This action might not be possible to undo. Are you sure you want to continue?
2|The Regulation of Financial Services in France
INTRODUCTION Investment banking in Europe originated in France. France was one of the first countries to undertake major over-hauls of their postwar modes of financial sector regulation in the !"#$s and mid-!"%$s&' it being one of the most interventionist. France is among the few countries that have retained multiple' autonomous regulators with differentiated functions and an important regulator( role for their central banks. In France' selective credit regulation' consisting mostl( of selective credit rediscounting' was instituted in the !")$s and !"*$s precisel( as a wa( of reconciling the preference of governments for a loose credit polic( with the imperatives of currenc( convertibilit(. These changes were accompanied b( the attribution of new supervisor( powers over the banking sector to the national central bank and b( introduction of new institutions to regulate securities markets. +t that point in time' France had state-directed credit s(stems and limited capital markets. In the earl( !"#$s' France was amongst the least liberali,ed. France-s relativel( earl( move to overhaul its financial s(stem might have been accounted for b( the fact that France started out with a highl( .repressed/ financial s(stem' and hence' presumabl( faced greater market pressures. The decision to abandon selective credit regulation was made onl( after !"%0' when elected authorities decided that austerit( would be unavoidable. + s(stem of multiplicit( of regulator( agencies with responsibilities for supervision of the financial s(stem was introduced. In France' a new securities regulator the 1onseil des 2arch3s Financiers 12F& was created in !""# and later merged with the 1ommission des 4p3rations de 5ourse 145' the French Securities and E6change 1ommission' created in !"*#& to form 78+utorit3 des 2arch3s Financiers +2F&' the stock market regulator in France' in 9$$0. The +2F has the full powers of a securities regulator and has been given a legal personalit( distinct from the state' unlike France-s other administrative authorities. The 5an:ue de France the 1entral 5ank of France& still retains the lead in banking regulations through its oversight of the 5anking 1ommission.
=owever' for a variet( of reasons it has undergone substantial changes ever since' particularl( in the course of the last few (ears. 7arge-scale ac:uisitions and takeovers took place' concluding in a full-scale reorgani. 5anks had to face strong competition which resulted in substantial changes in the industr(' all the more so' since overdue reforms had also been dela(ed as a conse:uence of state-control. Furthermore' in !"%#' under the 1hirac government' several major banks were privati.p until thirt( (ears ago' the French banking industr( was e6tremel( regulated and divided< the French State was still ver( much in control. +s of !"""' the savings banks 1aisse d-3pargne& assumed the status of co-operative banks' now on a par with 1r3dit +gricole'the largest retail banking group in France' and in 9$$9' mutual banks became members of the French 5anking +ssociation F3d3ration 5ancaire fran?aise or F5F&.ation of the banking sector in France. . Finall(' newl( privatised banks had to face a most troubled economic trend. This denationali. French banks' which still ranked in !""# between !$!st and 9>$th in the world profitabilit( league tables' had made substantial progress b( the end of the crisis. +fter a pause' the privatisation process resumed in. @ue to their strength in retail banking' the( found themselves more able to keep up a proper level of profitabilit( than a number of foreign banks' despite the increasing risks. Indeed' the globalisation of financial services within Europe' which took place between !""0 and !"""' at the initiative of the European 1ommission' and the creation of the European single currenc( at the beginning of 9$$9' French banks have been faced with growing competition from foreign banks.ation process came to an end in 9$$!. @uring the nineties' the French econom( met with a substantial recession in !""0 and the propert( market was also seriousl( disrupted during that period. +s a conse:uence of credit liberalisation' all these institutions entered into competition on their domestic market' under e:ual terms' with practicall( no restriction at all.ed. First' the banking law of !"%>' which placed all banks' whatever their status under the same set of rules' was the starting point of a succession of moves that effectivel( abolished credit specialisation' and which led to the deregulation of the banking s(stem.3|The Regulation of Financial Services in France . 1onse:uentl(' the major financial crisis' which reached its peak in !""#-!""%' hit the major pla(ers severel(.
4|The Regulation of Financial Services in France PRESENT DAY The French universal banks predominantl( rel( on retail banking' including specialised finance' which accounts for nearl( two thirds of net banking income and provide stead( revenues as well as a stable funding basis. The ke( macro-relevant findings of the I2F-s latest Financial S(stem Stabilit( +ssessment FSS+& for France came up with the following findingsB . + reform of the banking structures should not hamper those positive e6ternalities while a sensible and reasonable separation of risk( activities ma( contribute to anticipating and facilitating resolution in cases of stress. The aim of the new segregation regime is thus building closel( on the e6perience of these past (ears' to stave off growth of volatile proprietar( trading revenues in a ne6t c(cle. The French banking and financial s(stem is widel( open to foreign-owned institutions. The universal banking model has indeed some s(nergies and economies of scale to offer. +ll in all' French clients A corporations as well as households A benefit from a banking s(stem that provides a broad range of several financial services. +t the end of 9$!!' France counted !") credit institutions under foreign control !0# banks' )# financial corporations and ! specialised financial institution&' ** investment firms and ## representative offices. 1orporate finance' investment banking and asset management contributions make up for the rest and are well balanced. In France' it is onl( the securities markets that have seen significant institutional change among French regulator( institutions since the banking and stock e6change reforms of the eighties. + universal banking group is able to appropriatel( diversif( its risks portfolio between business lines and products and is therefore able to mitigate a negative shock that ma( affect one of its activities. @rawing the lessons from the financial crisis' French banks have alread( massivel( reduced' and often closed' their pure proprietar( trading activities.
The( remain' however' vulnerable to sustained disruptions in funding markets and reduced profitabilit(' which would cause dela(s in meeting capital-raising plans. France-s financial s(stem is large' sophisticated' and integrated both verticall( and internationall(. Chile its structure has contributed to solid profit generation' the crisis e6posed the risks posed b( the banks. The larger banks have been activel( restructuring their balance sheetsDmoving to more stable sources of funding< reducing their cross-border presence< and building up capital. It is dominated b( five banking groups that are regionall( and globall( s(stemic and among the largest in the world' and of which four have been identified as global s(stemicall( important banks G-SI5s&. Fonetheless' disclosure of financial sector data falls short of best international practice and enhancements would be highl( desirable. France has one of the largest insurance markets in the world< the second largest mutual fund industr( in Europe after 7u6embourg in terms of the number of funds and the first in Europe in terms of the number of management companies&< and well developed securities markets and infrastructures that are full( integrated into Europe. 2arket discipline would benefit from the publication of regular and comparable data on an institution-b(-institution basis' as well as detailed official anal(ses of financial sector developments in France.5|The Regulation of Financial Services in France • France-s financial s(stem has shown resilience to severe market pressures but faces challenges. +reas for improvement include greater de jure independence of supervisor( authorities< disclosure of the capital treatment and related financial interactions within comple6 banking groups< a move toward a more economic risk-focused approach to insurance regulation and supervision< and enhanced supervision of investment service providers and financial advisors. . French banks are among the largest counterparties in international e:uit( derivatives markets. • The regulator( and supervisor( regime for banks' insurance and securities markets' and market infrastructures is of a ver( high standard. Total assets of the s(stem amounted to H!$ trillion at end-9$!!' or five times France-s G@E.si. • French banks' and listed companies more generall(' make e6tensive public financial disclosures under IFRS' and as a result of bank regulations Eillar III of 5asel II&.e' comple6it(' and dependence on wholesale funding.
@eleveraging plans were announced b( the five largest banks in mid-9$!!' which focused primaril( on disposing of noncore' dollar-funded international assets. @omestic credit activit( was largel( maintained and continues to grow' albeit at declining rates owing to slower demand for bank loans.e6pansion into international corporate and investment banking 1I5& and derivatives products' funded in the wholesale market' and a more limited international retail e6pansion' particularl( in high-(ield Euro area countries.ed assets fed perceptions of counterpart( risk' contributing to funding problems. The solvenc( and li:uidit( situation of French banks has since improved' although dependence on wholesale funding remains a ke( risk. In the aftermath of the crisis. +s a result' the large French banks are in the midst of significant balance sheet adjustments . 2ost importantl(B . @espite large losses' most banks were able to maintain net profits thanks to solid earnings from traditional domestic retail banking. the French authorities took a number of steps to strengthen their oversight framework . Chen the global financial crisis hit in 9$$%' margins from domestic retail activit( and asset-gathering operations covered losses on 1I5 activities' helping French banks weather the turmoil. The large banks came under significant funding pressures as interbank and foreign e6change markets sei. 5ut with the worsening of the European sovereign debt crisis in 9$!!' market perceptions of French banks deteriorated sharpl( due to high leverage and reliance on wholesale funding' high e6posure to potential losses in high-(ield Euro area countries' and capital levels below the international average. Reliance on wholesale funding and e6posures to securiti.ed' necessitating polic( actions. Rapid balance sheet growth during the second half of the 9$$$s was driven b( the banks. @isposal of remaining legac( assets from the first phase of the crisis also accelerated to free up regulator( capital.6|The Regulation of Financial Services in France 5efore the crisis' the French financial s(stem created a robust income generating capacit(' but also became more vulnerable to shocks.
ations.meetings e6cept deliberative meetings for sanctions&. +1E-s statutor( objectives are to maintain financial stabilit( through supervision of banking and insurance risks' to provide protection for bank customers' and insurance polic(holders and beneficiaries' and to supervise consumer protection' a responsibilit( that was not held b( either of the predecessor organi. The .7|The Regulation of Financial Services in France I The Autorité de Contrôle Prudentiel +1E&' attached to 5an:ue de France' was established' bringing together responsibilit( for prudential supervision of banks' insurers' investment firms and market infrastructure providers' and a new mandate for consumer protection< and I The Conseil de égulation Financi!re et du is"ue #$stémi"ue 1orefris& was created as an interagenc( cooperation and coordination mechanism on s(stemic risk prevention and management' including in crisis times. Role of the 2inistr( of Finance 2oF& Cithin the 2oF' the @irectorate General of Treasur( @GT& prepares financial sector legislation and regulation e6cept in the securities area&' participates in European and international negotiations' and contributes to the implementation of the regulator( framework' in particular via its attendance with no voting rights& to the +1E' +2F 5oards. To be credible' this authorit( should anchor decision making in anal(ses of financial stabilit( that help shape the knowledge and e6pectations of market participants and the general public.nion and wider international negotiations such as the 5asel 1ommittee for 5anking Supervision' and supports the French representatives on the Financial Stabilit( 5oard FS5&. +1E represents France for matters within its jurisdiction' specificall( international prudential regulation in the European . The 2oF representative in +1E and +2F can ask for a second deliberation in certain circumstances e6cept regarding sanctions&. Supervision of banks and insurance companies +1E is responsible for licensing and prudential supervision' including sanctioning powers' of banks and insurance companies. 1orefris is not a decision-making bod(' as each individual authorit( retains responsibilit( to act in its own right.
1ommission-s 9$!! draft proposal< v& a reform of the corporate ta6< and . =01 is in charge of the oversight of e6ternal auditors of public interest entities' which includes issuers as well as companies such as banks and insurance companies. +1E 4versight of securities markets involves +1E and +2F under a twin peaks%t(pe model' and the &aut Conseil du Commissariat au' Comptes =01&. 1oordination between the +1E and the +2F on consumer protection issues In view of shared mandates of +1E and +2F in consumer and investor protection an institutional coordination unit Joint unit .Pôle commun& was established' with no change in the two authorities.8|The Regulation of Financial Services in France +1E General Secretariat operates as a General @irectorate of 5dF. +2F is responsible for market and business conduct supervision of all market participants. +1E performs the prudential supervision of investment services providers and market infrastructure providers' including regulated markets' multilateral trading facilities' and central clearing counterparties 11Es&.respective powers. Fational Financial Reform +genda The agenda put forward in the conte6t of the electoral campaign is being spelt out in more detail b( the government' and is likel( to includeB i& a phased doubling of the ceiling on the (ivret A and (ivret de )éveloppement )urable guaranteed remuneration rate above inflation< ii& the implementation of internationall( agreed standards on banks< iii& a rearrangement of e6isting support programs to S2Es and innovation within a new public financial institution< iv& a broader financial transactions ta6 in line with the E. The unit allows +1E and +2F to alert each other to misselling risks' to e6change views on how to prevent such risks' and to take joint action. It is the prudential supervisor of portfolio management companies and the funds the( administer.
5oard of @irectors' as distinct from senior management. +s a result' the possibilit( of effective earl( intervention and the abilit( to assess whether the 5oard of @irectors of an institution has sound knowledge of the business and risks of a bank is . The onsite process is comprehensive and of high :ualit(' but the necessar( time taken for due process means that there can be a lag in supervisor( recommendations being communicated to the firms. Firstl(' an almost complete lack of a complete legislative framework related to +1E-s powers to regulate the responsibilities of the banks. France has a high level of compliance with the 5asel 1ore Erinciples for Effective 5anking Supervision 51Es&. This weakness' coupled with +1E-s practice of limited direct interaction with the 5oard' has conse:uences in several areas' including the integrit( of the fit-and proper process' the inabilit( of +1E to suspend or dismiss 5oard members individuall( or collectivel(&' and +1E-s inabilit( to set re:uirements for 5oard responsibilities in oversight and risk governance. but two deficiencies could hamper supervisor$ effectiveness. +1E-s supervisor( practices are of a ver( high standard' incorporating man( high-:ualit( processes. *he legislative framework is broadl$ sound. The 1ore Erinciples are used b( countries as a benchmark for assessing the :ualit( of their supervisor( s(stems and for identif(ing future work to be done to achieve a baseline level of sound supervisor( practices.9|The Regulation of Financial Services in France vi&The implementation of structural reforms of the banking sector in liaison with the E. +1E operates an e6tensive' detailed' and in-depth program of onsite inspections and high-:ualit( offsite supervisor( processes that monitors the individual major bank-s financial situation and risk management and control practices on a consolidated basis' building on constructive home-host relationships. +1E should continue to build on recent developments to put in place a more fle6ible' timel(' focused feedback mechanism as a complement to the alread( strong onsite process. timeline' taking into account the recommendations elaborated at the European level b( the 7iikanen =igh-7evel E6pert Group. +1E is at an earl( stage in assessing the :ualit( of risk governance and feeding it into overall assessments' in part hampered b( legal obstacles to interact directl( with 5oards.
This is particularl( the case for bancassurance the sale of insurance and other similar products through a bank& groups and cross-holdings of banks b( certain major internationall( active publicl( traded entities within some major mutual bank groups. The result can be double counting of capital in the relevant banking part of the group' or counting as capital amounts that ma( not be available in the event of need' thus leading to market and investor misunderstanding.The treatment of bank cross-holdings affects the publicl( reported capital of some material internationall( active subsidiaries in the affected groups' but does not affect the consolidated capital position of the groups. This can be e6acerbated because of the comple6it( of the intra-group relations and opacit( in disclosures about how the mutual group operates.). =owever' despite improvements' the current approaches risk confusion for marketplace participants and the authorities should re:uire full and consistent disclosure of the capital treatment in place' and the related financial interactions within comple6 groups. capital rules' fall short of the applicable 5asel standards' particularl( 5asel II. Insurance Regulations .10 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e weakened. Chile +1E can react to an unacceptabl( risk( ac:uisition b( a French bank after the fact' this is not as effective as having approval authorit( e6 ante. Chile capital re:uirements are' in man( wa(s' prudent and appropriate' there are material weaknesses in the definition of capital' and related public reporting vis-K-vis current 5asel IILII. The second legal issue is that +1E does not have the formal power to approve ac:uisitions b( French banks when the target ac:uisition is outside France. Irrespective of legislative change' +1E needs to make more use of direct contact with the 5oard in order to deliver critical supervisor( messages as directl( and clearl( as possible and to ensure that the governance of the bank is appropriate.) re:uirements. This can undermine the effectiveness of +1E-s otherwise rigorous practice of consolidated supervision. Chile capital re:uirements are in man( wa(s prudent and appropriate' there are a few areas where current capital regulations in France' pursuant to E.
. There are robust arrangements for cooperation between the two authorities. Securities Regulation The legal framework is robust and provides +2F and +1E with broad licensing' supervisor(' investigative' and enforcement powers within their respective competencies.ation of the E. insurance companies must hold to reduce the risk of insolvenc(. In 9$!$' France launched +1E +utorite de 1ontrole Erudentiel&' a new banking and insurance regulator( bod(. technical standards before moving to implement Solvenc( II t(pe re:uirements. The current thorough approach to assessing insurer technical provisions and their coverage b( admissible assets' as well as current and likel( future solvenc( of insurers against Solvenc( I solvenc( margin re:uirements' has led to financiall( sound insurers. The authorities have achieved concrete results in the implementation of supervisor( arrangements in the new areas identified in the current I4S14 International 4rganisation of Securities 1ommissions& principles' in particular' those pertaining to the identification and monitoring of emerging and s(stemic risks' although best practices in this area have not (et emerged and guidance from I4S14 is limited. 4ffsite mechanisms are in place and risk-scoring frameworks have been developed for investment services providers b( +1E' and for portfolio management companies b( +2F. The authorities have also established arrangements for the oversight of the French portals of the Few Mork Stock E6change FMSE&' Eurone6t and the various related trading platforms. Solvenc( @irectives are primaril( concerned with the amount of capital that E. France has been waiting for the finali. In addition' +2F has robust market surveillance s(stems and has been active in enforcement of market abuse provisions. The new Solvenc( II regime is based on economic risk and should provide greater incentives for insurers to properl( measure and manage their risks than the current approach.11 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e Insurance regulation and supervision in France is predominantl( carried out using a Solvenc( I approach' though preparations for Solvenc( II are underwa(.
France has in place a comprehensive legal and institutional framework that achieves a high level of compliance with the Financial Action *ask Force +FA*F. It has the +uthorit( to revoke the license of a bank' which can automaticall( start the judicial li:uidation process. =ence' it is a watchdog in the industr(. The regime seems to be largel( in line with the standard for anti-mone( laundering and countering the financing of terrorism +27L1FT& that was in place at the time of the mutual . I The +1E-s crisis preparation' identification' and management processes are comprehensive and well structured. 1risis 2anagement +lread( before the crisis' France had a comprehensive framework for crisis management and bank resolution' which allowed the authorities to deal with problem financial institutions effectivel(' making France one of the least affected nations' particularl( in the European . Cith some e6ceptions' the framework contains the instruments and measures that now constitute international best practicesB I The +1E has available a broad set of powers to initiate or e6ecute resolution with the aim to restructure the institution or ensure its orderl( li:uidation' although no specific resolution framework for financial institutions is in place and the judicial s(stem shall help ensure the fair treatment of owners and other rights. That said' it is widel( believed that the +1E would benefit from a structured framework for .nion. -. The +1E activel( uses the 5asel II Eillar 9 instrument to re:uire add-ons to the minimum regulator( capital re:uirements on an individual bank basis' reflecting the assessed riskiness of a bank.earl( action/ in which supervisor( judgments as well as formal breaches of regulations ma( lead to remedial measures. The( allow proper identification of weak banks and re:uests for appropriate remedial measures to be taken. I The +1E has been given a wide range of remedial and sanctionar( powers.holders and the broader interests' such as financial stabilit(. / 0 ecommendations.12 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e Regarding +1E' a greater use of stronger enforcement measures' including sanctions should be used whenever necessar(' as it would help support moral suasion' and more fre:uent reporting of capital ade:uac( would enhance the +1E supervisor( approach of investment services providers' and' in particular' its earl( warning mechanism.
+ccounting standards for listed companies and other consolidated accounts are prepared to IFRS standards' as adopted b( the European . Supervision of financial institutions is efficient and effective.nion' for :uite some time. 1ustomer due diligence' record keeping' and suspicious transaction reporting re:uirements are largel( compliant with the standard. France has a complete s(stem of business laws that are consistentl( enforced. Ereviousl(' these inspections were done b( the professional bod( under =01-s oversight. =01 has onl( recentl( revised its approach to inspections' so that the bod( itself now inspects audit firms to determine that audits are being conducted consistent with accounting standards applicable in France and French audit standards. This is particularl( relevant as France' like numerous other E.nited Fations conventions' and international cooperation and e6change of information. regulations.ation of mone( laundering and terrorist financing on the basis of . Rules to limit potential threats to auditor independence' such as restrictions on non-audit services an audit firm ma( offer' are tougher in France than in other jurisdictions. Institutional Structure The current regulator( structure is a variation of the twin peaks model. . countries' is working to develop Solvenc( II re:uirements' but as mentioned earlier on' hasn-t taken concrete intermediate steps towards implementing similar re:uirements as (et' especiall( related to risk-management re:uirements for insurers. +uditing standards are generall( consistent with international auditing standards and there is a French audit oversight bod( =01& that inspects audit firms.13 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e evaluation visit in a number of areas' including the criminali. France has a well%developed public infrastructure supporting effective banking supervision. and other supervisor$ re"uirements and practices in place at the time of the assessment. *he assessment is based on the laws.
5ut' now that the SS2 2odel is going to be applicable in less than a (ear' the future of this s(stem hangs in the balance. +1E does not have such powers. In France' +1E is primaril( in charge for the prudential supervision of ISEs and market infrastructure providers' including regulated markets' multilateral trading facilities 2TFs&' and central clearing counterparties 11Es&. 5oth +2F and +1E are governed b( a 5oard' while a separate enforcement committee is in charge of the imposition of sanctions.homologation/ or stamping b( the 2inistr( of Finance 2oF&. 4n the other hand' the +2F is the markets supervisor and is responsible for conduct supervision of all participants in the securities market including ISEs' portfolio management companies E21s&' financial investment advisors FI+s&' and market infrastructure providers' and e6ercises prudential supervision over E21s and the funds the( administer. .ed public entities' issuers' intermediaries' and' in the case of +2F' investors.14 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e The classic twin peaks model' basicall(' promotes two major regulators in the market of an( nation< this is so as to draw clear lines of demarcation between their responsibilities and authorities. To carr( out their respective mandates' +2F and +1E have been given broad licensing' investigation' supervision' and enforcement powers. + third authorit(' the =01' is in charge of the oversight of e6ternal auditors who conduct audits of public interest entities including auditors of listed issuers& and non-public interest entities' but' it is a minor pla(er' hence' the variation. =owever' heLshe has the power to re:uest a second deliberation' i. There are conflict-of-interest provisions in place which seek to address the drawbacks of industr( representation. Chile not being formall( a member' a representative from the 2oF attends the meetings of the 5oards as well as the enforcement committees with no voting rights. Cithin both 5oards' there is representation from different interests' including representatives from speciali.' a second discussion' in decisions taken b( the 5oards' but not b( the enforcement committees. The onl( limitation in powers relates to rulemaking is that +2F has the power to draft its own regulations' which are subject to .e. The composition of the enforcement committees is also built upon the principle of representation of interest of the various market users or participants.
Specific tasks relating to the prudential supervision of credit institutions will be conferred on the E15 according to +rticle !9# *& of the Treat( on the Functioning of the European . +uthori. +2F and +1E prepare annual reports that provide a detailed account of their activities and budget. Their budgets are subject to oversight b( the audit of the 1our des 1omptesLEuropean 1ourt of +uditors E. The E15 will be responsible for the effective and consistent functioning of the single supervisor( mechanism' cooperating with the national competent authorities of participating E. Single supervisor( mechanism SS2& The European 1entral 5ank E15& is preparing to take on new banking supervision tasks as part of a single supervisor( mechanism. It will detect weaknesses earl( on and make sure action is taken to strengthen ailing financial institutions. It is also designed to help break the connection between the member states8 budgets and some of their banks. 5oth regulator( authorities operate under a framework of accountabilit( and transparenc(.nion.15 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e The authori. countries' one of which is France.ation of e6changes remains in the hands of 2oF' based on a recommendation b( +2F.ation re:uirements are established b( law and developed via regulations and are all available on websites. +2F follows a consultation process to develop regulations.-s independent e6ternal auditor&. The main aims of the single supervisor( mechanism will be to ensure the safet( and soundness of the European banking s(stem and to increase financial integration and stabilit( in Europe. . countries. The single supervisor( mechanism aims to create a new s(stem of financial supervision comprising the E15 and the national competent authorities of participating E. Individual decisions must be motivated and are subject to judicial review.
The European 5anking +uthorit( E5+& will be responsible for ensuring effective and consistent implementation of the Nsingle rulebookN for the banking industr(< it will promote consistenc( in supervisor( practice' thus protecting the integrit( of the internal market' and help maintain the stabilit( of the financial s(stem. Reform of the French banking sector In Jul( 9$!0' France adopted a watered down banking reform aimed at preventing a repeat of the 9$$% financial crisis. . . The law' now' also re:uires banks to make public a list of their global subsidiaries and worldwide activities' in a bid to shine a light on ta6 havens and fiscal fraud. The reform also bans high fre:uenc( trading' which was considered to be a major cause of the 9$$% crisis' the controversial practise of having super-computers carries out ultra-fast trades' and commodit( derivatives trading' which is thought to disrupt food prices. 1ontrolling the activities of major European nations will affect' both' the nations and the European . 1ritics of the banking sector have called for banks to be forced to strictl( separate all trading activities from deposit-taking' protecting savers and ta6pa(ers from potentiall( risk( investments. 5ut' despite of all its failings' it has improved certain aspects of the French banking law.16 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e The E15 will assume its new banking supervision responsibilities in autumn 9$!>. +s it is an untested model there have several debates as to this model. The E15 ma( decide at an( time to take responsibilit( for a less-significant credit institution. It will work closel( with the national competent authorities to supervise all other credit institutions under the overall oversight of the E15.nion. 5ut the law merel( forces banks to move purel( speculative trading into separatel( funded entities' leaving man( trading activities attached to deposits.nder the new s(stem of supervision' the E15 will directl( supervise significant credit institutions.
Improving governance under the supervision of the ACP Ereventing defaults is the most straightforward wa( to nip in the bud interconnections-driven s(stemic disruptions. This trading entit( would neither be allowed to collect deposits nor to offer pa(ment services to retail customers' nor to benefit from group guarantee or li:uidit( support be(ond e6posures that fall within a restrictive large e6posure limitB the trading entit( will be treated for the purposes of this internal limit as if it were not part of the group. 2ore specificall(' market making activities are considered as necessar( to preserve li:uidit( capacit(' but the 2inister of the Econom( is e6pected to set thresholds above which market making activities would have to be contained within a separate entit(. The law undertakes a comprehensive review of the French banking s(stem and supervisor( framework' both nurturing a better governance of the industr( and shaping supervisor( powers to improve financial stabilit( and manage bank failure resolution. In other words' retail client deposits will not be used to finance proprietar( speculative activities.17 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e 1ecessit$ of a separation between trading and retail activities The French reform of the banking sector aims at separating activities that contribute to funding the econom( from speculative activities. +bove a specific threshold' the bill re:uires trading activities or unsecured financing to hedge funds to be conducted within a separated trading entit(' which would be regulated and supervised as an investment firm or as a credit institution. 2oreover' the dedicated trading entities are prohibited from high fre:uenc( trading or derivatives trading on agricultural commodities for speculative purposes. #trengthening the supervisor$ framework The reform of the banking sector strengthens the supervisor( framework b( giving new powers and responsibilities to the supervisor( authorities. .
From such e6perience' banks. Governance monitoring tools thereb( should help preventing organisational failures. *he ACP will be granted 2resolution3 powers @uring the financial crisis' some public authorities were forced to bail-out troubled banks that were identified as s(stemicall( important financial institutions SIFIs& and too-big-to-fail. Cithin the new +1ER' a devoted board will be in charge of resolution measures in case of default. =ence' new powers are vested in the French banking supervisor to assess the suitabilit( of board members. @uring the financial crisis' studies suggested that the :ualit( of the board was absolutel( crucial to prevent the failure of a bank. This board has the power to change managers' designate provisional ones' transfer or sell the whole or part of the institution. This makes a default both more likel( A since market discipline disappears A and more costl( A since the resolution is comple6. Sound governance involves primaril( e:uit( holders as well as to a lesser e6tent subordinated debt holders. This e6pectation lowers their incentive to assess the risk the( bear. Fotification for the fit-and-proper test ' previousl( carried out onl( for managers' will be e6tended to board members.18 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e For this purpose' the 5asel framework sets up not onl( :uantitative re:uirements but also rules for a sound governance and risk monitoring and market discipline.members abide b( the rules throughout their mandate. The supervisor will indeed check whether the collegial bodies. 2ost importantl(' the new French banking law establishes losses .e:uit( and shareholders ma( consider the( benefit from an implicit guarantee b( governments' covering all activities' as the deposit guarantee scheme protects the depositors. It will ensure greater effectiveness of the control of their reputation and professional competence. This wa( the bank should enjo( advice from more suitable stakeholders in its choice of the right business model. From an institution-level perspective' the( reduce e6-ante the probabilit( of a default that could spur a s(stemic event. The new French banking law reinforces the +1E-s e6-ante intervention tools. The French supervisor will be able to oppose a nomination and suspend a member if conditions are no longer met.
Risks and risk bearers are thus e6plicitl( defined' withdrawing the e6pected implicit guarantee enjo(ed b( e:uit( and shareholders and promoting a cautious management. It also amends the definition of Nparties acting in concert.e of the e6isting guarantee scheme' thus enhancing its potential to contribute to the rescue or the resolution of an institution. The procedure will be available to a debtor that has reached an out-ofcourt restructuring arrangement with a majorit( of its financial creditors andLor bondholders.e. einforcement of Financial Professional 5bligations to Clients The 7aw reinforces the obligations of financial intermediaries to their clients. +ll financial intermediaries will be re:uired to register in one single register that consumers will be able to consult. eform of the Procedure for 4andator$ *ender 5ffers The 7aw reforms the procedure for mandator( tender offers to increase the protection of shareholders and prevent NrampantN takeovers. +t the same time' it improves the protection of depositors and the stabilit( of the financial s(stem at large b( increasing the si.& is prohibited from issuing a sale order unless he holds in his account the financial instruments he is selling or has taken the necessar( measures to ensure that he will be able to deliver such financial instruments on the settlement date.N The 7aw decreases the threshold that triggers the obligation to launch a mandator( tender offer from one-third i. directive will complete these measures' which adapt the li:uidation process to properl( strengthen the institution-s capital base. Improvement of Insolvenc$ (aw for Companies Facing Financial )ifficulties The 7aw introduces an Naccelerated financial safeguardN procedure that ma( be triggered under certain circumstances.' 00O& to 0$O of the shares or voting rights.19 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e are to be borne b( e:uit( holders and subordinated creditors.+n E. egulation of )erivative 4arkets and 1aked #hort #ales +n investor selling financial instruments securities and options' forwards' swaps' etc. .
20 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e Covered 6onds The 7aw creates a new t(pe of covered bonds called obligations de financement de l7habitat home finance bonds& that are designed to facilitate the refinancing of home loans. .
+lthough it appears that TR+1FIF the financial intelligence unit-FI.e and confiscate laundered propert( and proceeds of mone( laundering and predicate offenses should be completed. 4oreover.nderstanding specific to crisis management has been agreed. additional measures are re"uired in some areas. In the current structure' it makes sense to leave the leading role in crisis prevention and management to the +1E' while the 5dF leads on wider macro-financial monitoring.& has made good progress in carr(ing out its mission of collecting' anal(. =owever' best practices for governance and accountabilit( re:uire that the separate views of the relevant agencies' based on their specific objectives' be e6pressed transparentl(. Chile demateriali.ing' and disseminating suspicious transaction reports to the judicial and law-enforcement authorities' it needs to issue more guidance to the nonfinancial professions and re:uires additional resources to increase its anal(tical capacit(. .For e6ample' legislative measures to enable authorities to sei. +ccountabilit( and transparenc( could be increased b( i& publishing +1E meeting records' e6cept when individual institutions are involved< and ii& written consultations between the +1E and the 5dF on issues pertaining to their respective mandates< or financial stabilit( and macro-prudential considerations regarding the +1E.21 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e RECOMMENDATIONS Coordination in monitoring of financial stabilit$ and in the prevention and management of crises is likel$ to be facilitated b$ the structural relationships between the relevant authorities.ation of securities has reduced risks related to shareholder anon(mit(' the identification of nonresident shareholders needs to be enhanced. It should be noted that no domestic 2emorandum of .
If the s(stemic event cannot be avoided' it ensures that costs will not be borne primaril( b( the ta6 pa(er but that risk takers dul( take their part in the resolution process.22 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e CONCLUSION In conclusion' several directions have been e6plored to address the issue of the necessar( structural reform of the banking sector with the Polcker rule in the . In France' the reform is a change of paradigm in the sense that it introduces in a coordinated manner preventive and curative measures b( giving legal force to the principle of separation and b( strengthening macro prudential and resolution tools.nited Qingdom'!$ and the =igh-7evel E6pert Group chaired b( Erkki 7iikanen in Europe. The separation part is well suited to keep the advantages and resilience of universal banking while diminishing the risks' with implementation alread( b( 9$!). It constitutes a promising venue at the European level. The French reform builds upon their in-depth anal(sis and conclusions but also considers the hurdles that still have to be overcome.nited States' the Independent 1ommission on 5anking chaired b( Sir John Pickers in the . The new set of tools is well suited to handle s(stemic risk and to tackle individual and sectorwide sources of s(stemic disruptions' lowering the probabilit( of their materialisation and decreasing their costs. .
frL Miscella e!"s • FranceB Financial S(stem Stabilit( +ssessment' I2F 1ountr( Report Fo.' N+ =istor( of 1orporate Governance around the CorldB Famil( 5usiness Groups to Erofessional 2anagersN .23 | T h e R e g u l a t i o n o f F i n a n c i a l S e r v i c e s i n F r a n c e BIBLIOGRAPHY Articles: !. NCorporate 5wnership in France8 *he Importance of &istor$ 'N Randall Q. 2orck' ed.ban:ue-france.niversit( of 1hicago Eress 9$$)& 9. +lain Elessis' The &istor$ 5f 6anks in France' European +ssociation for 5anking =istor( Websites: httpBLLwww. +ntoin 2urph(. !9L0>! .acpr.fr httpBLLwww.fr httpBLLwww.france.ban:ue-france.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.