Do senior bank staff, including non-executive directors, have to be registered with your national regulatory authority?
Under the French Monetary and Finance Code (Code Monétaire et Financier) (the Code), in accordance with the relevant European directives, all licensed credit institutions (établissements de crédit) and finance companies (sociétés de financement, i.e., entities licensed to conduct certain credit transactions but which do not take deposits from the public) are required to designate at least two persons who ensure the “actual direction” (direction effective) of the relevant institution and who satisfy at all times a number of requirements relating to professional competence, experience and good character (including the absence of criminal convictions). Foreign credit institutions which have a licensed branch in France must designate at least two persons fulfilling such requirements to carry out the actual direction of their French branch. Similar obligations apply to licensed investment enterprises (entreprises d’investissement). Such persons are generally referred to as “responsible managers” (dirigeants effectifs).
In the case of credit institutions and finance companies constituted as corporations (sociétés anonymes, which is almost always the case), the two responsible managers are likely to be persons designated as managing directors (directeurs généraux) or deputy managing directors (directeurs généraux délégués). Although, under the French Commercial Code, a société anonyme may, as a matter of company law, combine the positions of Chairman of the Board of Directors (Président du Conseil d’Administration) and Managing Director (Directeur Général) into a single position held by the same person (Président-Directeur Général),the French banking authorities have taken the view that other than in exceptional cases this is not appropriate in the banking and financial sector. Moreover, where the positions of Managing Director and Chairman of the Board are held by separate persons, the position of the French authorities is that the Chairman may not be designated as one of the responsible managers, because presiding over the Board of Directors does not give the Chairman sufficient operating management powers to be considered as a dirigeant effectif and should concentrate on his activities as Chairman.
The French authority charged with supervision of the above requirements is the Prudential Control and Resolution Authority (Autorité de Contrôle Prudentiel et de Résolution) (ACPR), an entity which combines the functions previously attributed to the Comité des Etablissements de Crédit et d’Entreprises d’Investissement (the CECEI, which granted licenses to credit institutions) and the Commission Bancaire (which carried out supervision of credit institutions). As in the case of the United Kingdom, credit institutions whose shares are publicly traded will also be subject to supervision by the Financial Markets Authority (Autorité des Marchés Financiers) (AMF), the French equivalent of the FCA.
Review of the persons to be designated as responsible managers of entities seeking approval from the ACPR as licensed credit institutions or finance companies will be conducted at the same time as consideration of the application for the license itself. Appointment of new responsible managers for licensed entities does not require prior approval, but such designation must be reported immediately by the licensed entity to the ACPR, together with supporting documentation enabling the ACPR to assess the competence, probity and experience of the designated person.
The requirement that there be at least two responsible managers is interpreted by the ACPR to mean that at least two persons must have a full and comprehensive understanding of the full scope of activities of the licensed institution, i.e., such knowledge cannot be divided along sectorial lines between the two responsible managers. Therefore, the temporary absence or disability of one of the responsible managers should not endanger continuity of management, and neither responsible manager should have sole responsibility for a particular domain of activity (domaine réservé). The ACPR also requires both responsible managers to reside near the principal place of business of the entity, although in the case of small structures which are part of a larger group, one of the responsible managers may not comply with this requirement so long as (s)he belongs to the same business line or is a geographical head and visits the French entity on a regular basis.
Although the licensed credit institution or finance company may appoint more than two responsible managers, the ACPR (and its predecessor institution, the CECEI) has in various announcements expressed its view that the number of responsible managers should be strictly limited so as to avoid a dilution of responsibilities.
Under changes to the Code promulgated in 2014, credit institutions and finance companies must have a solid corporate governance regime including an organisational structure which ensures a well-defined, transparent and coherent sharing of responsibilities for effective procedures of detection, management, monitoring and declaration of risks, internal auditing and administrative and accounting. In particular, there must be a clear division between operational and compliance personnel. The governance regime takes into account the nature, scale and complexity of risks inherent to the business model and the activities of the relevant credit institution or finance company.
If your national regulatory authority requires registration of senior bank staff what are the requirements?
As explained above, the designation of new responsible managers of a licensed entity must be reported immediately to the ACPR. The new responsible manager must then submit a “ratification dossier” to the Licensing, Authorisation and Regulation Department (Direction des Agréments, des Autorisations et de la Réglementation) of the ACP, which includes a duly completed questionnaire, the contents of which can be found on the appropriate page of the ACPR’s website.
The application procedure is a detailed process and individuals and firms should consult the appropriate page on the ACPR’s website.
An English translation is provided here.
In particular individuals will be subject to a basic review of competence, probity and experience. The ACPR is entitled to request additional information or documents from the candidate. If the credit institution or finance company carries out investment services activities, the ACPR will also request the views of the AMF.
The ACPR has one month from the date of receipt of the questionnaire and accompanying documents to ratify or refuse to ratify the designation of the responsible manager (although in practice this period can be extended if within such period the ACPR determines that it requires additional information and requests such information).
Is there legislation specific to the banking sector that provides for penalties to be levied against senior staff for mis-managing a bank?
The ACPR is granted the power pursuant to the Code to levy administrative sanctions on credit institutions and finance companies if an audit (contrôle) demonstrates failure to comply with European or French legal or regulatory requirements and this is confirmed following a hearing held before the Sanctions Commission (Commission des Sanctions) of the ACPR. Such administrative sanctions include the temporary suspension of any officer of the relevant entity (including responsible managers) for a period of up to ten years or the removal of such person, together with the levying of fines, suspension of the license of the relevant entity and the issuance of a public statement relating to the misconduct. In fact, such administrative sanctions have been relatively rare.
Violation by senior managers of laws and regulations which relate to banking activities, such as those dealing with bank secrecy, insider trading/market manipulation or money laundering/terrorism financing, as well as more general laws and regulations applicable to business activities (e.g., facilitation of tax evasion, embezzlement, falsification of company accounts, violation of penal provisions of company law, etc.), can of course also give rise to penal sanctions, including fines and/or imprisonment.
What is the maximum amount the regulator can fine an individual?
Theoretically, administrative sanctions of the Sanctions Commission of the ACPR may be levied up to one hundred million Euro or 10% of annual net turnover. In practice we are unaware of any fine being imposed on an individual in excess of ten thousand Euro, but much larger sanctions have been applied to legal entities.
Is there legislation in place that requires banks to have in place remuneration policies and practices that are consistent with effective risk management?
The Code requires the deliberative body (i.e., the Board of Directors, or in entities with a two-tier management, the Supervisory Board) of any credit institution or finance company with total assets of 10 billion Euro or greater to designate a remunerations committee, composed in majority of independent members competent to analyse the policies and practices of the enterprise regarding remuneration, including with regard to the risk policy of the enterprise.
Such committee (or, in the absence of such committee, the deliberative body) must decide on an annual basis:
- the principles of the remuneration policy of the enterprise;
- the remuneration, indemnities and advantages of any nature granted to the management of the enterprise;
- the policy with respect to remuneration of various employees, including those who manage certain investment funds, risk-takers, the senior management referred to above, persons exercising a control function and any other employee in the same remuneration range and whose professional activities have a significant effect on the risk profile of the enterprise.
Such committee (or, in the absence of such committee, the deliberative body) also reviews directly the remuneration of the senior risk manager and the senior compliance officer of the enterprise.
The annual report to shareholders of the enterprise must also include information relating to the policy and practices regarding remuneration.
Where the enterprise belongs to a group of companies, the deliberative body of the enterprise may decide to apply the remuneration policy of the enterprise controlling it.
More substantively, the Code contains provisions transposing Articles 92 et seq. of the EU CRD (IV) Directive (Directive 2013/36/EU) relating to remuneration policies for categories of staff including senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on their risk profile. Accordingly, French credit institutions and finance companies must comply with a number of principles, in a manner appropriate to their size, internal organisation and the nature, scope and complexity of their activities, including ensuring that the remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the institution and that it is line with the business strategy, objectives, values and long-term interests of the institution and incorporates measures to avoid conflicts of interest. A clear distinction must be made between fixed and variable remuneration. Fixed remuneration must reflect in the first instance the professional experience of the person occupying a particular office and the responsibilities exercised by such person, while variable remuneration must reflect durable performance in conformity with the enterprise’s risk policy and must take into account not only individual performance but also those of the operating unit to which the individual belongs as well as that of the enterprise in general. Performances are evaluated over a multiannual period corresponding to the economic cycle of the enterprise. The amount of variable remuneration cannot exceed the amount of fixed remuneration unless approved by a supermajority of shareholders (in which case the variable remuneration may be up to twice the fixed remuneration).
In conformity with recent “say on pay” initiatives, the Code also provides that shareholders must be consulted annually on the global envelope of remuneration paid to persons referred to above.
Is there any legislation planned in your jurisdiction that will strengthen the accountability of senior bank staff?
There is an ongoing effort in France to strengthen regulation of business enterprises, including credit institutions. The “Loi Sapin 2”, an omnibus piece of legislation which became effective on December 9, 2016, created a national anti-corruption agency, improves protection of “whistleblowers” and imposes new requirements for compliance programs and created new criminal offences related to bribery. With the election of a new President in May 2017 buttressed by a significant victory in subsequent Parliamentary elections, it is likely that this movement will continue.