France Adopts Banking Regulation Bill

by Ulrika Lomas, Tax-News.com, Brussels

17 June 2010

The French National Assembly has adopted, at a first reading, a banking and financial regulation bill, designed to tighten the regulation and supervision of financial markets in France.

Requested and championed by both the French President Nicolas Sarkozy and by Prime Minister François Fillon, the bill aims to implement at national level the decisions taken recently by the G20, and contains the following measures:

Supervision of short sales

Up until now, short selling was not regulated in France. Under the new bill, the country’s Financial Market Authority (l’Autorité des Marchés Financiers – AMF) will in future be able to ban the short selling of all financial instruments in exceptional circumstances. It will also be able to impose transparency on all of these operations. In order to prevent certain naked short sales, the bill sends a clear signal in favour of a swift settlement at European level.

Regulation of the derivatives markets

The Financial Market Authority will in future be able to sanction abuse of the markets (for example the manipulation of rates) on the derivatives markets, notably Credit Default Swaps (CDS).

Regulation of rating agencies

The Financial Market Authority will in future be able to accredit, monitor, and sanction rating agencies in France. The rating agencies will become liable for any errors or omissions occurring during implementation of the obligations of the new European regulation. The bill is designed to strengthen the responsibility of the agencies by nullifying any clauses aiming to exclude or to limit this responsibility.

Tightening the control of pay and risks at the heart of the financial sector

Within the framework of work undertaken by the board of directors, banks and insurance companies will in future be required to put in place both a risk committee and a remunerations committee notably tasked with examining the pay of market operators.

Improving the efficiency of the French system of supervision

The bill ratifies the order of January 21, 2010, which merges the accreditation authorities and the authorities controlling banks and insurance companies in France. France is the first country to reform its financial sector supervision system in order to eliminate blind spots, to increase France’s influence in international negotiations on financial regulation reform and to confer on the new authority a mission to protect consumers of financial products.

The banking and financial regulation bill is due to be examined by the French senate in the autumn.

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