French Financial Institutions Litigation & Regulation Update, #12
Welcome to the 12th edition of the French Financial Institutions Litigation & Regulation Update of the Paris Office of Jones Day.
With our best wishes for a Happy New Year!
LEGISLATION AND REGULATION
IMPLEMENTATION OF REVISED TRANSPARENCY DIRECTIVE INTO FRENCH LAW IS FINALIZED
Ordinance no. 2015-1576 of December 3, 2015 implemented the Revised Transparency Directive (Directive 2013/50/EU) into French law.
Among others, the Ordinance strengthens disclosure requirements imposed on major shareholdings. In particular, it aligns the rules for computation of thresholds on the rules set by the Revised Transparency Directive, assimilating the holding of physically settled financial contracts to the actual holding of shares. It also reinforces applicable sanctions for breaches of the disclosure requirements. The French securities regulator (the AMF) may now impose on offenders a monetary sanction of up to EUR 100 million, 5 percent of the total turnover, or the equivalent of 10 times the amount of the benefit derived from the transparency breach.
POST-MARKET RULES ARE AMENDED FURTHER TO THE EUROPEAN CENTRAL SECURITIES DEPOSITARIES REGULATION
Ordinance no. 2015-1686 of December 17, 2015 amended rules applicable to central securities depositories further to Regulation EU no. 909/2014. In particular, the Ordinance adjusted powers of the French securities regulator and the French central bank over central securities depositories. Some exceptions are added to rules governing the transfer of ownership in financial securities. Additional categories of entities may also become members of central securities depositories or clearing houses.
LEGISLATION AUTHORIZES PROFESSIONAL INVESTMENT FUNDS TO GRANT LOANS FURTHER TO ELTIF REGULATION
Law no. 2015-1786 of December 29, 2015 authorizes certain professional investment funds to grant loans further to the European ELTIF regulation (Regulation no. 2015/760 of April 29, 2015 on European long-term investment funds). Secondary legislation on this issue remains outstanding.
DRAFT LAW ANTICIPATES MOBILE-PAYMENT EXEMPTIONS OF REVISED PAYMENT SERVICES DIRECTIVE
A draft law known as the Digital Republic bill anticipates some provisions arising from the recently revised Payment Services Directive (Directive no. 2015/2366 of November 25, 2015). In particular, the bill anticipates provisions of the revised directive exempting mobile payment activities from licensing requirement. Providers of electronic communications networks or services such as telephone companies would be allowed to perform payment transactions for the purchase of digital content, for donations to charities, or for payment transactions without being licensed. These exemptions would be available only where the transactions are charged to the related invoice, the value of any single payment transaction does not exceed EUR 50, and the cumulative value of payment transactions does not exceed EUR 300 in any invoicing month. Undertakings wishing to rely on these exemptions will need to send a prior notification to the French Prudential Supervisory Authority (Autorité de contrôle prudentiel et de résolution).
The draft is being currently discussed by parliament.
ORDER IMPLEMENTS DIRECTIVE ON DEPOSIT GUARANTEE SCHEME
An order dated October 27, 2015 on the financial resources of the French Deposit Guarantee Scheme implemented some of the requirements of Directive 2014/49/EU on the Deposit Guarantee Scheme. It specifies the form of contributions accepted by the Deposit Guarantee Scheme and the conditions and limits under which participation in the Deposit Guarantee Scheme may not be provided.
MINISTRY OF FINANCE PROPOSES TO CHANGE RANKING OF CREDITORS TO CREDIT INSTITUTIONS UNDER LIQUIDATION OR RESOLUTION
On December 27, 2015, the French Ministry of Finance published a legislative proposal introducing a new class of debt that may be issued by credit institutions. The legislative change, if enacted, would allow credit institutions to issue a new class of debt securities.
Broadly, the new class of debt securities would rank as follows in the case of liquidation or resolution of the credit institution that issued it:
- below guaranteed deposits, deposits of individuals and small or medium-sized enterprises in excess of the guaranteed deposits, or which would have been eligible if they had not been made with a non-European branch, corporate deposits, derivative unsecured liabilities, structured notes, and certain senior debt; and
- above shareholders' equity and subordinated debt.
Only unstructured securities with an initial maturity of more than one year would qualify.
The revised ranking, which would require some secondary legislation, would apply only after the entry into force of the legislative change.
POSITIONS AND GUIDANCE FROM AUTHORITIES
SECURITIES REGULATOR RULEBOOK HAS BEEN ADAPTED TO THE REVISED TRANSPARENCY DIRECTIVE
After a first series of provisions was approved in September 2015, the second phase of changes in the general regulations of the French securities regulator aligning them with the Revised Transparences Directive was approved on December 3, 2015.
Among other things, this second phase adjusts rules relating to the disclosure of thresholds and reflects the positions adopted by the European Securities and Markets Authority.
FRENCH FINANCE MINISTER ANNOUNCES STRENGTHENING OF AML MEASURES
On November 23, 2015, the French Finance Minister announced a series of initiatives to improve the tracking of terrorism financing, including a revamped supervision of prepaid bank cards.
The terms of this reinforcement are expected to be specified by way of secondary legislation in the first quarter of 2016.
Among the other measures announced, agents from the department of the French Ministry for Economy and Finance in charge of the fight against money laundering and terrorist financing (TRACFIN) may directly consult the file of wanted persons in order to work in real-time on the financial environment of the suspects.
France intends to reinforce the measures to freeze the assets of both natural and legal persons who are found guilty of committing, or attempting to commit, terrorist acts.
SECURITIES REGULATOR UPDATES POSITION ON MARKET TIMING AND LATE TRADING
On November 3, 2015, the AMF updated its position applicable to investment funds relating to trading practices known as market timing and late trading.
The AMF states that management companies must ensure at the internal control level that the staff which has knowledge of the asset mix of the fund does not itself conduct, or permit to be conducted, any operation of market timing or late trading on the basis of the information that it has.
SECURITIES REGULATOR ENFORCEMENT COMMITTEE ISSUES SIGNIFICANT SANCTION AGAINST MARKET AND MEMBER MARKET OPERATOR
On December 4, 2015, the Enforcement Committee of the AMF issued a penalty of EUR 5 million against both a market member and a market operator.
The market member was found to have very rapidly placed and cancelled orders in a number of securities, which the Enforcement Committee alleged distorted the representation of the order books for market participants and qualifies as market manipulation. During the relevant time, the Enforcement Committee noted an extremely high volume of messages relative to the number of trades actually undertaken and a very short life span of orders relative to comparable practices by other operators active in the market at the time. While issuing the sanction, the Enforcement Committee stated that the member's trading strategy in itself and its status as a high-frequency trader were not being criticized per se.
The Enforcement Committee further alleged that the market operator allowed the market member's violation by exempting the firm from its maximum permitted daily ratio of orders placed to number of trades of 100 to one at the time. In giving this exemption, the Enforcement Committee alleged that the market operator had enabled the member to implement a trading strategy that could give rise to a disorderly market. As a result, the Enforcement Committee found that the market operator did not operate with neutrality and impartiality in accordance with market integrity.
Both the market member and the market operator stated that they would appeal.
SECURITIES REGULATOR ENFORCEMENT COMMITTEE SANCTIONS INVESTMENT FIRM FOR FAILING TO REPORT TRANSACTIONS
On January 11, 2016, the Enforcement Committee of the AMF issued a penalty of EUR 2 million against an investment firm for allegedly failing to report transactions, directly or via its agent, and for failing to establish and maintain an operational transaction reporting scheme adapted to the reporting obligations.
Some of the transactions had been reported by an agent of the investment firm. The decision suggests that the AMF questioned whether the agent qualified as an order matching or reporting system that met the conditions set out by the AMF, meaning that the transactions should have been reported by the investment firm. Conversely, where an order matching or reporting system reports transactions for an investment firm, the investment firm does not need to report the transactions and consequently cannot be held liable for potential anomalies in the reporting made by the system.
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