Banking Regulation 2022

Last Updated September 15, 2021

France

Law and Practice

Authors



De Pardieu Brocas Maffei is one of the leading Paris-based business law firms with an international reach, with 150 lawyers, including 33 partners. Its teams have the capabilities to support clients in France and internationally in the principal areas of business law. The firm is widely recognised for its strong expertise in financing transactions, real estate investment, M&A and private equity, and offers assistance in tax, employment, competition and public law. The regulatory team advises banks, investment firms, foreign funds, insurance companies, fintech and payment service-providers on all French financial regulatory aspects. Within the banking and finance team, its lawyers combine an in-depth knowledge of financial regulations with a wealth of experience of financial transactions. Recent achievements of the regulatory team include advising a UK-based insurance company on the acquisition of a French brokerage and services-provider, representing a leader in consumer credits on the negotiation of partnership agreements with French retailers, and advising foreign investment funds on the conduct of lending activities in France.

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, ranging from specific regulatory status for certain service-providers, to adapted consumer protection rules which, combined with other legislative changes in personal data protection (GDPR), help fight against money laundering and corruption.

Three main layers of rules and regulations apply to banking activities:

EU Law

Most of the EU regulations are directly applicable in France. This includes, principally:

  • the Single Supervisory Mechanism (SSM) and other rules regarding a harmonised European regulatory framework applying to banking institutions;
  • the Single Resolution Mechanism (SRM);
  • rules on capital requirements for the banking sector, which transpose the global standards on bank capital (commonly known as the Basel III agreement) into the EU legal framework, including Directive 2019/878/EU on capital requirements (CRDV) and Regulation (EU) 2019/876 (CRR2)); and
  • other sectoral regulations such as Regulation (EU) 2017/2402, laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation (Securitisation Regulation).

French Legislation

Most of this is codified into the Monetary and Financial Code (Code Monétaire et Financier) which has recently been amended, in particular in relation to:

  • the resolution and recovery of credit institutions;
  • certain services such as e-banking, financial services, consumer credit services, payment services (which are no longer part of the French banking monopoly rules), electronic currencies and fintech; and
  • certain products such as derivative products, securitisation transactions or issuance of bonds.

Other French legislation

  • Directive 2014/65/EU on markets in financial instruments (MiFID II) has been implemented by an Ordinance of 23 June 2016 which entered into force on 3 January 2018, in respect of automated and algorithmic negotiation, inducements, distribution of financial instruments and investment advisory activities. The French Financial Market Authority (Autorité des marchés financiers) (AMF) published a new version of its general regulations (which applied from 3 January 2018) to finalise the implementation of MiFID II into French law and to implement the separation of the legal regime applicable to investment firms from that of management companies (Sociétés de Gestion de Portefeuille);
  • money laundering rules have been reinforced by an Ordinance of 12 February 2020 implementing the Directive (EU) 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Fifth Anti-money Laundering Directive). The Ordinance is supplemented by two decrees, also published in the Official Journal of 13 February 2020. The main new provisions include extending the scope of persons subject to obligations relating to the fight against money laundering and the financing of terrorism (LCB-FT) in line with European requirements, adjusting customer due diligence obligations, adjusting the rules relating to the supervisory authorities for LCB-FT, increasing the transparency requirements for information on beneficial owners and extending measures to combat money laundering and terrorist financing to French overseas entities;
  • anti-corruption legislation has been strengthened by the Law of 9 December 2016 (Loi Sapin II), principally by extending whistle-blowing in the financial sector to any non-complying behaviour, not only to market abuse, and requiring large French companies (with more than 500 employees and a turnover above EUR100 million) to implement compliance programmes for fighting corruption;
  • Order No 2017-748 of 4 May 2017, which introduces under French law a new regime for security agents;
  • Ordinance No 2017-970 of 10 May 2017, reforming the French bond issuance regime;
  • Ordinance No 2017-1252 of 9 August 2017, which implements under French law the Directive (EU) 2015/2366 of 25 November 2015 on payment services in the internal market (PSD 2) (later ratified by Law No 2018-700 of 3 August 2018; although not all the implementing and delegated acts have been adopted, key measures of PSD2 entered into force in September 2019;
  • Ordinance No 2017-1433 of 4 October 2017 on the dematerialisation of contractual relations in the financial sector: the purpose of this Ordinance is to regulate the new services provided by banking and financial institutions, such as "digital-safe" or "secure personal space" offered to customers on the internet, and in which all documents are deposited virtually and made available to the recipient who can access them through confidential codes;
  • Law No 2019-486 of 22 May 2019 relating to the growth and the transformation of the companies (Loi Pacte), which amends banking and financial regulation, for example on banking intermediaries, regulated savings, the recognition of foreign payment systems and strengthening the control of foreign investment, the adoption of measures to mitigate the effect of a no-deal Brexit and restricting the scope of the banking monopoly, among others; and
  • Ordinance No 2019-740 of 17 July 2019 relating to the civil sanctions applicable in the event of default or error of the effective rate (taux effectif global or TEG). The purpose of this Ordinance is to clarify and harmonise civil penalties in the absence of TEG in credit agreements, paying particular attention to the requirements of Directives 2008/48/EC (consumer credit agreements) and 2014/17/EU (on credit agreements for consumers relating to residential immovable property), in particular regarding the proportionality of these civil penalties with regard to the damage suffered by the borrower.

Regulatory Authority Regulations

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

The conduct of banking and financial activities in France is generally restricted to French and European licensed institutions. 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 the payment service-provider licence. 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.

Under the CRD IV package, in order to qualify as a credit institution, an entity must both grant credits and receive funds reimbursable from the public. France therefore had to reduce the national definition of credit institutions to institutions which both grant credits and receive funds reimbursable from the public. At the same time, a new form of financing company (société de financement) was created, which encompasses entities which extend credit, but do not receive repayable funds from the public. These financial companies are not entitled to the EU passport.

Activities requiring a banking licence include the following banking transactions carried out on a regular basis:

  • receipt of funds repayable from the public;
  • credit transactions (including the purchase of non-matured receivables (créances non-échues) which constitute, as a matter of principle, a credit transaction falling within the scope of the French banking regulations, and financial leases when the lessee is granted an option to buy the leased asset);
  • banking payment services.

Financial leases are considered to constitute credit transactions when the relevant lessee is granted an option to buy the leased asset.

Funds repayable from the public are those that a person collects from a third party, including in the form of deposit, with the right to dispose of it for their own account, but subject to the obligation of that person to redeliver it. Following the implementation of the CRD IV package, issuance of debt securities may under certain circumstances constitute the receipt of funds from the public.

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:

  • funds received from a third party with instructions to allocate them to a specific operation and provided that the person receiving the funds does not have the right to use them on their own account;
  • funds received by a company or partnership from:
    1. its partners in a partnership;
    2. partners or shareholders;
    3. directors, members of the executive board or supervisory board or managers.
  • funds received by a company or partnership from its partners or shareholders;
  • funds received by a company from another company within the same group under specified conditions;
  • resources raised through the issuance of securities and negotiable debt securities.

As for credit transactions, no banking licence is required in the following situations:

  • payment delays granted by a company to its customers;
  • certain loans and advances granted by a company to its employees;
  • loans granted by a company to another company within the same group where those companies are linked by capital ties, as a result of which one of them has control over the other;
  • delivery of cash collateral in the context of a securities-lending operation;
  • buying or selling securities, negotiable debt securities or government securities as part of a repurchase agreement;
  • Any credit transaction realised without valuable consideration (such as loans granted by charities or non-profit organisations).
  • Purchase of non-matured receivables by foreign entities whose corporate purpose or activities are similar to those of the regulated entities which are authorised to lend in France under the French banking regulations (such as banks or certain investment funds).

Recent legislation created new exceptions to the requirement to hold a banking licence in respect of:

  • crowd-funding companies operating in France (Ordinance No 2014-559 of 30 May 2014);
  • intercompany credits not exceeding two years granted to small- and medium-sized companies with which a business relationship is maintained by the lender (Law No 2015-990, known as "Macron law");
  • loans granted by certain French regulated funds (Law 2016-1691 and Ordinance No 2017-1432).

This Ordinance No 2017-1432, which came into force on 3 January 2018, established a new category of collective investment schemes, the "finance organisations" (organismes de financement), which include the existing securitisation organisations (organismes de titrisation) and the newly created "specialised finance organisations" (organismes de financement spécialisés). These finance organisations may carry out lending activities, subject to certain restrictions, but without the requirement to have a banking licence.

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), to amend and extend the scope of application, to be entered into force in the Member States by 3 January 2018.

Under French law, investment services on financial instruments (financial securities and financial contracts) are:

  • the receipt and transmission of orders for third parties;
  • executing orders for third parties;
  • trading on own account;
  • portfolio management for third parties;
  • underwriting financial instruments;
  • the placing of financial instruments without a firm commitment basis;
  • providing investment advice;
  • operating a multi-lateral trading facility;
  • ancillary services (such as the safekeeping or administration of financial instruments, or the granting of credits or loans to an investor to allow them to carry out a transaction involving a financial instrument, where the undertaking granting the credit or loan is involved in the transaction).

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:

  • public bodies such as the Treasury (Trésor public), the French Banque de France, the Institut d'émission des départements d'outre-mer and the Institut d'émission d'outre-mer (these institutions act as currency issuing bodies for the French Overseas departments, regions and collectivities acting under the authority of the Banque de France, and are responsible in particular for the circulation and maintenance of banknotes and coins in these territories). 
  • insurance companies;
  • Organisme de Placement Collectif en Valeurs Mobilières–(Undertakings in collective Investments in Transferable Securities) OPCVM–(UCITS);
  • alternative investment funds (including closed-ended funds, professional funds, and real estate investment vehicles);
  • providers of a limited number of services (commodity brokers) or of investment services as an ancillary activity;
  • institutions for occupational retirement;
  • financial investment advisers (conseillers en investissements financiers) which are governed by specific provisions.

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 (Directive (EU) 2015/2366 on payment services in the internal market (PSD2) (transposed into French law by an ordinance published on 9 August 2017) and Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions (Electronic Money Directive) (transposed into French law by Law No 2013-100 of 28 January 2013).

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:

  • it is expected that the payment volumes handled by the institution will not exceed a monthly average of EUR3 million; and
  • the institution does not plan to provide a fund transmission service, a payment initiation service or account information services.

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:

  • storage of digital assets or private cryptographic keys on behalf of third parties;
  • the buying and selling of digital assets against legal currencies;
  • the exchange of digital assets against other digital assets;
  • operating a trading platform for digital assets.

Other services include:

  • the reception and transmission of orders of digital assets on behalf of third parties;
  • portfolio management of digital assets on behalf of third parties;
  • advice to subscribers of digital assets;
  • underwriting of digital assets;
  • guaranteed investment of digital assets;
  • non-guaranteed investment of digital assets.

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:

  • trading on financial instruments for own account, with the exception of certain activities related to:

(a) the provision of investment services to clients;

(b) the clearing of financial instruments;

(c) the hedging of risks incurred by the credit institution or its group within the meaning of Article L511-20 of the Monetary and Financial Code (excluding hedging risks incurred by the dedicated subsidiary);

(d) market-making activities;

  • the sound and prudent management of the treasury of the group, and financial transactions between credit institutions, financial companies and mixed financial companies, and their subsidiaries belonging to the same group (as defined by Article L. 511-20 of the Monetary and Financial Code);
  • the investment operations of the group within the meaning of Article L. 511-20 of the Monetary and Financial Code;
  • any transaction entered into for own account, that is not secured by collateral meeting certain volume and quality characteristics specified by an order of the Minister of Economy, with:

(a) leveraged collective investment schemes;

(b) similar investment vehicles meeting characteristics to be specified by an order of the Minister of Economy;

(d) collective investment schemes, themselves invested or exposed to the vehicles defined in the first two bullet points, when those investments or exposures exceed thresholds to be determined by the Ministry of Economy.

The Monetary and Financial Code further specifies the scope of these exemptions.

The dedicated subsidiary that may be constituted by the credit institution to perform the exempted trading activities must be licensed as an investment firm or credit institution. In addition, it is not authorised to receive deposits from the public that benefit from the deposit guarantee scheme, or to provide payment services to clients. The Monetary and Financial Code also specifies, among others, that the trading subsidiary must comply with prudential ratios on an individual (or sub-consolidated) basis and that the parent credit institution (or financial company and mixed financial company) must obtain the prior authorisation of the ACPR before subscribing to a share capital increase of the trading subsidiary.

The trading subsidiaries are prevented from carrying out:

  • high-frequency trading subject to tax under Article 235 ter ZD of the General Tax Code;
  • transactions on financial instruments using, as underlying assets, an agricultural commodity.

Both the trading subsidiaries and their parent companies must set objectives and limits, and adopt organisation rules, rules of conduct and other professional conduct rules allowing them to comply with these requirements.

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 to the ACPR specific financial information relating to significant shareholders (holding 10% or more of a credit institution's voting rights), annually.

Threshold-Crossing Obligations

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 fraction of voting rights held by that person or persons exceeds or falls below one tenth, one fifth, one third or one half; or
  • a credit institution becomes or ceases to be the subsidiary of that person or persons.

The ECB, upon 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:

  • effective control over the management of the institution;
  • one third, one fifth or one tenth of the voting rights in the institution.

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, having regard to the likely influence of the proposed acquirer. In doing so, it will take into consideration:

  • the reputation of the proposed acquirer;
  • the reputation, knowledge, skills and experience of any member of the management body, and any member of senior management, who will direct the business of the credit institution as a result of the proposed acquisition;
  • the financial soundness of the proposed acquirer, in particular in relation to the type of business pursued and envisaged in the credit institution in which the acquisition is proposed;
  • whether the credit institution will be able to comply and continue to comply with the applicable prudential requirements, including whether the group of which it will become a part has a structure that makes it possible to:
  • exercise effective supervision;
  • exchange information effectively among the competent authorities; and
  • determine the allocation of responsibilities among the competent authorities;
  • whether there are reasonable grounds to suspect that, in connection with the proposed acquisition, money laundering or terrorist financing is being or has been committed or attempted, or that the proposed acquisition could increase the risk thereof.

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 or when a bank acquires the ongoing concern (fonds de commerce) of another bank.

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:

  • an ongoing concern (fonds de commerce) of a credit institution, financing company, investment firm, payment institution or electronic money institution;
  • a set of balance sheet assets relating to:

(a) banking transactions, excluding transactions carried out by mortgage credit companies (société de credit foncier) and transactions carried out by housing finance companies (société de financement de l'habitat) or equivalent operations outside France;

(b) a portfolio of debt securities; or

(c) a portfolio of financial contracts.

Restrictions to the holding of a participation by a credit institution in non-banking businesses were lifted in 2016; however, participations by credit institutions in other businesses may be limited by conflict of interests' rules.

Foreign Shareholdings in Banks

As a general rule, declaration obligations apply to foreign investments realised in France when the investment both:

  • results in the constitution of a subsidiary; and
  • 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:

  • management by at least two senior managers (dirigeants effectifs);
  • the separation of the functions of the chairperson and of the chief executive officer (CEO) and the availability of the bank's managers;
  • permanent and periodic control functions;
  • management of risks by a risk committee;
  • specific compensation rules.

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 (so-called “four-eyes rule”).

In addition, 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, 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 SIFIs, such as:

  • limits on appointments to officer and director positions;
  • the requirement to set up a nomination committee, risk committee and compensation committee.

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.

Credit institutions and financing companies must generally have:

  • robust governance arrangements, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility;
  • effective processes to identify, manage, monitor and report the risks to which they are or might be exposed to;
  • adequate internal control mechanisms, including sound administration and accounting procedures;
  • remuneration policies and practices that are consistent with and promote sound and effective risk management and, as the case may be, a preventive recovery plan.

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.

Pursuant to Order 3 November 2014, the management of a credit institution's risks are entrusted to its:

  • board of directors;
  • executive body with regard to the certain types of risks (for example, credit risk, market risk, global interest rate risk, intermediation risk, liquidity and settlement risk and operational risk, including internal and external fraud risk).

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:

  • limits on appointments to officer and director positions; and
  • the requirement to set up a nomination committee, risk committee and compensation committee.

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:

  • specified the criteria for the remuneration policy;
  • expanded the area of intervention of remuneration committees;
  • created an obligation to consult the shareholders of the company; and
  • set rules for variable remuneration.

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.

Directive 2019/878/EU (CRD V), transposed into French law by Ordinance No 2020-1635 of 21 December 2020, amended the CRD IV package. With respect to the remuneration requirements, this Ordinance:

  • clarified the application of the rules on remuneration in the groups, it being specified that the subsidiaries not falling within the banking sector are not subject to the remuneration rules applicable on a consolidated basis;
  • created an obligation for institutions to have gender-neutral remuneration policies;
  • specified the definition of categories of staff whose professional activities have a material impact on the institution's risk;
  • provided a one-year increase in the minimum duration (four years instead of three) during which a significant portion of the variable remuneration must be postponed (this minimum duration being extended to five years for establishments of significant importance).

The French Anti-Money Laundering legislation (Articles L. 561-1 et seq of the Monetary and Financial Code), 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 “know-your-client” (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 Traitement du renseignement et action contre les circuits financiers clandestins (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:

  • an extension of the list of persons subject to obligations relating to the fight against money laundering and the financing of terrorism in line with European requirements;
  • adjusting customer due diligence obligations;
  • adjusting the rules relating to the supervisory authorities for the LCB-FT;
  • increasing the transparency requirements for information on beneficial owners;
  • extending measures to combat money laundering and terrorist financing to French overseas entities.

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:

  • sanctions decided by the United Nations (UN);
  • sanctions implemented at the European level (EU Rules);
  • sanctions decided and implemented at the national level by French authorities.

Such restrictive measures and sanctions taken against a specified foreign state may:

  • prohibit, or restrict, the trade of targeted goods, technologies and services; or
  • freeze the assets of specified persons, organisations and entities; or
  • freeze financial or commercial transactions (including loans or exports).

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 Monetary and Financial Code (Article L. 151-2, L. 562-2 and L. 562-3 of the Monetary and Financial Code implemented pursuant to the provisions of Article L. 562-4 to L. 562-15 of the Monetary and Financial Code).

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 Monetary and Financial Code. 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 previously described 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 purpose, under French banking resolution regime, is in particular to:

  • manage and implement the arrangements for the guarantee of deposits (that is, to indemnify depositors in the case of unavailability of their deposits or of other refundable funds); and
  • finance the resolution arrangements for credit institutions.

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:

  • current accounts;
  • cash and term-deposit accounts;
  • savings accounts;
  • deposits made to the cash accounts of stock savings plans (plan d’épargne action), retirement savings plans (plan d’épargne retraite), employee savings plans (plan d’épargne salariale), or similar plans opened with a credit institution;
  • deposits benefiting from the State guarantee instituted by Article 120 of Law No 2008-1443 of 30 December 2008 made on Livret A, sustainable development saving accounts (livret de développement durable) and social savings accounts (livret d’épargne Populaire);
  • amounts due in representation of means of payment issued by the member credit institution, of which the beneficiary has been identified;
  • the sums appearing in a customer's account in return for a loan granted by the member institution;
  • for factoring operations, the overall net balance of factoring operations, taking into account the compensation and guarantee terms and conditions provided for by these contracts, is made up of the total collections on discounts left in account, minus drawings and commissions due;
  • any banking product of a similar nature to those listed above.

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:

  • deposits the existence of which can only be proven by a financial instrument;
  • deposits the principal of which is not repayable at par, or is only repayable at par by virtue of a specific guarantee or a specific agreement given by the credit institution that receives the deposits in question, or by a third party;
  • deposits that have the character of own funds;
  • deposits related to transactions for which a final criminal conviction for money laundering has been pronounced;
  • anonymous deposits or deposits the holder of which has not been identified;
  • negotiable debt securities and other debt securities issued by the credit institution.

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:

  • account balances, account statements, transactions carried out by a client, a list of banking products held by a client, the amount of credits granted to a client, the identity of the person who has a proxy on the account;
  • the French Supreme Court held recently that the corporate name, the registration number and the head office address which identify the client of the bank as the beneficiary of a bank transfer are subject to French banking-secrecy rules;
  • French courts tend to consider that certain precise data relating to persons with whom the bank does not have a contractual relationship may be confidential where such information has been collected in the context of contractual relations between the credit institution and its client;
  • the French Supreme Court has on several occasions ruled that the data displayed on the back (verso) of a cheque, which contain information relating to the beneficiary of the cheque (name, signature, account number…) are covered by banking-secrecy rules, even though that beneficiary is not a client of the bank.

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.

Permitted Disclosures

The Monetary and Financial Code allows credit institutions to communicate confidential information to specified parties in certain circumstances; this is the concept of "shared bank secrecy" including:

  • rating agencies for the purposes of rating financial products; and
  • persons with whom they negotiate, conclude or execute the following transactions set out below (on a "need-to-know basis"):
  • credit transactions carried out, directly or indirectly, by one or more credit institutions;
  • transactions in financial, guarantee or insurance instruments intended to cover a credit risk;
  • assignments or transfers of receivables or contracts;
  • service contracts concluded with a third party with a view to entrusting it with significant operational functions;
  • when reviewing or drafting any type of contract or transaction, provided that the person with whom the bank secrecy is shared is part of the same group.

The disclosure may also be permitted by the client on a case-by-case basis.

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 and 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:

  • criminal sanctions: one year's imprisonment and a fine of EUR15,000;
  • civil sanctions: the client may engage the contractual civil liability of the bank;
  • disciplinary sanctions: the ACPR may impose disciplinary sanctions to the branch and to employees of the branch.

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:

  • banks and mutual or co-operative banks with their head office located in France: EUR5 million;
  • financing companies: EUR2.2 million (or EUR1.1 million for financing companies the sole activity of which is the granting of personal guarantees).

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):

  • board of directors;
  • executive body with regard to the certain types of risks (for example, credit risk, market risk, global interest rate risk, intermediation risk, liquidity and settlement risk and operational risk, including internal and external fraud risk).

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:

  • to improve the short-term (over a 30-day period) resilience of the liquidity risk profile of financial institutions, Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (CRR) introduced a liquidity coverage requirement (LCR);
  • to ensure that a credit institution has an acceptable amount of stable funding to support its assets and activities over the medium term (over a one-year period), the CRR establishes a net stable funding requirement (NSFR) which has to be reported by the credit institutions to the ACPR, but which is not yet a binding ratio.

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.

Solvency Ratio

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:

  • safeguard proceeding;
  • judicial reorganisation;
  • judicial liquidation.

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:

  • making recommendations to a credit institution to take appropriate measures to strengthen its financial condition, and issue injunctions requiring the institution to restore or strengthen its financial condition;
  • warning a credit institution to stop certain practices that may be detrimental to its clients and that contradict the rules of good conduct applicable to credit institutions;
  • designating, among others, a provisional administrator (administrateur provisoire) either at the request of the directors of the financial institution concerned or on its own initiative, when:
  • the management of the relevant financial institution cannot be pursued under normal conditions; or
  • certain key executive officers are temporary suspended.

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:

  • implementation of a preventive recovery plan;
  • implementation of an action plan for restructuring its debts with its creditors;
  • modification of its commercial strategy;
  • dismissal of the senior managers of the institution subject to resolution;
  • appointment of a provisional administrator.

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:

  • the resolution board of the ACPR has determined that the credit institution is failing or likely to fail;
  • there is no reasonable prospect that the failure of the credit institution may be avoided within a reasonable timeframe, other than by using resolution measures;
  • a resolution action is necessary in view of the resolution objectives, and judicial liquidation proceedings provided for by Book VI of the Commercial Code would not reach these objectives to the same extent.

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:

  • appointment of a temporary administrator;
  • ability to use a bridge bank, in whole or in part, in relation to any activity branches of the credit institution subject to the resolution proceeding, with a view to sale at a later stage;
  • sale of assets (transfer of one or several branches of activity);
  • creation of an asset separation tool;
  • bail-in measures; that is, the reduction or cancellation of the debt, or the conversion of debt into equity or securities assimilated to equity, to absorb the amount of depreciation). The ACPR can apply these measures as a matter of principle to all the liabilities of a credit institution or an investment firm under resolution. However, the ACPR cannot exercise write-down or conversion powers in respect of secured liabilities, including covered bonds and liabilities in the form of financial instruments used for hedging purposes, which:
  • form an integral part of the cover pool; and
  • according to national law are secured in a way similar to covered bonds.

The Resolution Board of the ACPR can take additional resolution measures, including to:

  • suspend payment or delivery obligations under any contract;
  • restrict the enforcement of security interests;
  • temporarily suspend contractual termination rights.

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 that can be expected in France are again this year related to the opportunities raised by the digital innovation in financial services.

The French regulatory corpus was previously enriched with provisions for shared electronic recording devices as well as an attractive regime for Initial Coin Offerings (ICO) and crypto-currency players.

France has continued to develop the regulatory framework for financial services and has strengthened the know-your-customer and compliance framework for remote financial services, whether or not they are linked to digital assets.

Particular attention should also be paid to state-guaranteed loans (ie, PGE), whose first anniversary dates are, or should be, coming up soon.

De Pardieu Brocas Maffei

57 avenue d’Iéna
75116 Paris
France

+33 1 53 57 71 71

+33 1 53 57 71 70

info@de-pardieu.com www.de-pardieu.com
Author Business Card

Trends and Developments


Authors



De Pardieu Brocas Maffei is one of the leading Paris-based business law firms with an international reach, with 150 lawyers, including 33 partners. Its teams have the capabilities to support clients in France and internationally in the principal areas of business law. The firm is widely recognised for its strong expertise in financing transactions, real estate investment, M&A and private equity, and offers assistance in tax, employment, competition and public law. The regulatory team advises banks, investment firms, foreign funds, insurance companies, fintech and payment service-providers on all French financial regulatory aspects. Within the banking and finance team, its lawyers combine an in-depth knowledge of financial regulations with a wealth of experience of financial transactions. Recent achievements of the regulatory team include advising a UK-based insurance company on the acquisition of a French brokerage and services-provider, representing a leader in consumer credits on the negotiation of partnership agreements with French retailers, and advising foreign investment funds on the conduct of lending activities in France.

Anticipating the Development of Technological Innovations in the Banking and Financial Sector

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 (dispositif d’enregistrement éléctronique partagé). Further, French accounting rules were modernised to include the accounting treatment of tokens. France also enacted a simple and attractive regime both for initial coin offerings (ICOs) and digital asset service-providers (DASPs).

The Prudential and Resolution Control Authority (Autorité de Contrôle Prudentiel et de Résolution) (ACPR)'s support for the development of situations in which the artificial intelligence and blockchain technologies may be used led to discussions on several topics, including in particular: identification when entering into a relationship on a remote basis, application of anti-money laundering/combating the financing of terrorism (AML-FT) rules to the crypto-assets sector and access to bank accounts by DASPs.

According to a recent ACPR report, the control functions of banks could draw further benefits from digital transformation, while the potential of regulatory technology (RegTech) in terms of control and risk management is intriguing.

Currently, the main RegTech opportunities identified by the banks relate to operational and compliance risk-control systems, for the purpose of combating fraud internally and externally, thanks to the expanded use and cross-referencing of data (payment means' fraud, fraudulent trading and so on). New technologies could also help institutions to identify and accept new regulatory standards and their impacts.

State-guarantee loans (prêts garantis par l’Etat, ie, PGE)

To address the economic shock in relation to the coronavirus crisis, the Government implemented an exceptional guarantee scheme to support the bank financing of companies, up to EUR300 billion. This scheme is open to all types of companies throughout the country until 31 December 2021 (small- and medium-sized enterprises (SMEs), intermediate-sized companies (ETIs), farmers, craftsmen, shopkeepers, liberal professions, etc), except for certain SCIs, credit institutions and financing companies, which are excluded.

Companies can take out a state-guaranteed loan with their usual credit institution (or alternatively with a lending platform). The loan amount can be up to the value of three months of the turnover of 2019 or two years of payroll for innovative companies or companies created since 1 January 2019. The state guarantee amounts to 70% of the loan amount. No repayment is required in the first year of the loan and two to four months before the anniversary date of the government guaranteed loan (prêt garanti par l'état) PGE, the borrower may decide to repay the loan immediately or to repay it over one to five additional years, or to mix the two possibilities. The cost of this guarantee is calculated on a case-by-case basis and ranges from 0.25% to 0.50% of the loan amount.

AML-FT

In line with the previous years, the controls carried out by the ACPR and disciplinary sanctions issued in 2021 by the Sanction Committee of the ACPR pertain mostly to compliance of institutions with the fight against money laundering and terrorist-financing regulations. Sanctions were pronounced against various credit institutions, insurance companies and financial intermediaries.

In this respect, the ACPR reiterated in its annual report its willingness to participate in the adaptation of regulations in this area and to contribute to European and international studies and works in this respect (in particular, the future AML 6 package and the Financial Action Task Force's guidelines on risk-based supervision).

Credit institutions are increasingly constrained to take part in the fight against fraud and tax evasion, as they are now required to declare cross-border transactions which are tax-motivated, or which may have a potential tax effect. This results in particular from 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.

Obligations of credit institutions in relation to the fight against money laundering 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).

It is also worth noting that the new database of the Direction du Trésor, which is accessible to the public, registers all persons, entities, and vessels subject to asset-freezing measures in force on French territory. This database enables reporting institutions effectively to detect in their own client databases the persons or entities the assets of which should be frozen in the near future and to implement the freezing measures immediately.

Recent case law in the banking field

A landmark decision was rendered in banking litigation with the UBS case. In this case, UBS AG was found guilty of unlawful solicitation of clients on French territory and of having helped them to implement tax-evasion schemes by the Tribunal de Grande Instance of Paris on 20 February 2019 (decision number No 11055092033), which sentenced it to pay EUR3.7 billion in penalties and EUR800 million in damages.

The French court also found the French branch of UBS guilty of complicity in the same illegal actions, ordering it to pay EUR15 million in penalties.

These penalties (which are unprecedented in France) could constitute a turning point in the judicial repression of banking and financial institutions involved in illicit activities. As a comparison, in the same case, in 2013 the ACPR sentenced UBS France to a EUR10-million penalty.

Other topics

The transition from the London Inter-Bank Offered Rate (LIBOR), the Euro Overnight Index Average (Eonia) and the Euro Interbank Offered Rate (Euribor) to new alternative risk-free rate benchmarks as a result of Regulation (EU) 2016/1011 of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Benchmarks Regulation) is also a point of attention from a legal perspective for banking institutions.

As a result of Brexit, UK credit institutions are no longer allowed to carry out credit transactions on French territory under the freedom to provide services or the freedom of establishment. The question arose as to whether operations executed before the date of Brexit could be implemented after that date. According to French scholars and the High Legal Committee of the Paris Financial Centre, the loss of the passport by UK institutions does not, in itself, entail the nullity of contracts validly concluded before Brexit, as long as the provision of the essential obligations (ie, obligation essentielle) pertaining to the contract has been entirely completed before the Brexit date. For instance, it is usually considered, with respect to loan transactions, that the essential obligation is the disbursement of the sums.

De Pardieu Brocas Maffei

57 avenue d’Iéna
75116 Paris
France

+33 1 53 57 71 71

+33 1 53 57 71 70

info@de-pardieu.com www.de-pardieu.com
Author Business Card

Law and Practice

Authors



De Pardieu Brocas Maffei is one of the leading Paris-based business law firms with an international reach, with 150 lawyers, including 33 partners. Its teams have the capabilities to support clients in France and internationally in the principal areas of business law. The firm is widely recognised for its strong expertise in financing transactions, real estate investment, M&A and private equity, and offers assistance in tax, employment, competition and public law. The regulatory team advises banks, investment firms, foreign funds, insurance companies, fintech and payment service-providers on all French financial regulatory aspects. Within the banking and finance team, its lawyers combine an in-depth knowledge of financial regulations with a wealth of experience of financial transactions. Recent achievements of the regulatory team include advising a UK-based insurance company on the acquisition of a French brokerage and services-provider, representing a leader in consumer credits on the negotiation of partnership agreements with French retailers, and advising foreign investment funds on the conduct of lending activities in France.

Trends and Development

Authors



De Pardieu Brocas Maffei is one of the leading Paris-based business law firms with an international reach, with 150 lawyers, including 33 partners. Its teams have the capabilities to support clients in France and internationally in the principal areas of business law. The firm is widely recognised for its strong expertise in financing transactions, real estate investment, M&A and private equity, and offers assistance in tax, employment, competition and public law. The regulatory team advises banks, investment firms, foreign funds, insurance companies, fintech and payment service-providers on all French financial regulatory aspects. Within the banking and finance team, its lawyers combine an in-depth knowledge of financial regulations with a wealth of experience of financial transactions. Recent achievements of the regulatory team include advising a UK-based insurance company on the acquisition of a French brokerage and services-provider, representing a leader in consumer credits on the negotiation of partnership agreements with French retailers, and advising foreign investment funds on the conduct of lending activities in France.

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