence that is delivered by the ACPR. Portfolio management companies must be authorised by the AMF.
Credit institution licence
Under French law, only authorised credit institutions and financing companies are authorised to enter into credit transactions on a regular basis and only authorised credit institutions may receive funds from the public on a regular basis; these restrictions are generally referred to as the French banking monopoly.
Activities requiring a banking licence include the following banking transactions carried out on a regular basis:
Financial leases are considered to constitute credit transactions when the relevant lessee is granted an option to buy the leased asset.
Exceptions to the banking monopoly
There are various exceptions to the requirement to hold a banking licence in respect of certain types of transactions.
By way of example, with respect to the receipt of funds repayable from the public, a banking licence is not required for:
As for credit transactions, no banking licence is required in the following situations:
Recent legislation created new exceptions to the requirement to hold a banking licence in respect of:
Investment services licence
An investment service licence must be obtained by investment firms whose regular and main business includes the provision of investment services, certain credit institutions that have been specifically authorised to conduct investment services activities, and portfolio-management companies.
Investment service-providers are generally licensed by the ACPR, which, prior to issuing an investment services-provider licence, consults the AMF for approval. As an exception, portfolio-management companies are licensed by the AMF.
Scope of investment services
Investment services are defined by French law with reference to the MiFID, as amended by the MiFID II and Regulation (EU) 600/2014 on markets in financial instruments (MiFIR).
Under French law, investment services on financial instruments (financial securities and financial contracts) include the following services:
Exceptions to the investment service licence requirement
The following French financial institutions are allowed to carry out all or some of the investment services without holding an investment service licence:
Tied agents (agents liés) can also be appointed by an investment service-provider to receive and transmit orders, place financial instruments on a firm (or non-firm) commitment basis and provide investment advice, as long as the relevant investment service-provider is authorised to provide those services.
Licensing for the conduct of payment services or issuance of electronic money
Regulations applying to payment services and means of payment have been streamlined by the Directives on payment services in the internal market.
The provision of payment services and the issuance of electronic money are no longer exclusively covered by the monopoly of credit institutions, as specific categories of financial institutions regulated by the ACPR and benefiting from the European passport can also perform these activities (that is, payment institutions that perform payment services and electronic money institutions can issue electronic money). As an exception, credit institutions still have a monopoly in respect of the performance of banking payment services, but this essentially just consists of the issuance of cheque books.
An institution can apply to the ACPR for a simplified payment institution licence (établissement de paiement simplifié) if:
Similarly, if it is expected that the volume of electronic money in circulation will not exceed a monthly average of EUR5 million, it is possible for an institution to be licensed as an electronic money institution with a light regime. In both cases, the prudential requirements are adjusted, notably in terms of initial capital, capital requirements and internal control.
Licensing for the conduct of digital asset services
The French legislator has enacted a simple and attractive regime for Digital Assets Service Providers (DASPs).
DASPs can offer services related to tokens which are not considered as financial securities or currencies. The DASPS can benefit from this new French regime and apply for an optional licence delivered by the AMF.
The AMF is the unique point of contact for those applying for a licence or registration (registration is mandatory only for two categories of services). The process should take under six months when the application file is complete.
Digital asset services covered by the law are:
Other services include:
Registration is mandatory only for the first two services. The AMF will publish a list of registered service-providers.
Separation of banking activities
French credit institutions, financial companies and mixed financial companies are prevented as a matter of principle from carrying out certain activities that are considered to be risky. They are, however, allowed to conduct these activities through a dedicated subsidiary where the relevant transactions exceed exposure thresholds defined by decree of the Minister of the Economy (7.5% of the size of the balance sheet on the entity concerned, based on the accounting value of the assets corresponding to the trading activities on financial instruments).
These activities include the trading on financial instruments for own account, with certain exceptions.
The dedicated subsidiary must be licensed as an investment firm or credit institution. It is prevented from carrying out high-frequency trading subject to tax under Article 235ter ZD of the General Tax Code and Transactions on financial instruments using, as underlying assets, an agricultural commodity.
While the separation of banking activities is inspired by the Liikanen Report, it diverges from the conclusion of that report in some key areas. For example, it excludes market-making activities, which is perceived as a key tool to facilitate access to liquidity.
Significant Shareholdings Reporting
Credit institutions must report annually to the ACPR specific financial information relating to significant shareholders (holding 10% or more of a credit institution's voting rights).
Any modification of the shareholding structure of a credit institution must be notified to the ACPR.
Any transaction enabling a person acting alone or in concert with other persons to acquire, increase, reduce or cease to have, directly or indirectly, a participation in a bank must be authorised by the ACPR before it is carried out, when either (Order of 4 December 2017):
The ECB, on a proposal of the ACPR, will decide whether to oppose the contemplated change of shareholding structure (Article 4 and 15, Regulation No 1024/2013 of 15 October 2013).
Acquisition of Shareholdings and of Control of Banks
Both banking institutions and non-financial undertakings are allowed to take participations in or to control credit institutions. However, they must submit to the ACPR a request for prior authorisation for the acquisition of:
For other changes affecting the ownership of a credit institution, only a declaration to the ACPR is required.
The ACPR will assess the suitability of the proposed acquirer and the financial soundness of the proposed acquisition with the view to ensuring the sound and prudent management of the relevant credit institution, and having regard to the likely influence of the proposed acquirer. In doing so, it will take into consideration:
In the case of a change in the ownership of a credit institution, the request for prior authorisation is processed by the ACPR and then sent to the ECB for a final decision under the Single Supervisory Mechanism.
Specific rules also apply to the acquisition by credit institutions of a business line (branche d'activité) of another credit institution.
The acquisition by banks of all or part of a significant business line of regulated entities must be authorised by the ACPR in accordance with Article L. 511-12-2 of the Monetary and Financial Code.
A "business line" is one of the following elements acquired directly or through the takeover by a special-purpose vehicle, of:
Foreign Shareholdings in Banks
As a general rule, declaration obligations apply to foreign investments realised in France when the investment (i) results in the constitution of a subsidiary; and (ii) exceeds EUR15 million.
More importantly, the ACPR can require (subject to certain limited exceptions) foreign investors intending to control a credit institution to provide a sponsor, unless the investors are significant banking entities.
Legal Forms Generally Used to Operate as Banks
French law requires credit institutions and financing companies to be legal entities without imposing a specified corporate form, as long as the corporate form chosen is appropriate with regard to the proposed activities. The most commonly used corporate form for credit institutions is a limited liability company (société anonyme) whose main decision-making body is the board of directors, which must comprise at least three members.
Legislative and Non-legislative Corporate Governance Rules for Banks
The main corporate governance rules applicable to credit institutions include:
The Monetary and Financial Code requires credit institutions and financing companies to be organised and operated in such a way that at least two senior managers have a comprehensive and detailed view of all its business activities (four-eyes rule).
Credit institutions and financing companies must generally have:
In addition, staff engaged in control functions must be independent from the business units they oversee. With respect to investment services-providers, the compliance function is entrusted with an Investment Services Compliance Officer (RCSI) who must have a professional licence granted by the AMF.
The management of a credit institution's risks is entrusted to its (Order of November 2014):
French law imposes specific requirements of availability, competency and integrity on the individuals who are effectively managing a credit institution. They must be fit and proper, in order to secure the sound and prudent management of the institution. Ordinance 2014-158 of 20 February 2014, which implements the CRD IV package, extends these requirements to all members of the board of directors or the supervisory board of the credit institution or the financing company. Further, Ordinance 2014-158 introduces a new requirement with respect to the management of credit institutions. It is now prohibited to combine the roles of chairman (of the board of directors or of the supervisory board) and chief executive, unless justified by the institution and authorised by the ACPR.
Certain governance requirements only apply to institutions deemed systemically important financial institutions (SIFIs), such as:
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published joint guidelines on 26 September 2017 (in force on 30 June 2018) on assessing the suitability of members of the management bodies and key functions' holders. They published guidelines on internal governance on the same date. The ACPR has since declared its intention to comply with this second guideline and, subject to certain reservations, with the first guideline.
The Law of Banking and Financial Regulation of 22 October 2010, transposing the requirements of Directive 2010/76/EU on capital requirements for the trading book and for re-securitisations and the supervisory review of remuneration policies (CRD III), established remuneration criteria requiring certain credit institutions and financing companies to establish a remuneration committee and to structure remuneration packages according to certain standards.
The CRD IV package, which came into force on 1 January 2014, strengthens this framework and has been transposed into French law by the Banking Reform Law and Ordinance 2014-158 of 20 February 2014. This Ordinance:
French regulations have specified the application of the proportionality principle by setting thresholds and exemptions of the application of remuneration provisions for several kinds of entities, including entities which belong to a banking group and have a total balance sheet of less than EUR10 billion and which do not pose a risk to the solvency and liquidity of the group.
The French Anti-Money Laundering legislation (Articles L. 561-1 et seq of the M&FC), as amended by the Ordinance No 2020-115 of 12 February 2020, has implemented the fifth EU Directive regarding Money Laundering (Directive 2018/843/EU) .
Credit institutions, investment services-providers, insurance companies, notaries, together with a host of other organisations and institutions are subject to KYC requirements and must identify the effective beneficiary of the business relationship, including where there is no suspicion of money laundering or financing of terrorism.
The French Anti-Money Laundering Regulation encompasses two main duties: (i) a “know your client” (KYC) duty which involves identification of the customer and of the beneficial owner and the knowledge of the business relationship; and (ii) a duty to report any suspicious transaction to TRACFIN (which is the organisation responsible at the French Treasury for monitoring the fight against money laundering and the fight against terrorism – LCB-FT).
In accordance with a proportionality principle, the intensity of due diligences can be alleviated in the case of a low risk and should be increased if the risk is higher. Due diligence must be recorded and kept by the relevant financial institution in order to be available to French authorities upon request.
Suspected transactions are to be reported to TRACFIN who may block the completion of such transactions and may also report the matter to the prosecutor for criminal prosecution.
The main new provisions brought by the Ordinance No 2020-115 of 12 February 2020 include:
In addition, France law allows the French government to take economic sanctions and restrictive measures against foreign states or organisations.
French restrictive measures and sanctions can be taken as a result of:
Such restrictive measures and sanctions taken against a specified foreign state may:
When taken against persons, organisations and entities, French restrictive measures and sanctions may freeze their assets, sums and economical resources, as well as their financial or commercial transactions.
French Restrictive measures and sanctions may be adopted by a decree of the French Government or by an order (arrêté) of the Minister of economy (alone or jointly with the Home Security Minister) pursuant to certain provisions of the M&FC (Article L. 151-2, L. 562-2 and L. 562-3 of the M&FC implemented pursuant to the provisions of Article L. 562-4 to L. 562-15 of the M&FC).
In order to implement Resolution 1373 (2001) at the national level, France adopted a law, dated 23 January 2006, which instituted a regime of freezing of assets of terrorists, as implemented under Article L. 562-1 of the M&FC. This regime is mainly applied to freeze the assets of persons who are present in France and who pose a terrorist threat.
It should be noted that the regime described above and pertaining to the French regime's restrictive measures and sanctions has been recently modified by Ordinance No 2020-1342 of 4 November 2020, strengthening the mechanism for freezing assets and prohibiting their provision.
Depositor’s protection in France is implemented through a device whereby licensed credit institutions must adhere to a deposit and resolution guarantee fund (fonds de garantie des dépôts et de résolution) established under the provisions of Article L. 312-4 of the Monetary and Financial Code. Its main purpose is:
The Resolution Guarantee Fund is established as a legal entity created under private law. It is managed by a management board operating under the supervision of a supervisory board. The Minister of Economy, the Governor of Banque de France, President of the ACPR or the President of the AMF may request to be heard by such bodies.
Deposits Covered by the Deposit Guarantee Scheme
The deposit guarantee scheme is implemented upon the request of the ACPR as soon as it finds that a credit institution is no longer able to return, immediately or in the future, the funds protected by that scheme, ie, any deposit of up to EUR100,000 of any holder of the following accounts:
Customers whose funds exceed these coverage limits become “creditors” of the liquidation for the amounts not compensated and may therefore be able to receive additional compensation at the end of the liquidation.
In addition, it should be noted that any sum constituting an exceptional and temporary deposit gives rise to the right to an increase in the limit of the guarantee of up to a limit of EUR500,000, for three months from the date on which it was credited to an account entering into the scope of the deposit guarantee.
Deposits Excluded from the Scheme
In addition, the following funds are excluded from the deposit guarantee, regardless of their holder:
Funding of the Scheme
Resources of such a Resolution Guarantee Fund are funded by contributions from its members.
The ACPR determines the modalities of calculation of the contributions of the members of the Resolution Guarantee Fund. These contributions are determined on the basis of the amount of guaranteed deposits of each member, and take into account the risk profile guaranteed to the members. The ACPR also specifies the condition under which the sums paid by the members may be refunded in the case of a decrease of the basis of their contribution. The ACPR also specifies the minimal amount due to each member.
The Resolution Guarantee Fund may borrow from its members. For that purpose, it may post or request from its members to post security contemplated by agreement.
Under French law, bank secrecy is a professional duty applicable to the managers and employees of a credit institution in respect of information received from its clients, whereby the disclosure of any confidential information collected by the bank regarding its clients is strictly prohibited.
Information Protected by the French Bank Secrecy
French bank secrecy applies only to information received from clients in France and only applies to confidential data; according to French courts, protected information covers any and all information obtained by the bank within the context of professional activity and which is of a confidential nature or presents confidentiality features, such as:
Conversely, the following data is not deemed confidential: anonymised, redacted data, general data that cannot enable the identification of a person (eg, statistics, data without any identity, etc), general assessments on the financial or economic situation of clients and information already known to the public.
The M&FC allows credit institutions to communicate confidential information to specified parties in certain circumstances; this is the concept of "shared bank secrecy" including:
In addition, in a number of cases, bank secrecy cannot be opposed to the rules of the authorities; for instance, in a criminal proceeding (including in the case of preliminary investigations, investigations of flagrancy and letters rogatory), the judge is vested with broad powers and bank secrecy may not be used by the bank in order not to disclose certain information.
Regarding French banking and financial regulators, both the AMF and the ACPR are granted broad investigative powers by the French legislator.
When performing controls (on documents or on the spot), the controllers of the ACPR/AMF can request, verify all the books, registers, contracts or documents relating to the situation of the bank and to all transactions it carries out. They may request access to the information tools and computer data used by the bank.
The French tax administration is also vested with broad investigative powers and may require any accounting document from the bank (ie, books, registers, accounts) and any "service document" (documents de service) from the bank.
Breach of Banking Secrecy
Unlawful disclosure of confidential information may result in the mere communication of the confidential data covered by professional secrecy to a third party, irrespective of the number of persons who receive such a communication (one is sufficient) and whether the disclosure is oral or written.
Violation of bank secrecy is punished by:
Role of International Standards
Although the Basel Committee's recommendations are not legally binding, French banking authorities participate actively in their elaboration and ensure that credit institutions comply with Basel's different guidelines. The Basel Committee's recommendations are implemented in France through the transposition into French law of Directive 2013/36/EU on capital requirements (CRD IV), and Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (CRR) is of direct application throughout the EU.
Minimum Capital Requirement
The minimum paid-up capital is as follows:
French SIFIs are subject to additional prudential requirements. They must comply with a systemic buffer of extra capital, to be determined by the ACPR, depending on the category of SIFI to which they belong (global systematically important institutions or other systematically important institutions).
Risk-Management Rules for Banks
The management of a credit institution's risks are entrusted to its (Order of November 2014):
Solvency risk and liquidity risks are also addressed through banking ratios, in particular the capital ratios, the leverage ratio, the net stable funding ratio and the liquidity coverage ratio imposed on banks by Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR) which is part of the so-called CRD IV package, which also comprises Directive 2013/36/EU.
These ratios limit the ability of the bank to have an excessive ratio or to hold financial assets which present a high market, credit or liquidity risk.
Main Liquidity/Capital Adequacy Requirements
The CRD IV package establishes two new liquidity buffers:
Financial companies (sociétés financières) are not required to comply with the NSFR and liquidity coverage requirement (LCR). However, they are subject to liquidity ratios tailored to their situation as entities not receiving funds repayable from the public.
Credit institutions are subject to a solvency ratio in accordance with the Basel Committee recommendation and Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (CRR). Currently, credit institutions must at any time comply with an 8% ratio between the amount of their own funds and their overall credit risk exposure.
The CRR has strengthened the capital requirements by increasing the share of own funds that must be in common equity tier 1 (CET1) from 2% to 4.5%.
The CRR also established five new capital buffers: the capital conservation buffer, the counter-cyclical buffer, the systemic risk buffer, the global systemic institutions buffer and the other systemic institutions buffer.
In addition, supervisors can add extra capital to cover for other risks following a supervisory review, and institutions can hold an additional amount of capital on their own.
Legal Framework for Insolvency of Banks
The insolvency regime governed by the French Commercial Code offers three types of insolvency proceedings, depending on the level of financial distress:
An additional accelerated financial safeguard proceeding has been introduced under the Law of 22 October 2010 and codified in the French Commercial Code, applying under restricted conditions (including the debtor's turnover, its number of employees and the creditor's capacity). Conciliation proceedings are also considered. More recently, the Ordinance of 12 March 2014 introduced an accelerated safeguard proceeding.
This general framework applies to credit institutions.
In addition, certain mandatory rules outlined in the Monetary and Financial Code apply to credit institutions specifically. Under these rules, proceedings are closely monitored by the ACPR. Directive 2001/24/EC on the reorganisation and winding-up of credit institutions is also implemented in the Monetary and Financial Code.
Recovery and Resolution Regime for Banks
The Monetary and Financial Code transposes Directive 2014/59/EU, establishing a framework for the recovery and resolution of credit institutions and investment firms - bank recovery and resolution directive (BRRD). It applies to credit institutions and investment firms meeting certain conditions (Articles L. 613 to 34 et seq of the Monetary and Financial Code).
The resolution authority and the competent authority is the ACPR.
The ACPR acts within the framework of the Single Resolution Mechanism (SRM) established by Regulation (EU) 806/2014, establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms (SRM Regulation). It must co-ordinate its resolution actions with the single resolution board established at European level (board), the Council and the Commission, under the rules and procedures defined by the SRM Regulation.
The board is considered the relevant national resolution authority (or, in the case of cross-border group resolution, the relevant group-level resolution authority) when it exercises powers which under the BRRD are exercised by the national resolution authority (SRM Regulation).
Powers of the ACPR When the Credit Institution Is Not Subject to a Resolution Proceeding
Credit institutions established in France are subject to the supervision and control of the ACPR (Monetary and Financial Code).
However, credit institutions classified as significant are now under the direct supervision of the European Central Bank with regard to resolution, in accordance with the implementation of the European Single Supervisory Mechanism (Article 6, point 4, Regulation 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and Article 39, Regulation 468/2014 establishing the framework for co-operation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities).
The ACPR supervises compliance of credit institutions with minimum capital requirements, including prudential ratios and compliance with banking laws and regulations in general.
In the context of its control and supervisory function, the ACPR can take administrative policy measures (mesures de police administrative) against credit institutions under its supervision, such as:
Early Intervention Measures
The ACPR can take early intervention measures against a credit institution where the financial situation or liquidity of the credit institution or investment firm is rapidly deteriorating and may result in the institution not complying with prudential regulations (CRR).
In these circumstances, the ACPR can require the credit institution to take several measures, such as the:
The ACPR can also require the institution's meeting of shareholders to convene on the basis of an agenda to be determined by the ACPR.
These early-intervention measures are adopted by the Supervision Board of the ACPR. The Supervision Board must inform the Resolution Board of measures adopted.
Powers of the ACPR When the Credit Institution Is Subject to a Resolution Proceeding (mesures de résolution)
The ACPR can take resolution measures against a credit institution if the following conditions are met:
Under the banking resolution regime, when a credit institution is subject to a resolution process, the Resolution Board of the ACPR can take resolution measures, including:
The Resolution Board of the ACPR can take additional resolution measures, including to:
These measures are in force from the publication of a notice of the suspension until midnight at the end of the business day following that publication.
The main upcoming regulatory developments which can be expected in France relate to the opportunities raised by the digital revolution and financial services innovation.
The transmission of financial securities on a Distributed Ledger Register could bring modernity in the recording of securities of small and mid-cap companies where old-fashioned paper records still prevail.
Cryptocurrencies could also see some major changes with the development of governmental-led projects. France has also enacted a simple and attractive regime, both for initial coin offerings (ICOs) and DASPs.
The Impact of the COVID-19 Pandemic on Banking Regulation
Not surprisingly, the 2020 agenda of banking and finance reforms has been somewhat disrupted by the COVID-19 Pandemic. The French government's top priorities shifted to the preservation of economic activities and the preparation of an ambitious recovery plan, both at European and French levels. Lending activities have been stimulated by a broad use of bridge loans guaranteed by the French State and by deferral of payments.
Financial stability concerns may well resurface at the forefront of supervisors' concerns; it can be reasonably expected that the crisis will cause a significant increase in non-performing loans and financial losses for the banking sector. It will also be a test case for prudential rules imposed during the years 2000 to 2010; in any case, the authorities are unlikely to relax the ratios and capital requirements of banking institutions.
Digitalisation is also a prominent winner in this crisis. As a consequence, business and financial activities which are not yet digitalised appear to be a potential area of weakness in the general organisation; as a result, the processing of business transactions has had to adapt, including the signature, payment and identifications processes aimed at the fight against money laundering.
France is determined to seize the opportunities raised by the digital revolution and stands at the forefront of financial services' innovation. Recently, France introduced pioneer legislation on the representation and transmission of financial securities on a Distributed Ledger Register. Further, French accounting rules were modernised to integrate the accounting treatment of tokens.
France has also enacted a simple and attractive regime for both Initial Coin Offerings (ICOs) and Digital Assets Service Providers (DASPs).
The control functions of banks could draw further benefits from digital transformation, according to a recent Prudential and Resolution Control Authority (Autorité de Contrôle Prudentiel et de Résolution) (ACPR) report. The potential of regulatory technology (RegTech) in terms of control and risk management is intriguing; currently, the main RegTech opportunities identified by the banks are in the following areas:
New technologies could also help institutions to identify and accept new regulatory standards and their impacts.
The implementation of the benchmark Regulation (EU) 2016/1011 of 8 June 2016 is on its way; interbank rates will progressively disappear and leave the stage to new, alternative, risk-free rates. The transition appears less difficult for the Euro indices (which will remain, but will be calculated by a different method) and other Interbank-offered (IBOR) rates, which will be replaced by new indices. The derivative industry (International Swaps and Derivatives Association – ISDA), the Federation Bancaire Française and the loan market association have made available to market players contractual documentation which allows both the continuation of existing contracts and the implementation of revised fall-back provisions.
Terrorism and Money Laundering
The fight against terrorism and money laundering remains a priority for French regulators; the burden of due diligences and follow-up duties imposed by the LCB-FT regulations is increasing and ACPR sanctions against banks and investment service-providers who improperly apply the rules are becoming more and more frequent. Obligations of credit institutions will also be reinforced, in particular the due diligence measures to be implemented for business relations or transactions related to high-risk third countries with the adoption of the Fifth Money Laundering Directive ((EU) 2018 /843) (MLD5 or 5MLD).
Credit institutions are increasingly constrained to take part in the fight against tax fraud, as they are now required to declare cross-border transactions which are tax-motivated or which may have a potential tax effect. This is a result, in particular, of the adoption of Directive 2018/822 of 25 May 2018, known as DAC 6, which was implemented under French law by Ordinance No 2019-1068 of 21 October 2019, on the automatic and mandatory exchange of information in the field of tax. In addition, the cost of tax evasion for the government has led to crack-downs against private banking institutions which assisted in tax evasion. In this respect, a landmark decision was rendered in banking litigation with the UBS case, where UBS AG was found guilty of unlawful solicitation of clients on French territory and of having helped them to implement tax-evasion schemes. The French branch of UBS was also found guilty of complicity in the same illegal actions.
The Potential Impact of Brexit
The potential occurrence of a no-deal Brexit is also a source of concern for EU credit institutions; such a scenario would oblige banks to amend a certain number of contracts that have been entered into with British counterparties. In a number of activities, the UK will become a third country and major consequences are expected in the field of fund management and cross-border financial services, even if a number of preparatory steps have been taken, for instance, in order to secure mutual recognition of payment and clearing systems.
In fund management activities, 2020 should be a landmark year, with the publication of the implementation of legal and tax rules applicable to financing entities (Organismes de Financement), a new type of multi-purpose and flexible regulated fund which offers a competitive framework to investment activities in Europe.