This country-specific Q&A provides an overview to banking and finance laws and regulations that may occur in France.
This Q&A is part of the global guide to Banking & Finance. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance-2nd-edition/
What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?
In addition to the European regulator, ECB, there are two main national authorities for banking regulation, supervision and resolution in France:
- the Autorité de contrôle prudentiel et de resolution (“ACPR”) is responsible for the supervi-sion of the banking and insurance sectors. It insures the stability of the financial system and the protection of the customers ; ACPR conducts investigations and issues sanctions.
- the Autorité des Marchés Financiers (“AMF”) regulates participants and products in France’s financial markets. It regulates, authorises, monitors, and, where necessary conducts investiga-tions and issues sanctions. In addition, it ensures that investors receive material information, and provides a mediation service to assist them in disputes.
- Other national authorities could also act against banks and financial institutions as for example the “Auto-rité de la Concurrence” (anti-competition agency).
Which type of activities trigger the requirement of a banking license?
A banking licence is required as soon as one of the banking services defined by law will be proposed. Banking services under French law are defined by the article L.311-1 of the Monetary and Financial code as follows:
- receiving funds from the public;
- granting loans;
- providing banking payment services.
Whether a bank should decide to offer investment services, it should also have a licence.
Does your regulatory regime know different licenses for different banking services?
There are several types of licenses issued by the ACPR depending on the activities considered as follows:
- Credit institution license for banking activities which may be issued for a Credit institution and may be doubled up with an investment firm license for a Credit institution providing investment services;
- Finance company license in order to carry out credit transactions;
- Investment firm license in order to provide investment services (except the portfolio management companies license which is issued by the AMF) ;
- Payment institution license in order to provide payment services;
- Electronic money institution license in order to issue, manage and provide electronic money;
- Money changing.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
Credit institution and electronic money institution licenses allow to provide payment services and ser-vices related to electronic money.
Credit institutions may also carry out operations related to their activity such as:
- Exchange transactions;
- Trading in gold, precious metals and coins;
- Investment, subscription, purchase, management, custody and sale of securities and any financial products;
- Advice and assistance in wealth management;
- Financial management advisory and assistance, financial engineering and, generally, all services intended to facilitate the creation and development of companies, subject to the legislative provisions relating to the illegal exercise of certain professions;
- Leasing operations of transferable or real estate property for institutions authorised to car-ry out financial leasing transactions;
- Payment services;
- Issue and management of electronic money.
When it provides investment services, the exercise of related operations and the conservation activity are subject to the prior approval provided of the ACPR.
Is there a “sandbox” or “license light” for specific activities?
There is no “sandbox” or “license light” but the national authorities have decided to apply the principle of proportionality according to which applicable regulation depends on the size and the nature of the com-panies’ activities.
In this respect, all companies of the same size and nature should meet the same requirements.
In view of providing assistance to start-up, the national authorities have considered that it was more help-ful to offer them regulatory support due to their limited experience and resources in this field by taking the necessary time to explain the different existing status and to direct them towards the most suitable
Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?
At this time, French law does not regulate the issuance or custody of crypto-currencies.
Nevertheless, Article 26 bis A of the draft of PACTE Act, currently under discussion before the Senate, creates a new status of "service provider on digital assets".
Digital asset services include, as currently defined in the Draft Act, the following services:
1. the safekeeping on behalf of third parties of digital assets or private cryptographic keys, in order to hold, store and transfer digital assets;
2. the purchase or sale of digital assets in legal currency;
3. the exchange of digital assets for other digital assets;
4. the operation of a platform for trading digital assets;
5. the following other services:
a) the receipt and transmission of orders on digital assets on behalf of third par-ties;
b) the management of digital asset portfolios on behalf of third parties;
c) advice to subscribers of digital assets;
d) underwriting digital assets;
e) the guaranteed investment of digital assets;
f) the unsecured investment of digital assets.
At this stage, the Draft Act offers an option to the service providers in order to let each protagonist (in-cluding the national regulators) the necessary time to assimilate the activities and services and to acquire an adequate level of maturity.
In this respect, two situations shall exist:
- The service provider intends to provide the services mentioned in 1° (custody on behalf of third parties of digital assets or private cryptographic keys, in order to hold, store and transfer digital assets), 2° (purchase or sale of digital assets in legal currency) and 3° (ex-change of digital assets for other digital assets) above: it will have at least to be regis-tered by the AMF before starting any activity.
- The service provider intends to provide one or several digital asset services mentioned listed above: it may decide to apply to the AMF for an approval.
What is the general application process for bank licenses and what is the average timing?
Before starting above mentioned banking activities, the institutions must apply for a licence issued by the ACPR as follows:
- contact the Authorisation, Licensing and Regulation Division to present plans and proposed timetable;
- prepare an application for the licence, including all supporting documentation to be submitted to the ACPR General Secretariat.
Credit institution licences are issued by the ECB based on draft decisions sent by the ACPR.
The ACPR or the BCE have to decide on the application within a 6 months delay following the receipt of the complete application.
In practice, the licensing decision must be taken within:
- 6 to 12 months following the receipt of the application for credit institutions and finance companies;
- 4 to 5 months in the case of investment firms;
- 3 months in the case of payment institutions and electronic money institutions.
Is mere cross-border activity permissible? If yes, what are the requirements?
International headquartered banks can operate in France as subsidiaries which require their own govern-ance and risk management and are subject to capital and liquidity requirements. The establishment of a subsidiary requires an application for the requisite license issued by the ACPR.
- Institutions registered in another Member State of the EU or in a State party to the EEA Agreement can operate in France as they may be covered by a European passport un-der the following procedures:
o freedom of establishment:
by opening a branch;
by using a tied agent to provide investment services there, an agent to provide payment services there, or a electronic money distributor;
o freedom to provide services;
In all these cases, institutions must contact the competent authority of their Home State to complete the necessary formalities.
In return, the institutions established in France, including subsidiaries, can operate in the EU under the European passport. Before pursuing activities, the institutions must:
o Prepare a package for a notification under the freedom of establishment or a declaration under the freedom to provide services;
o Mail the completed package to the General Secretariat of the ACPR.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
Banks, mutual or cooperative banks, specialised credit and municipal credit banks can operate as banks following the credit institution license.
In order to issue a credit institution license, the ACPR control the suitability of the legal form for the pro-posed activity.
French credit institutions are incorporated under the form of unlimited companies by shares, that is to say under the form of SA (public limited company), SAS (simplified joint-stock company) or sometimes under the form of limited partnership.
What are the organizational requirements for banks, including with respect to corporate governance?
At any time, the institutions must ensure that:
- at least two people are in charge of effectively running the business;
- the nature and scope of the functions performed by persons effectively running the undertaking enable that person to have a comprehensive and in-depth view of the whole business and related risks;
- persons effectively running the undertaking comply with applicable regulatory re-quirements.
The appointment of a member of the supervisory body of a credit institution, finance company or in-vestment firm must be notified to the ACPR, providing the information required for the authority to as-sess the fitness, propriety, knowledge, experience and availability of the person in question.
At any time, the institutions must ensure that the supervisory body is independent with respect to effec-tive management. For this purpose, the general manager in charge of effectively running the business can not add the function of chairman of the board of directors.
Important institutions must comprise several committees to assist the supervisory body as :
- the risks committee;
- the remuneration committee;
- the appointments committee;
- the audit committee.
In Particular, the appointment of the persons called on to take charge of the effective running of the business of the institution must be notified to the ACPR, providing the information required for the au-thority to assess the fitness, propriety, knowledge, experience and availability of the concerned persons.
Banking institutions must adopt a strong governance package including:
- a clear organisation ensuring a defined, transparent and consistent division of re-sponsibilities,
- effective procedures for the detection, management, monitoring and reporting of risks
- an adequate internal control system,
- sound administrative and accounting procedures,
- remuneration policies and practices that enable and promote sound and effective risk management.
Do any restrictions on remuneration policies apply?
Banking institutions must adopt remuneration policies and practices that enable and promote sound and effective risk management.
In that way, they must implement a global remuneration policy regarding the persons effectively running the business, risk takers, staff engaged in control functions and any employee receiving total remunera-tion that takes them into the same remuneration bracket as senior management and risk takers, the pro-fessional activities of whom have a significant incidence on the risk profile of the bank or the group of which it is a part.
Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
The provisions of the Capital Requirements Directive IV (CRD IV) have been transposed into French law by means of Ordinance n° 2014-158 of 20 February 2014, Decree n° 2014-1316 of 3 November 2014, and several ministerial orders of 5 November 2014.
- Minimum paid up capital requirements depend on categories of licenses as follows :between € 1 million and € 5 million depending on the banking license granted for credit institu-tions and finance companies;
- between € 50 000 and € 3 800 000 depending on the services provided for Investment com-panies ;
- € 40 000 for payment institutions;
- € 350 000 for electronic money institutions.
Are there any requirements with respect to the leverage ratio?
Banking institutions comply with the prudential regulation and regarding the leverage ratio they must im-plement policies and processes to detect, manage and monitor the risk of excessive leverage deter-mined according to CRR.
What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
The provisions of the Capital Requirements Directive IV (CRD IV) have been transposed into French law so that credit institutions and investment companies must respect a 100% permanent ratio between liquid assets or quickly achievable assets and the portion of short-term payments.
Additionally, the LCR must be applied by the credit institutions.
Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?
Banking institutions must publish their annual financial statements.
Particularly, listed banks must publish their bi-annual financial report.
Also, these banks must publish as soon as possible any significant information which could have an impact on the share value.
An annual report on internal control must be sent to the ACPR.
Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?
Banking groups supervised on a consolidated basis shall:
- implement the necessary means to ensure compliance, in entities controlled exclusively or jointly, the provisions of the Order of November 3, 2014 relating to the internal control of banks and, where appropriate, European provisions, unless their application would be unlawful under a State outside of EU or EEA in which a subsidiary is established;
- ensure that the systems put in place within these banks are coherent with each other in order to measure, monitor and control the risks incurred at the consolidated level;
- verify the establishment of an organisation, a control system and the adoption within those enti-ties of adequate procedures in order to product information necessary for the exercise of the monitoring on a consolidated basis.
These banking groups are supervised by the BCE or the ACPR (where the parent company is a French credit institution or investment firm) depending of their seize.
Supervision on a consolidated basis affects all the entities of the group and involves that the ACPR, where appropriate, ensures with the competent authorities concerned:
- Coordination of the collect and publication of relevant or essential information (especially with on-site control missions);
- Planning and coordination of prudential supervision activities.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Changes of shareholding must be subject to prior authorisation of the ACPR in the following cases:
- Acquisition of the effective management control of the institution,
- Acquisition of one tenth, one fifth or one third of the capital and/or of the voting rights.
All modifications to the licence file shall be approved or declared to the ACPR.
Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
Owners of banking institution must comply with a long list of criteria which main ones are the following:
- reputation of the proposed acquirer;
- reputation of the persons who are expected to take charge of the effective running of the business of the institution or to be a member of the supervisory body;
- reputation, experience and competence of key functions managers;
- financial soundness of the proposed acquirer;
- ability to still comply with prudential requirements;
- risks of money laundering.
Are there specific restrictions on foreign shareholdings in banks?
The control of foreign investment in regulated entities has been removed by the Decree of 2 August 2005 regulating financial relations with foreign countries.
Is there a special regime for domestic and/or globally systemically important banks?
The ECB supervises systemically important financial institutions. In France, these institutions are point out by the ACPR so that special supervision measures as additional capital requirement can be applied to them in order to reduce the risks involved.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
The enforcement committee of the ACPR could order two different natures of sanctions:
• Disciplinary sanctions:
o prohibition from conducting certain operations for a maximum period of ten years and any other restrictions on the conduct of its activity,
o temporary suspension of senior managers for a maximum period of ten years,
o compulsory resignation of senior managers,
o partial or total withdrawal of the license or authorisation and being struck off the list of authorised entities
• Financial sanctions:
o and/or a fine up to EUR 100 million (EUR 1 million for bureaux de change) or , in the event of non-compliance with CRR, the penalties incurred by legal entities amount to 10% of turnover or twice the benefits derived from the breach when it can be assessed and a maximum amount of EUR 5 million for the responsible leaders.
The decisions taken by the Sanctions Committee are published in the official register of the ACPR and are made public However, the Committee’s decision may provide for its publication without specifying the name of the bank in very exceptional cases where there could be a “risk of seriously disrupting finan-cial markets or of causing a disproportionate prejudice to the parties involved”.
What is the resolution regime for banks?
Directive No 2014/59/EU of 15 May 2014 (BRRD), establishing a European framework for the recovery and resolution of credit institutions and investment firms, was transposed into French law under Ordi-nance No 2015-1024 of 20 August 2015, and supplements the framework created by Law No 2013-672 of 26 July 2013 on the separation and regulation of banking activities which set up a resolution college.
In addition, the Single Resolution Mechanism (SRM) defined in 2014 under Regulation No 806/2014, es-tablishes uniform rules and a uniform procedure for the resolution of credit institutions and certain in-vestment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund. Under the SRM, responsibilities for resolution are split between:
- the Single Resolution Board (SRB) located in Brussels, and
- the national resolution authorities (NRAs) of participating Member States.
In France, the ACPR has exclusive responsibility for certain entities: credit institutions considered less significant (not supervised by the ECB), nearly all investment firms, branches of third-country banks, and the banking systems in Monaco and in the French overseas territories.
With regard to these entities, the ACPR is charged of the following duties:
- preparing resolution plans;
- assessing the resolvability of an entity;
- taking decisions aimed at reducing or removing obstacles to the implementation of resolu-tion measures;
- determining whether an entity is failing or likely to fail;
- implementing resolution measures.
In France, the costs entailed by resolution are financed from two separate funds: either the Single Reso-lution Fund (SRF) or the National Resolution Fund (NRF).
How are client’s assets and cash deposits protected?
First, in order to ensure the effective application of the resolution tools, resolution funds have been set up which are financed by contributions from the institutions.
In addition, in the event of a straightforward liquidation, the Deposit Guarantee and Resolution Fund (FGDR) is used to reimburse depositors, holders of securities and beneficiaries of guarantees.
In the event of a resolution, the deposit guarantee scheme, which subrogates to the rights of covered depositors, is not required to make a contribution greater than the amount of losses it would have had to bear if the institution had been wound up under normal insolvency proceedings, or greater than 0.4% of the total amount of covered deposits held by its members.
In the event of a liquidation, the deposit guarantee scheme is used for the following purposes:
- to reimburse depositors up to a maximum of EUR 100,000 per person and per establish-ment, within seven business days;
- to compensate investors up to a maximum of EUR 70,000 per person and per establishment in respect of any securities (shares, bonds, shares in UCITS) or other financial instruments that cannot be returned to them;
- to act in place of the bank if the latter is no longer able to honour the sureties or guarantees it has provided.
In France, the role of the deposit guarantee scheme is carried out by the Deposit Guarantee and Resolu-tion Fund (FGDR).
Regarding the protection of clients assets, the bank acting as custody account-keeper must exercise due care in the safekeeping and accurate recording of securities. In particular, when it holds securities for its customers, it must keep the securities held on own account strictly separate from those kept for its customers. To this end, it must have at least two accounts open for each security with the central securi-ties depository. This is called the account segregation rule.
The financial intermediary may never use its customers’ securities without their express prior consent. This rule is intended to ensure that customers’ securities may be promptly transferred to a healthy finan-cial intermediary in the event that the original intermediary fails.
In the event of the failure of a custody account-keeper that fraudulently used its customers’ securities without their agreement, a guarantee mechanism compensate investors if they cannot obtain their securi-ties in the limit of €70,000 per investor.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
When a failing bank enters into resolution, a tool known as a "bail-in' can be applied to force sharehold-ers and creditors to absorb the losses and recapitalise the bank.
Under this mechanism, shareholders and creditors are required to shoulder some of the entity's losses or take part in its recapitalisation.
It consists of two phases:
- eligible liabilities are reduced as much as possible to absorb losses and bring the en-tity's net asset value down to zero;
- eligible liabilities are converted in order to recapitalise the entity or contribute to the capital of the bridge institution.
However, depositors are always protected, whether a bank is placed under resolution or into straightfor-ward liquidation.
In the case of a resolution:
- Covered deposits (up to EUR 100,000) are protected as they are excluded from the scope of the bail-in.
- The ordinance transposing the BRRD into French law stipulates that no depositor may incur losses greater than they would have incurred under normal insolvency proceedings (NCWO – no creditor worse off than in liquidation).
In the case of a liquidation, depositors are also protected:
- Deposits of up to EUR 100,000 are protected by the deposit guarantee scheme, and reimbursed from a fund previously built up using contributions from financial institutions.
- Depositors are given a preferential ranking in the hierarchy of claims, and are thus re-imbursed before ordinary creditors: amounts covered by the deposit guarantee scheme (up to EUR 100,000) are given a high ranking, followed by any amounts in excess of this thresh-old. Depositors are the last to be asked to make a contribution in the event of a resolution (after holders of capital shares and debt securities).
Depositors are placing even higher up in the ranking of claims for credit institutions. This makes it easier to apply the bail-in tool and provides depositors with greater protection.
Credit institutions can also issue a new category of debt securities which absorb losses after subordi-nated debt instruments and before preferred liabilities.
Is there a requirement for banks to hold gone concern capital (“TLAC”)?
The Article L613-30-3 of the French Monetary and financial Code was modified by the Law n° 2016-1691 of 9 december 2016 and enable banks to comply with the Principles on Total Loss-absorbing Capacity (the “TLAC Requirements”) adopted on November 9, 2015 by the Financial Stability Board (the “FSB”).
Even if the TLAC ratio will have to be implemented from 1st January of 2019 and will apply to the globally systemically important banks, France has chosen to establish the ranking of debts in the event of a fi-nancial institution’s liquidation, to create two new categories of debt:
- The first consists of currently existing claims that rank senior, as well as claims of future creditors that are not otherwise preferred and are not in the second category described below; and
- The second consists of a new type of non-structured debt containing a contractual clause specifying that their owner or holder is a “senior creditor” (and thus holds “Senior Non-Preferred Debt”); Senior Non-Preferred Debt may be issued by French banks.
The article thus introduces a new category of debt between subordinated debt, on the one hand, and the debt currently classified as senior debt, on the other hand, permitting financial institutions to issue un-subordinated debt instruments ranking below operating liabilities, making them eligible under the TLAC Requirements.
In your view, what are the recent trends in bank regulation in your jurisdiction?
Indisputably, the implementation of the anti-money laundering and counter terrorist financing (AML) regu-lation by entities is the target of numerous inspections by the college of the ACPR which are often fol-lowed by disciplinary procedures in front of the Sanctions Committee. Banks custodians and digital as-sess service providers should also comply with the AML regulation in the view of the ACPR on transac-tions from crypto-currencies V. FIAT.
Furthermore, important challenges are coming with a possible new design of internal permanent control framework.
What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?
The Blockchain, the e-money as the Bitcoins issues seems to be the biggest threats to the success of the financial sector in France.