France/banking and financial regulation
Christine Lagarde, Minister for the Economy, Industry and Employment, welcomes the publication on 23 October of the Banking and Financial Regulation Act which strengthens the regulation of the financial system. This Act, instigated by President Sarkozy and the Prime Minister in order to implement the G20 decisions at national level, includes some strong measures:
Establish a regulatory regime for short selling – The AMF (Autorité des marchés financiers – French Financial Markets Authority), our stock market watchdog, will be able to ban short selling of all financial instruments in exceptional circumstances. 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”).
Regulate the derivatives markets and 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.
Monitor 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.
Strengthen oversight of the financial sector – The Act 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.
Strengthen the financial sector watchdog’s powers to impose 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.
Establish a regulatory regime for market operators’ compensation packages – The Act 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 in order to continue the work of Michel Camdessus in 2010 on tracking bonuses. Banks and insurance companies will now have to set up remuneration committees responsible inter alia for looking at the remuneration of market operators.
Create 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. This measure will enable the monitoring of the banks’ compliance with the commitments they made at Christine Lagarde’s request on 21 September this year. The Act gives the Financial Sector Consultative Committee a new responsibility for monitoring bank charges.
Strengthen the security of consumers of financial products – 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.
Regulate the carbon markets – The Act creates inter alia a watchdog to supervise and monitor the CO2 emissions markets. This task is entrusted to the AMF, in cooperation with the French Energy Regulation Commission. Carbon markets become regulated markets.
Fight 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.
Disclose action of activist funds – The Act requires 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.
The Financial Regulation Act bolsters France’s action at European and international levels to put financial sector regulation on a new footing. In the run-up to the French G20 presidency, it places France in the vanguard of the radical reform of the financial system./.