French Financial Institutions Litigation & Regulation Update, Issue 6

French Financial Institutions Litigation & Regulation Update, Issue 6

The French Financial Institutions Litigation & Regulation Update is a periodic newsletter featuring the latest news in the financial services field in France.

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French Law is Adjusted to Accommodate the Single Supervisory Mechanism

On November 7, 2014, the French government issued Ordinance (a government act having the force of a legislative action) no. 2014-1332 to accommodate French law to the Single Supervisory Mechanism. New provisions cover the new supervisory responsibilities of the European Central Bank (ECB) over both directly supervised banks and indirectly supervised banks and the cooperation framework between the ACPR and the ECB.

New provisions have taken immediate effect. 

Secondary Legislation Clarifies Scope of AIFM Directive With Respect to Securitization Vehicles

In line with the AIFM Directive, French law excludes securitization vehicles from provisions applicable to Alternative Investment Funds (AIFs). However, French authorities deemed it necessary to prevent situations where a fund would take the form of a securitization vehicle for the sole purpose of circumventing the application of the AIFM Directive.

To such effect, secondary legislation (Decree no. 2014-1366 issued on November 14, 2014) clarifies the circumstances in which the AIFM Directive does and does not apply to securitization vehicles.

Broadly, the AIFM Directive is applicable to securitization vehicles meeting the following two criteria:


  • The vehicles are directly or indirectly exposed, by more than 50 percent of their assets, to risks taking the form of financial securities or any other asset that does not represent an exposure to an insurance or credit risk; and
  • The manager should exert some discretion in the management of such assets. Importantly, discretionary management does not include situations where the management company is bound by conditions or eligibility criteria set out in the fund's constitutional documents or where management decisions have purposes other than generating gains over the initial purchase price and, with respect to derivatives, obtaining the payment of the outstanding amount to the benefit of the securitization vehicles.

In addition, in all circumstances, some securitization vehicles will not be subject to the AIFM Directive, such as so-called "Fonds de prêts à l'économie" (i.e., a type of fund eligible for investment by French insurance companies) or securitization vehicles conducting securitization as defined in the capital requirements regulation ("CRR"–Regulation (EU) No 575/2013).

The decree takes immediate effect with respect to new securitization vehicles and applies to existing securitization vehicles as soon as their constitutional documents are revised in order to substantially amend their investment strategy.

Secondary Legislation Aligns Record Date with Settlement Date

We had previously discussed the reduction of the delivery settlement cycle applicable to securities admitted on Euronext Paris and Alternext Paris with effect from October 6, 2014. Such change required advancing the record date, so that both the settlement date and the record date occur on T+2 (as opposed to T+3 under previous rules). Decree no. 2014-1466 issued on December 8, 2014 was issued to this effect.

The decree is due to take effect on January 1, 2015.

Secondary Legislation Completes Implementation of CRD IV

An impressive number of decrees and orders (arrêtés) were adopted in November 2014 to complete the implementation of CRD IV and CRR:


  • Decrees no. 2014-1315 and no. 2014-1316 of November 3, 2014 relating to adjustments of French law to EU law in the areas of finance and financing companies;
  • Decree no. 2014-1357 relating to supervision of competence and good repute requirements applicable to managers and members of the management body of insurance undertakings, credit institutions, financing companies, investment firms other than asset managers, holding financial companies, mixed financial holding companies, and parent companies of financing companies;
  • Order of November 3, 2014 relating to the supplementary supervision of financial conglomerates;
  • Order of November 3, 2014 relating to the internal control of banking sector companies, payment services, and investment services subject to ACPR supervision;
  • Order of November 3, 2014 relating to the process of identification, measurement, management, and supervision of liquidity risk;
  • Order of November 3, 2014 relating to authorization of credit institutions, financing companies, payment institutions, and electronic money institutions;
  • Order of November 3, 2014 relating to capital buffers applicable to banking service providers and investment firms other than asset managers;
  • Order of November 3, 2014 relating to prudential supervision on a consolidated basis, repealing Regulation 2000-03 of September 6, 2000, relating to prudential supervision on a consolidated basis; and
  • Order of November 3, 2014 relating to the process of prudential supervision and risk assessment for banking service providers.

All such secondary legislation takes immediate effect for the most part, with the exception of Decree no. 2014-1357 that takes effect on January 1, 2015.


Financial Regulator Advocates a Strategy for Financial Services in Europe

On December 10, 2014, the AMF published a new booklet entitled: "Europe 2014-2019—Targeting convergence and growth." In this document, the AMF recommends that the European Union focus on several key priorities, including: ensuring consistent implementation and pursuing efforts to harmonize regulatory frameworks within the EU, developing measures to foster sustainable growth and sharpen EU competitiveness, and taking action to finance the real economy. In order to achieve these goals, 18 measures are presented by the AMF in this document. These measures tackle numerous issues such as shadow banking, securitization, SMEs' and mid-tier firms' access to nonbank financing, etc.


Securities Regulator Updates Investigation Charter and Inspection Charter

Law no. 2013-672 of July 26, 2013 on the Separation and Regulation of Banking Activities provided for a number of amendments relating to the AMF enforcement procedure. To this effect, the AMF has updated its charters relating to investigation procedures and inspection procedures. Amendments relate mostly to the alignment of powers conferred on inspectors regarding requests for documents and hearings those of investigators. In addition, a controversial addition of the legislation related to the use by investigators and inspectors of an assumed identity to proceed with investigations. The charters provide for requirements applicable to investigators and inspectors when making use of an undisclosed assumed identity.

Insurance Regulator Enforcement Committee Sanctions Insurer for Failures with Respect to Processing of Unclaimed Life Insurance Contracts

A previous issue of the Update reported that an insurance undertaking had been fined EUR 10 million by the Enforcement Committee of the ACPR for failure with respect to processing of unclaimed life insurance settlements, and that more sanctions were to be expected. On October 31, 2014, another insurer was fined EUR 40 million for similar failures with respect to the backlog of contracts where policyholders died prior to the 2007 legislation, which required insurers to identify and trace beneficiaries in order to pay the amounts due to them. Grounds for sanction included failure to identify deceased policyholders, failure to search for beneficiaries, and failure to set up the list of unsettled contracts. In determining the amount of the fine, the Enforcement Committee took into account the fact that the insurer kept the unsettled amounts and the ensuing damage to beneficiaries, as well as the negative impact on policyholders' trust in life insurance contracts. The Enforcement Committee also took into account the steps taken by the insurer to remedy the failings with respect to the backlog of unclaimed settlements dating back prior to 2007, which should result in the remaining files being settled by December 31, 2015.


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Philippe Goutay

Anselme Mialon

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