French Banking and Financial Regulation Bill
A new bill on banking and financial regulation was adopted by the French Parliament on October 11, 2010. It takes measures following the financial crisis and implements a series of provisions including EU regulations under French law with a view to strengthen the regulation of the financial system.
This Bill includes some strong measures such as the:
- Establishment of a regulatory regime for short selling: The AMF (i.e. the French Financial Markets Authority), is empowered to ban short selling of all financial instruments in exceptional circumstances. Furthermore, the AMF will be able to require disclosure with respect to these operations. The Act prohibits naked short selling where the seller has not taken the necessary measures to ensure that he will actually possess the shares on the settlement date (“locate rule”).
- Regulation of the derivatives markets and of CDS: From now on, the AMF will be able to impose penalties for market abuse (such as, for example, rate manipulations) in the derivatives and particularly CDS markets. Derivatives markets were previously unregulated.
- Monitoring of the rating agencies: The AMF will now be able to license, monitor and impose penalties on rating agencies. The Act strengthens the accountability of the rating agencies. Rating agencies were previously unregulated.
- Strengthened oversight of the financial sector – The Bill ratifies the creation of a single oversight and surveillance authority for the banking and insurance sectors: the Prudential Control Authority. The Act creates a Financial Regulation and Systemic Risk Council, a genuine financial sector lookout tower, which will more effectively forestall risks in the financial sector.
- Empowerment of the AMF to impose strengthened penalties: The maximum fine which the AMF can impose is increased tenfold to €100 million. The maximum fine which the Prudential Control Authority can impose is doubled to €100 million.
- Establishment of a regulatory regime for market operators’ compensation packages: The Bill entrusts the Prudential Control Authority with the task of monitoring the banks’ compliance with the rules governing the award of bonuses decided on by the G20. Banks and insurance companies will now have to set up remuneration committees responsible inter alia for looking at the remuneration of market operators.
- Creation of a regulatory regime for bank charges: The Prudential Control Authority will be able to monitor compliance – commitment by commitment – with the commitments the banks made in the Financial Sector Consultative Committee. The Bill gives the Financial Sector Consultative Committee a new responsibility for monitoring bank charges.
- Strengthened framework for the security financial products consumers: All financial intermediaries will now have to register on one single register, accessible to all consumers. The rules regulating intermediaries’ activities involving banking transactions and payment services are strengthened.
- Regulation of the carbon markets: The Bill creates inter alia a watchdog to supervise and monitor the CO2 emissions markets. This task is jointly devolved to the AMF and the French Energy Regulation Commission. From now on, carbon markets become regulated markets.
-Prevention of rampant takeovers: The threshold triggering a mandatory tender offer is lowered to 30%. Investors will have to aggregate the derivative financial products they hold in shares or voting rights to assess whether this threshold has been reached.
- Disclosure action of activist funds – The Bill requires the disclosure of share loans three days before general meetings of shareholders so that the company and in particular long-term shareholders are informed about shareholders with temporary voting rights.