How do changes to French finance and banking regulations affect Monaco? A closer look with Nathalie Tanzi, partner at the consultancy Tempest.
The originality of Monaco finance and banking law lies in the coexistence of two separate legal systems. Credit institutions which are set up in Monaco as branches or subsidiaries come under the general banking legislation applicable in France, according to the terms of the exchange of letters and agreements adopted between France and Monaco since 1945. Financial activities and products, however, are subject to special legislation separate from that of France or other European jurisdictions.
The local legislation, aimed at both credit institutions and finance companies in Monaco, was overhauled in 2007. As a result, the current financial and banking situation rests on strengths surrounding regulated stakeholders and products, supervisory bodies and protection for investors or savers. This status quo is governed by a series of texts of different nature, comprising French and Monegasque laws, regulations, Monegasque Sovereign Ordinances, policies, recommendations, decisions, including sanction decisions taken by a banking regulator’s Sanction Commission with relevant jurisdiction, for example. During 2013, and especially in early 2014, French banking legislation was profoundly changed by the adoption of a new system to separate and regulate banking activities, which applies to all credit institutions accredited by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) as well as by the subsequent adoption of an Order amending several articles in the French Financial and Monetary Code, which will now also apply to credit institutions located in Monaco.
The primary changes cover:
- Extension of categories of institution covered by an authorisation from therelevant authority (ACPR), by the creation of financing companies which perform credit transactions both as their usual business and on their own behalf, under the terms and restrictions laid out in their authorisation.
- Consequent reclassification of credit transactions performed on behalf of clients. The incorporation of these companies within the entire body of credit institution supervisory legislation under the Monetary and Financial Code.
- Stricter obligations incumbent on all credit institutions in terms of prudential supervision and internal audit. Supervision of these institutions encompasses systems, strategies and audit procedures. With respect to outsourcing, new ACPR decisions and policies have heightened the need for supervision over the various service providers or intermediaries used by credit institutions. Therefore, in the marketing of financial products especially, all intermediation contracts come under the scope of internal audit.
- One main aspect of extending supervisory authority (ACPR) powers is the creation of the Fonds de Garantie des Dépôts et de Résolution and the use of this fund as a preventive measure, on decision of the supervisory authority.
- Publication of information on credit institutions’ locations and activities.
- Strengthened governance within credit institution management and decision-making bodies.
Other noteworthy points in French banking legislation surround the adoption of several important policies on sales practice, a stricter obligation to advise, including in respect of life insurance, and know your client. Other texts have clarified contractual obligations and obligations incumbent on professionals towards non-professionals. Even if these policies and other texts do not apply directly in the Principality, they allow us to foresee the banking regulator’s expectations, or to anticipate the sorts of obligations which could arise in one form or another, in the Principality.
The financial legislative and regulatory situation since 2013, affecting both credit institutions and financial companies and in application of the 2007 Monegasque laws, features two major changes which pertain to activities on the one hand and products on the other, in an aim to sophisticate the products which can be offered to clients and governance in conducting business. With respect to financial activities, the ethical rules have been amended and tightened, to incorporate an obligation for accredited institutions to follow a professional qualification procedure for certain key client-facing roles. This professional qualification is based on:
- Skills accreditation by the approved marketplace professionals association (Association Monégasque des Activités Financières).
- The possibility of applying for exemption following an equivalence process and compliance with specific prerequisites.
Furthermore, investment products have been governed by special legislation since 2007. In 2013, rules were stipulated surrounding property investment funds’ right to exist and operate. This new regulation paves the way for important changes to investment fund legislation under Monegasque law: bespoke and non-standard products mainly comprising non-financial assets may then be offered to dedicated clients. Other measures are foreseeable in the near future, including texts (Ministerial Decrees) which are to apply to property funds.