LEGISLATION AND REGULATION
Provisions Applying to French Branches of Non-EU Credit Institutions Are Revised
Pursuant to Article 47(1) of CRD IV, Ordinance no. 2015-558
dated May, 21, 2015 amended with immediate effect the provisions
applying to French branches of non-EU credit institutions.
The Ordinance deals with the authorization, regulatory capital
requirements, and governance of branches of non-EU credit
institutions. For each of these issues, the authorization or the
exoneration from otherwise applicable requirements is contingent on
the demonstration that the regulation or the supervision of the
home country of the credit institution is deemed to be equivalent
to French regulations.
In addition, non-EU credit institutions wishing to set up a branch
in France will need to demonstrate that the credit institution will
carry out supervisory duties over the local branch that are
equivalent to the supervisory duties that French law requires from
the board of directors and the general assembly over a French
credit institution. Local branches that have already been
authorized under former rules have an 18-month period to certify
that the credit institution carries out supervisory duties over the
local branch that are equivalent to the supervisory duties that
French law requires from the board of directors and the general
assembly over a French credit institution.
The Ordinance will be further discussed in a Commentary to be
published shortly.
Secondary Legislation Completes Implementation of Solvency II
As previously reported, the implementation of Solvency II into French law (applicable as from January 1, 2016) started with Ordinance no. 2015-378 of April 2, 2015. Decree no. 2015-513 of May 7, 2015 and an Order of May 7, 2015 continue the implementation exercise. Among the many issues addressed, the list of assets and investments eligible as a cover for insurers' regulated commitments currently set out in the French insurance code will, from January 1, 2016, apply only to insurers that do not meet the criteria of size, activity, or group affiliation provided under Solvency II. Investment restrictions provided by Solvency II will apply to other insurers.
Secondary Legislation Further Adjusts French Law to the Single Supervision Mechanism
As previously reported, the Single Supervision Mechanism took
effect in France in November 2014, meaning that since this date,
the European central Bank ("ECB") has directly supervised
significant credit institutions while less significant entities
continue to be supervised directly by the local Autorité de
Contrôle Prudentiel et de Résolution
("ACPR"), with the ECB having a number of direct
supervisory powers.
Decree no. 2015-564 of May 20, 2015 sets out cooperation
mechanisms between the ECB and the ACPR in respect of
authorizations to be granted or withdrawn or the applications made
by those who wish to acquire a qualifying holding in a credit
institution.
POSITIONS AND GUIDANCE FROM AUTHORITIES
Position Limits and Reporting on Commodity Derivatives to Take Effect Next Month
Beyond providing for a French regime of banking separation,
French Law no. 2013-672 of July 26, 2013 had sought to anticipate
MiFID 2 on a number of issues. Among such issues, starting from
July 1, 2015, the Autorité des Marchés Financiers
("AMF") will be empowered to impose position limits on
commodity derivatives traded on a French regulated market and CCP
cleared.
To such effect, the AMF Rulebook was amended through an order of
May, 5, 2015. The AMF also issued an instruction (DOC-2015-04)
dated May 22, 2015 setting out the positions limits regarding each
type of agricultural commodity, the positions reporting, and the
reporting publication.
The new regulation provides that a person cannot build a long or
short position on agricultural commodity derivatives exceeding the
limits imposed by the AMF subject to some exemption in certain
circumstances. Please note that these requirements will likely need
to be adjusted by 2017 when MiFID 2 enters into force.
ENFORCEMENT
Members of the Securities Regulator and the Enforcement Committee Issue Proposals on Dual Enforcement of Market Abuses
As previously reported, recent case law requires amending rules
providing for the dual enforcement of market abuses both by the
enforcement body of the securities regulator and criminal
courts.
To this effect, a number of representatives from both the
securities regulator and the enforcement body of the securities
regulator issued proposals on amendments of the law on May 19,
2015. The report notes that cases where a market abuse has been
sanctioned both administratively and criminally are relatively
unusual (only 17 have been recorded over the last 10 years).
The report then considers the various options at hand to conform
French law. The enforcement of market abuses is regulated by
European legislation, including the recast Market Abuse Directive,
which requires the market abuses to be criminally punished.
Deletion of criminal punishment has therefore not been considered
an option, and depriving the enforcement committee of its
jurisdiction to punish market abuses was not considered
appropriate.
Instead, the report proposes that the authority contemplating
initiating proceedings should be required to notify the other
authority of its intent. This notification would then open a
two-month period during which neither authority may take action,
such period being designed to find an optimal allocation of matters
between the criminal authority and the securities regulator. At the
end of this two-month period, three options will be available: (i)
where both authorities agree that the conditions applicable to the
crime are met, the criminal authority will pursue proceedings and
the securities regulator will abstain from proceedings; (ii) where
both authorities agree that the conditions applicable to the crime
are not met, the securities regulator will pursue proceedings; and
(iii) where the two authorities have not been able to reach an
agreement (i.e., think they are each authorized to pursue their own
proceedings, which should be very rare), the report proposes that
either only the faster authority should initiate proceedings or
that a joint committee should discuss which of the two proceedings
to pursue.
Court Finds Swap Agreement and Underlying Lease Agreement Are Not Severable
In a decision dated January 20, 2015, the Paris Court of Appeal
confirmed an earlier decision held by a lower court in a case
involving a floating rate lease agreement and a swap
contract.
Both agreements were proposed by the same bank. The swap agreement
was designed to cover the interest rate risk arising from the
floating rate lease agreement.
The borrower agreed to both agreements and proceeded with the
performance of the swap agreement. The borrower had given its
preliminary consent to the agreement but never gave the required
notarized consent.
The borrower then refused to make the payments due under the swap
agreement on the ground that the swap agreement was null and void
due to the absence of consideration (cause) as a result of the
invalidity of the lease agreement. The bank required performance of
the swap agreement on the ground that the swap agreement was
severable from the lease agreement.
On these two issues, the Paris Court of Appeal confirmed the
decision held by the lower court. The Court of Appeal confirmed
that the requirement for the swap agreement to have proper
consideration (cause) is to be assessed at the time of entry into
that the swap agreement. At the time of entry into the swap
agreement, consideration did exist due to the existence of the
lease agreement. The Paris Court of Appeal further confirmed that
the swap agreement was not severable from the lease agreement; the
lower court rightly noted that the borrower was offered the choice
between a fixed rate lease and a floating rate lease, and in the
latter case, a swap agreement was offered and agreed to and the
notional amount of the swap agreement was the same as the amount
due under the lease. As a result of the two agreements not being
severable, the swap agreement became invalid like the lease
agreement.
Securities and Banking Regulators Review Online Marketing of Financial Products
The Joint Unit of the ACPR and the AMF has published its yearly report focusing on the distance marketing of financial products. The result of the controls conducted by the Joint Unit reveals heterogeneous practices. This has prompted the Joint Unit to set up a working group covering the assessment of the profile of the customer, the adequacy/appropriateness test, the obligations of advice, the conditions for opening an account, and the processes for marketing financial product and executing orders.
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