French Financial Institutions Litigation & Regulation Update, Issue 10
LEGISLATION AND REGULATION
Stricter Payment Limits to Come into Force with Respect to Cash and Electronic Money
As from September 1, 2015, individuals and legal entities domiciled in France for tax purposes or acting for nonprofessional purposes will be prohibited from making payments in excess of EUR 1,000 by way of cash or electronic money. The current payment limit set at EUR 3,000 has been lowered by Decree no. 2015-741 of June 24, 2015.
Individuals and legal entities domiciled outside France for tax purposes and acting for nonprofessional purposes are prohibited from making payments in excess of EUR 15,000 by way of cash or electronic money. The threshold has been left unchanged.
Both payment limits apply to cash and electronic money (i.e., broadly prepaid cards), whether or not the electronic money devices have given rise to customer identification. The change of legislation was presented by the French ministry of finance as a means of curbing anonymous payments that are perceived to facilitate money laundering or terrorism.
POSITIONS AND GUIDANCE FROM AUTHORITIES
Securities Regulator Updates Its Position on Discretionary Portfolio Management
On July 16, 2015, the AMF updated its position on professional obligations toward retail clients with regard to discretionary portfolio management (DOC-2007-21). The updates focus on mandates invested in unlisted securities.
The purpose of the update is to increase transparency for retail clients and to facilitate comparability between the offers for mandates, especially mandates invested in unlisted securities presented as a means of financing SMEs in exchange for an advantageous tax allowance.
The AMF recommends aligning fee presentation with that of private equity funds, in the form of average annual fees, detailing the various categories of fees (subscription fees, management fees, indirect management fees) and indicating the maximum duration beyond which the agent can no longer deduct fees or distribution commissions. Additional rules apply when the agent is likely to deduct fees on the underlying companies in exchange for an effective service; the rate of indirect fees borne by the principal cannot be shown as 0 percent.
Securities Regulator Updates Its Position on the Use of Fund Performance Swaps
The AMF updated its position on fund performance swaps on July 23, 2015.
The position highlights many elements specifically applicable to the use of these types of swaps by funds; the document thus details the principle characteristics applicable to these swaps, by establishing the investment and eligibility rules and the best execution rules, as well as setting the norms regarding valuation. It then addresses the level of autonomy and avoidance of conflicts of interest required of the investment managers at the head fund level as well as the target fund level, and lists a series of rules regarding changes in the target assets in the case of funds structured on actively managed baskets of assets and on passively managed baskets of assets.
Finally, the AMF gives a list of items that must be contained in the prospectus of funds seeking to enter into such fund performance swaps.
Securities regulator Endorses ESMA Guidelines on Definition of "Commodity Derivatives" Under MIFID
The AMF published a position DOC-2015-07 on July 17, 2015, stating that it endorses ESMA Guidelines 2015/676 on the definition of "commodity derivatives" listed in Sections C6 and C7 of Annex I to Directive 2004/39/EC.
Securities Regulator Updates Its Position on the Marketing of UCITS and AIFS
The AMF updated its previous position (DOC-2014-05) on the marketing in France of shares or units of UCITS and AIFs on June 26, 2015.
The update is only minimal and considers cases of fund marketing without a passport introduced by the AIFMD and provides details on the appointment of centralizing correspondents.
ENFORCEMENT
Ruling from the French Cour De Cassation on the Definition of "Inside Information"
In a high-profile case involving a company using total return swaps to acquire a significant stake in another company, the acquiring company and its chairman were fined EUR 1.5 million by the Enforcement Committee of the AMF on December 16, 2010. The AMF accused the company of failing to make public the principal characteristics of the financial operation designed to enable the company to acquire that shareholding, and of failing to make public the inside information as to the implementation of that financial operation.
On May 31, 2012, the Paris Court of Appeal substantially confirmed the decision from the Enforcement Committee of the AMF, and an appeal was then lodged before the French Cour de Cassation in 2013. The appeal sought clarification from the EU Court of Justice on whether the qualification of inside information—information of a precise nature, nonpublic, and likely to have a significant effect on the prices of financial instruments—requires the holder of inside information to be able to anticipate the direction of change in price (that is, whether it is likely to bring about an increase or a decrease in the relevant price).
On March 11, 2015, the EU Court of Justice ruled that the information is deemed precise even if the direction of a change in price of the financial instruments concerned may not be anticipated. Relying on this decision, the Cour de Cassation ruled against the company and its chairman on May 27, 2015.
French Court Extends Scope of Prohibition of Double Jeopardy
As previously reported, recent case law from the European Court of Human Rights and subsequently endorsed by the French Conseil Constitutionnel results in prohibiting the dual enforcement of market abuses both by the enforcement body of the securities regulator and criminal courts. The scope of this case law was uncertain, however.
On February 25, 2010, a EUR 300,000 fine was imposed on a company, and its chairman recived a EUR 100,000 fine for failure to make relevant disclosures upon reaching statutory thresholds. Because the failure to notify the crossing of a shareholding threshold also carries criminal sanctions, the company was tried in a Criminal Court.
Before the Criminal Court, the company and its chairman invoked the earlier ruling from the Conseil Constitutionnel whereby the provisions setting forth both criminal prosecution and administrative prosecution for market abuse offenses breach the French constitution.
The Criminal Court decided on June 18, 2015 in favor of the company and its chairman, stating that all the criteria established in the earlier ruling were applicable to the case at hand. The civil party has filed an appeal against the judgment of the Criminal Court.
Banking Regulator's Enforcement Committee Sanctions Brokerage Firm for Gathering and Providing Insufficient Information as to Clients and Products Offered
On July 20, 2015, the Enforcement Committee of the Autorité de contrôle prudentiel et de résolution brought disciplinary measures against a French insurance brokerage firm.
The Enforcement Committee sanctioned the firm for failing to gather sufficient information regarding the financial knowledge, capacity, and experience of its potential clients pursuant to paragraph III of Article L. 520-1 and Article L. 132-27-1 of the French Insurance Code. The client discovery document contained only one self-questionnaire regarding its financial knowledge, as well as a single question concerning its risk aversion, which were drafted in broad, nondefined, and virtually unusable terms. The Committee also sanctioned the firm for failing to provide proper information documents to its clients pursuant to Article L. 520-1 of the Insurance Code, as the documents were not tailored to the complexity of the proposed insurance contracts and used impersonal, generic formulations in the descriptions of their characteristics.
LAWYER CONTACTS
For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com.
Philippe Goutay
Paris
+33.1.56.59.46.58
pgoutay@jonesday.com
Anselme Mialon
Paris
+33.1.56.59.39.39
amialon@jonesday.com
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