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France: New Law on Banking and Financial Regulation

(Nov. 19, 2010) On October 22, 2010, the French Parliament adopted a very complex Law on Banking and Financial Regulation that implements the decisions of the 2009 G20 meeting in Pittsburgh at the national level. (Loi 2010-1249 du 22 octobre 2010 de régulation bancaire et financière, LEGIFRANCE, [File: Les autres textes législatifs et réglementaires]).

The first part of the Law reinforces the regulation of the banking sector and strengthens the mechanisms in place to prevent and/or manage any future financial crisis. The Law's second part sets forth measures designed to improve financing channels to benefit companies, notably small- and medium-size companies, and individual households, in order to accelerate France's economic recovery. The most significant features of the Law are described below:

Creation of the Council in Charge of Regulating the Financial Sector and Monitoring Systemic Risk (CRFRS)

The CRFRS has three missions: (1) to monitor the cooperation and exchange of information among the institutions its members represent; (2) to review analyses of the situation of the financial sector and markets and evaluate any systemic risk, taking into account the opinions and recommendations of the European Systemic Risk Council; and (3) to improve cooperation in setting international and European standards applicable to the financial sector and issue opinions on the subject if necessary (id. art.1).

Increased Powers of the Financial Markets Authority (AMF)

The Chairman of the AMF may take emergency measures in the event of exceptional circumstances threatening the stability of the financial system, such as banning short selling of all financial instruments. The AMF may impose much stiffer penalties for violation of financial laws and regulations, up to €100 million (about US$13.7-$137 million) in certain cases. The AMF also will supervise and monitor carbon markets in cooperation with the French Energy Regulation Commission (id. arts. 2, 6, & 9).

Monitoring of Credit-Rating Agencies

The AMF will be responsible for registering and monitoring credit-rating agencies in furtherance of a European Community regulation on the subject. In addition, the Law sets forth a specific liability regime enabling both clients and third parties to claim compensation from credit-rating agencies for losses or damages resulting from non-compliance with their obligations as defined under the EC Regulation (id. arts. 10 & 11).

Implementation of the Prudential Control Authority (ACP)

The ACP was created in January 2010. It is in charge of ensuring consumer protection, promoting financial stability at the national and EU levels, and facilitating French influence on international negotiations on the reform of financial regulation. The ACP will guarantee the implementation of the restrictions on bank bonuses decided on by the G20 (id. arts. 12-23).

Regulation of Derivative Markets and Naked Short Sales

An investor selling financial instruments (securities and options, forwards, swaps, etc.) is prohibited from issuing a sale order unless he holds in his account the financial instruments he is selling or has taken the necessary measures to ensure that he will be able to deliver such financial instruments on the settlement date (id. art. 27).

Reinforcement of Financial Professional Obligations to Clients

The Law reinforces the obligations of financial intermediaries to their clients. All financial intermediaries will be required to register in one single register that consumers will be able to consult (id. art. 36).

Reform of the Procedure for Mandatory Tender Offers

The Law reforms the procedure for mandatory tender offers to increase the protection of shareholders and prevent “rampant” takeovers. It also amends the definition of “parties acting in concert.” The Law decreases the threshold that triggers the obligation to launch a mandatory tender offer from one-third (i.e., 33%) to 30% of the shares or voting rights (id. arts. 48-55).

Improvement of Insolvency Law for Companies Facing Financial Difficulties

The Law introduces an “accelerated financial safeguard” procedure that may be triggered under certain circumstances. The procedure will be available to a debtor that has reached an out-of-court restructuring arrangement with a majority of its financial creditors and/or bondholders (id. arts. 57 & 58).

Covered Bonds

The Law creates a new type of covered bonds called obligations de financement de l'habitat (home finance bonds) that are designed to facilitate the refinancing of home loans (id. art. 73).