Private banking and wealth management

Regulation

What are the main sources of law and regulation relevant for private banking?

Agreements with the European Union

On the basis of the revised monetary agreement between the European Union and Monaco of 29 November 2011 (replacing the monetary agreement of 24 December 2001), Monaco is entitled to use the euro as its official currency.

The Savings Directive, which since 2005 allowed tax administrations better access to information on private savers, was repealed on 10 November 2015. The repeal was adopted as a consequence of the adoption in December 2014 of Directive 2014/107/EU amending provisions on the mandatory automatic exchange of information between tax administrations. Directive 2014/107/EU implements the July 2014 Organisation for Economic Co-operation and Development (OECD) Global Standard on automatic exchange of financial account information within the European Union, with a scope covering not only interest income, but also dividends and other types of capital income, and the annual balance of the accounts producing such items of income. Directive 2014/107/EU entered into force on 1 January 2016.

French banking legislation

The treaty between Monaco and France of 14 April 1945 on exchange control established the principle of the application in Monaco of some French banking regulations, and subsequent agreements in the form of exchanges of letters have defined the practical details.

The latest significant agreement in the form of an exchange of letters on 20 October 2010 between the French government and the Monegasque government on banking regulation provides that the legislation in force in France and the general regulations taken for its implementation concerning credit institutions are applicable in Monaco.

However, only a part of the French banking legislation and regulation concerning prudential requirements and organisation of credit institutions is applicable in Monaco.

Specific Monegasque legislation regulates financial services and the anti-money laundering (AML) system.

Monegasque legislation

Financial activities including discretionary asset management, reception and transmission of orders and advice and assistance in these matters are regulated by Monegasque Law No. 1,338 of 7 September 2007 on financial activities and by Sovereign Ordinance No. 1,284 of 10 September 2007 implementing this Act. Reception and transmission of orders and advice in investment activities are also regulated by Law No. 1,439, creating the multi-family office activity.

In addition, Monegasque Law No. 1,339 of 7 September 2007 concerns collective investment funds and investment funds and Sovereign Ordinance No. 1,285 of 10 September 2007 implements this law and provides regulation with regard to investment funds.

Monegasque Law No. 1,314 of 29 June 2006 concerns the activity of safekeeping or administration of financial instruments and Ministerial Ordinance No. 2012-199 of 5 April 2012 relates to the professional obligations of credit institutions custody account-keepers.

Monaco has developed its own AML legislation, including Law No. 1,362 of 3 August 2009 on the fight against money laundering, terrorist financing and corruption and Sovereign Ordinance No. 2,318 of 3 August 2009 setting the conditions for application of Law No. 1,362. Since the beginning of 2018, the Common Reporting Standard is also applicable in Monaco.

Finally, provisions of the Monegasque Civil and Commercial Codes are applicable to the relations of credit institutions and asset management companies with their clients.

Regulatory bodies

What are the main government, regulatory or self-regulatory bodies relevant for private banking and wealth management?

Credit institutions in Monaco are licensed by the French Prudential Control and Resolution Authority (ACPR) for the banking services they render and by the Monegasque Supervisory Committee for Financial Activities (CCAF) regarding their financial activities including discretionary asset management, management of Monegasque funds, reception and transmission of orders, advice and assistance in these matters and management of foreign investment funds.

The main government, regulatory and self-regulatory bodies for private banking and wealth management are:

  • the ACPR - French banking activities regulator responsible for granting and withdrawing licences for banking activities in Monaco and controlling Monegasque credit institutions;
  • the CCAF - Monegasque financial activities regulator responsible for granting and withdrawing licences for financial activities in Monaco and controlling financial institutions;
  • the Financial Circuits Information and Control Department (SICCFIN) - Monegasque AML regulator; and
  • the Supervisory Commission on Personal Data - Monegasque data privacy regulator.

The following authorities also exist in Monaco:

  • the Office of Economic Expansion - Monegasque Company House in charge, notably, of the administrative incorporation of banks in Monaco;
  • the Monegasque association for financial activities (AMAF), acting as the professional body for authorised institutions conducting banking or financial activities in the Principality of Monaco; and
  • the Monegasque Association of Compliance Officers, bringing together the compliance officers of Monegasque credit institutions and asset management companies.
Private wealth services

How are private wealth services commonly provided in your jurisdiction?

Private wealth services are provided in Monaco by banks and asset management companies. Private wealth services are also provided by family offices, but to the sole extent that such services are offered for the sole benefit of the legal entities that control them, directly or indirectly, or of the legal entities that they control. Law No. 1,439 of 2 December 2016 also extends the provisions of private wealth services to multi-family offices.

Definition of private banking

What is the definition of private banking or similar business in your jurisdiction?

There is no legal definition of private banking.

We consider that private banking may be defined as banking and financial services offered to high-net-worth individuals including:

  • banking services;
  • discretionary asset management;
  • advice and assistance in discretionary asset management; and
  • reception and transmission of orders.
Licensing requirements

What are the main licensing requirements for a private bank?

Monegasque regulations distinguish between financial activities and banking services. Banking services include the reception of reimbursable public funds, banking payment services and granting any form of credit.

In answer to this question, we will consider licensing requirements for banking services. Licensing requirements for financial activities will be discussed in question 11.

The ACPR is in charge of granting licences for banking activities to Monegasque credit institutions. To obtain a licence for banking activities, the following requirements must be met:

  • minimum amount of own funds equal to €5 million;
  • programme of operations, technical and financial resources, organisation;
  • identity and status of capital contributors, and where applicable of their guarantors, and the size of their holding;
  • the activity must be effectively run by at least two people, whose knowledge, experience and fitness must be demonstrated, both individually and collectively, as must their availability; these persons should also meet the propriety requirements for their position;
  • members of the governing body must meet knowledge, experience, fitness and propriety requirements, assessed both individually and collectively, and also satisfy the availability and propriety requirements for their position;
  • managers of key functions must meet propriety, knowledge, experience and fitness requirements; and
  • assets must exceed liabilities by an amount that is at least equal to the minimum capital requirement.

In addition, a Monegasque business authorisation is required and the entities carrying out banking operations in Monaco must comply with the requirements of the Monegasque law.

Finally, it should be noted that Monaco is not a member of the European Economic Area. Consequently, EU provisions relating to the mutual recognition of authorisations, the freedom of services and the freedom of establishment are not applicable.

Licensing conditions

What are the main ongoing conditions of a licence for a private bank?

In this question, we will consider banking licences. Ongoing conditions of licence for financial activities will be discussed in question 12.

If there are changes to the particulars taken into consideration when licensing a credit institution, reporting is to be made to the ACPR. In some cases, it will be necessary to obtain prior authorisation by mailing the ACPR General Secretariat a detailed application.

Organisational forms

What are the most common forms of organisation of a private bank?

The only common form of organisation of a private bank is a Monegasque limited company (SAM) (except for branches). Private banks in Monaco are mainly subsidiaries of foreign banks.

Monegasque limited companies may only be incorporated with government authorisation by ministerial decree; their articles of association must be established by authentic deeds and approved by the Monegasque government.

Licences

Obtaining a licence

How long does it take to obtain a licence for a private bank?

After receiving a licence application, the Authorisation, Licensing and Regulation Division of the ACPR will review the request. Credit institutions licences are issued by the ACPR.

The licensing decision must be taken within six months of receipt of a complete application.

Licence withdrawal

What are the processes and conditions for closure or withdrawal of licences?

In this question, we will consider banking licences. Conditions for closure or withdrawal of licences for financial activities will be discussed in question 12.

A credit institution’s licence may be withdrawn by the ACPR in the following cases:

  • at the request of the credit institution; or
  • automatically:
    • if the institution no longer meets several requirements or commitments on which its licence was conditional;
    • if the institution has not made use of its licence within a 12-month period;
    • if the institution has not pursued its activity for at least six months; or
    • at the request of the ACPR following a sanction proceeding.

Withdrawal will take effect:

  • immediately if the ACPR believes that all the conditions set by the current regulations are satisfied;
  • at the date when the conditions precedent set by the ACPR with respect to the dossier are lifted; or
  • after a period to be determined by the ACPR and during which the institution must confine itself to run-off management of its regulated activities.

Prior to the licence withdrawal, at the request of the credit institution, an application to withdraw the licence shall be submitted, in two copies, to the Authorisation, Licensing and Regulation Division of the ACPR.

Wealth management licensing

Is wealth management subject to supervision or licensing?

The following financial activities are subject to licensing by the CCAF:

  • discretionary asset management, for third parties, of portfolios of securities and futures;
  • the management of mutual funds and other Monegasque investment funds (covered by Monegasque Law No. 1,339 of 7 September 2007);
  • reception and transmission of orders for third parties;
  • giving advice and assistance in discretionary asset management, and reception and transmission of orders; and
  • the management of foreign investment funds.

In addition, an administrative authorisation delivered by the Monegasque government according to the provisions of Law No. 1,144 of 26 July 1991 shall be obtained.

Requirements

What are the main licensing requirements for wealth management?

To obtain a licence for financial activities listed in question 10, a company shall be set up in the form of a SAM or such a licence may be issued to credit institutions having their headquarters in a foreign country and a branch in the Principality of Monaco.

The capital requirements for setting up a SAM are as follows:

  • €450,000 for discretionary portfolio management and management of foreign funds;
  • €300,000 for reception and transmission of orders, for third parties, giving advice and assistance in discretionary asset management, management of Monaco funds and reception and transmission of orders; and
  • €150,000 for the management of funds incorporated under Monegasque law up to €250 million in managed assets, then €40,000 supplementary for every €200 million of managed assets.

The licence application must be sent to the CCAF. The application file shall include documents relating to:

  • the identity, status and quality of each contributor of capital;
  • the premises where the activity will be carried out;
  • the different activities in which the company intends to engage;
  • the identity of at least two of the persons who effectively determine the company’s policy and management;
  • the total number of employees and a detailed organisation chart;
  • any delegations to other organisations;
  • the identity of intermediaries responsible for executing orders;
  • the monitoring and management control procedures; and
  • models of the mandates proposed to customers.

Companies intending to manage foreign funds must also provide information about the fund, the depositary and their clients.

The CCAF may ask the applicant for all additional information necessary for it to take its decision and will deliver its decision within six months of submission of a complete application.

What are the main ongoing conditions of a wealth management licence?

Any modification to essential elements on which a licence for financial activities was granted must receive prior authorisation from the CCAF, particularly the scope of activities, shareholders and the executive directors.

The licensed company shall comply with the prudential rules, in particular:

  • having an appropriate administrative and accounting organisation; and
  • being structured and organised so as to restrict to a minimum any risk of conflicts of interest.

The company shall also comply with the rules of good conduct, in particular:

  • it must act with loyalty and act fairly in the best interests of its clients and the integrity of the market;
  • perform its business with due skill, care and diligence;
  • ensure that the individuals placed under its authority have the appropriate qualifications and expertise and a sufficient level of knowledge;
  • have the necessary resources and procedures;
  • try to avoid conflicts of interests and, when they cannot be avoided, ensure that its clients are fairly treated;
  • refrain from any initiative whose object or effect might be to favour its own interests over those of its clients; and
  • the company must join the AMAF to which an annual membership fee is payable.

Finally, the CCAF may order temporary suspension of the licence for a period not exceeding six months or final withdrawal of the licence if the authorised company:

  • has not engaged in any notable activity for a period of 12 months without good reason or has expressly renounced its licence;
  • no longer has sufficient resources or staff to pursue the activities to which the licence relates;
  • has obtained its licence by means of false statements or by any other unlawful means;
  • no longer fulfils the conditions on the basis of which the licence was issued;
  • has materially and repeatedly failed to comply with the provisions of Law No. 1,338 of 7 September 2007 on financial activities or its implementing regulations; or
  • is liable by pursuing its business to jeopardise its clients’ interests.

Anti-money laundering and financial crime prevention

Requirements

What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?

The Principality of Monaco has developed its own AML legislation by Law No. 1,362 of 3 August 2009 on the fight against money laundering, terrorist financing and corruption and Sovereign Ordinance No. 2,318 of 3 August 2009. In July 2018, the Monegasque AML regulation was amended by Law No. 1,462, which provides for equivalent measures to Directive (EU) 2015/849 of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (4th Money Laundering Directive). This Bill has also been completed by a Sovereign Ordinance No. 7,065 of 3 August 2018.

Among other entities, companies providing banking services and companies performing financial activities regulated by Monegasque Law No. 1,338 of 7 September 2007 are subject to the following AML obligations.

The obligation to identify clients and due diligence

Companies carrying out banking and financial activities such as wealth management activities must, before forming business relations, identify clients as well as their agents and check the identity of each of these persons based on their ID documents. A copy of these documents shall be kept. If the client is a legal person, a legal entity or a trust, the measures also (in addition to the collection of corporate documents) include the identification of the individual or individuals who, ultimately, own or control the client entity (the beneficial owner). Since the entry into force of Law No. 1,462 amending the former AML legislation, Monegasque registered companies have to transmit information concerning their beneficial owner to the Minister of State. This information will be compiled in a beneficiary ownership register accessible to the Monegasque AML regulator, the Monegasque courts and the Monegasque tax administration. The register can also be consulted by credit institutions, asset management companies and any person with a legitimate interest in a few cases that are to be determined in the upcoming Sovereign Ordinance.

As part of the obligation of identification, credit institutions and asset managers shall also identify the client’s economic background. On this basis, banking and asset management companies are to exercise constant due diligence on the transactions undertaken throughout the course of the relationship with the client. Any unusual or complex operations are to be subject to a deeper and documented analysis. The due diligence obligation also requires the keeping of updated identification documents of the client. The due diligence obligations are greater for politically exposed persons (PEPs) (see question 14).

The obligation of identification also covers the transfers of funds for companies that execute wire transfers (ie, credit institutions). In this regard, the fund transferor and the beneficiary of the transfer shall be identified by the bank.

Obligations concerning internal organisation

Banks and asset management companies shall implement organisational procedures and control measures to effectively comply with the Monegasque AML legislation. Companies are required to keep a copy of all substantiating documents used for their identification for at least five years after ending relations with regular or occasional clients.

Companies shall take appropriate measures to train their employees and designate one or several persons to be responsible for the application of Law No. 1,362 of 3 August 2009, amended, on the fight against money laundering, terrorist financing and corruption. Procedures must also be in place to enable employees to warn internally of any breach of the AML obligations.

Also, the new AML Law No. 1,462 of 28 June 2018 contains new provisions enabling (subject to several conditions) Monegasque banks and asset management companies to exchange information with their group for organising the fight against terrorism, money laundering and corruption only.

Declaration of suspicion

Companies carrying out banking and financial activities are required to declare to the SICCFIN all sums held in their accounts and all operations that might be related to money laundering, terrorist financing or corruption. This declaration, made on the basis of reasonable grounds to suspect, must be submitted in writing, where possible, before the operation is carried out, and must give details of the facts that constitute evidence upon which the said companies have based the declaration.

A declaration made in good faith may not be subject to prosecution owing to a violation of professional secrecy. No civil liability action may be initiated and no professional sanction pronounced against the company, its directors or authorised employees who make such a declaration in good faith.

Politically exposed persons

What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?

Sovereign Ordinance No. 2,318 of 3 August 2009 (which is expected to be amended shortly) provides a definition of a PEP as follows:

Persons (either client, beneficial owner or mandatory) who hold, or during the last three years have held, prominent public functions in a foreign country shall be considered as politically exposed, whether they are clients, beneficial owners or proxies, such as, in particular:

  • heads of state;
  • members of governments;
  • members of parliament;
  • members of supreme courts, constitutional courts or other high-level judicial bodies whose decisions are not subject to further appeal except in exceptional circumstances;
  • the leaders and senior officials of political parties;
  • the members of courts of auditors and the boards of central banks;
  • ambassadors, advisers and high-ranking officers in the armed forces;
  • members of the administrative, management or supervisory bodies of state-owned enterprises; and
  • senior politicians and high-ranking civil servants of international or supranational organisations.

The spouses and direct ascendants or descendants of these persons must be treated as if they themselves were PEPs.

Persons known to be close associates of any of the persons referred to above must also be considered as PEPs and in particular:

  • any natural person who is known to have joint beneficial ownership of a legal person or legal entity or any other close business relations with them; and
  • any natural person who has sole beneficial ownership of a legal person or legal entity known to have been set up de facto for the benefit of one of the persons mentioned above.

The due diligence obligations pertaining to PEP are greater. If PEPs wish to enter into business relations with professionals or contact them to perform occasional operations, the acceptance of these clients shall be subject to a particular examination and must be decided at an appropriate level of hierarchy. The said acceptance requires the taking of all appropriate measures in order to establish the origin of their assets as well as that of funds that are or will be employed in the business relations or in the occasional operation contemplated.

Professionals who maintain business relations with PEPs are required to monitor them closely on an ongoing basis. Due diligence measures shall also apply when it later transpires that an existing client is or has become a PEP.

These measures of due diligence shall apply whether PEPs are clients, beneficial owners or proxies.

Documentation requirements

What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.

When identifying clients who are natural persons, the verification of their identity must be carried out in their presence using a valid official document bearing their photograph.

If the client’s address is not mentioned on the substantiating documents presented, or in the event of doubt as to the exactitude of the address mentioned, the professional is required to check this information using another document that is likely to prove their real address (eg, water, gas and electricity bills) and of which a copy shall be retained.

For legal entities and trusts, identification and verification concern the corporate name, the registered office, the list of directors and the knowledge of the provisions governing the power to incur the liability of the legal person or trust. Identification also concerns the purpose and nature of the contemplated business relations and the effective beneficiary of the legal entities. In the latter case, the identification measures shall aim at understanding the ownership structure and control of the legal entity.

For more details regarding the identification documentation required to establish a private banking relationship with a structure, see question 34.

Tax offence

Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?

Tax offences would be included in the categories of offences covered by money laundering provisions in Monaco only if punishable by more than three years’ imprisonment in Monaco.

In Monaco, the money laundering offence is covered by article 218 of Monaco’s Criminal Code, which provides that any person who knowingly, in any manner whatsoever, for him or herself or for another person, acquires movable or real assets by directly or indirectly using assets or funds of unlawful origin or knowingly possesses or uses such assets, and any person who knowingly assists any transaction to transfer, invest, conceal or convert assets or funds of unlawful origin shall be liable to five to 10 years’ imprisonment.

Assets and funds of unlawful origin are deemed to be the proceeds of offences punishable in Monegasque law by more than three years’ imprisonment as well as the proceeds of some other offences punishable by inferior penalties. Monaco’s definition of money laundering covers all categories of predicate offences designated by the Financial Action Task Force in its glossary of 40 Recommendations.

The offences referred to in article 218 of the Criminal Code shall be constituted even though the offence from which the laundered funds derive has been committed in another country if it is punishable in Monaco and in the state where it has been perpetrated.

Finally, in Monaco, the law provides penalties for any person who, in disregard of his or her professional obligations, provides assistance with any transfer, investment, concealment or conversion of assets or funds of unlawful origin.

Compliance verification

What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?

To date, none from a legal AML perspective. In practice, banks and asset management companies mention in general terms and conditions their clients undertaking to provide justifications of their tax status. Furthermore, in accordance with the Common Reporting Standard, enforceable in Monaco since early 2018, private banks are required to identify the tax residence of their clients. For that purpose, each natural person must certify his or her tax residence in order to open an account in Monaco.

Liability

What is the liability for failing to comply with money laundering or financial crime rules?

Violation of money laundering or financial crime rules can be punished either by administrative sanctions or criminal penalties.

Regarding administrative sanctions, a warning may be delivered to the obliged entities by a decision of the Monegasque Minister of State.

In a case of serious infringement of the obligations provided by Law No. 1,362, the Minister of State is empowered to take the following administrative sanctions, which can be published in the Monegasque Official Journal:

  • a reprimand;
  • a pecuniary penalty that cannot exceed €1 million and €5 million or 10 per cent of the annual turnover for certain obliged entities (banks, asset management companies and insurance companies);
  • a prohibition against carrying out certain operations;
  • temporary suspension of their authorisation to exercise their profession; or
  • the withdrawal of their authorisation.

Administrative sanctions can also be taken against directors or employees of the obliged entities in case of direct and personal liabilities.

In some cases provided by the amended Law No. 1,462, the violation of the rules aimed at fighting against money laundering, terrorist financing and corruption can constitute crimes punishable by imprisonment or fines.

Client categorisation and protection

Types of client

Does your jurisdiction’s legal and regulatory framework distinguish between types of client for private banking purposes?

Sovereign Ordinance No. 1,285 of 10 September 2007 implementing Law No. 1,339 of 7 September 2007 concerning Monegasque collective investment funds provides in article 47 a definition of ‘sophisticated investor’, which is a person or entity sufficiently experienced to assess the merits, risk and liquidity characteristics of financial investments. The minimum initial investment in a fund reserved for sophisticated investors is €10,000.

Moreover, article 48 of Sovereign Ordinance No. 1,285 of 10 September 2007 provides a definition of professional investors deemed to be sophisticated investors.

This legal distinction among clients only relates to Monegasque collective investment funds.

Furthermore, in the light of Sovereign Ordinance No. 1,284 and the definition set out in Sovereign Ordinance No. 1,285, Monegasque case law considers that whatever the financial activity, a credit institution or a financial institution is under a general obligation to inform and provide guidance to its clients.

The content of this general information would depend on the type of client, sophisticated or not.

Client categorisation

What are the consequences of client categorisation?

Client categorisation provided in Sovereign Ordinance No. 1,285 of 10 September 2007 implementing Law No. 1,339 of 7 September 2007 concerning collective investment funds and investment funds relates to the possibility to invest in different types of fund. Distribution of some funds may be limited to sophisticated or professional investors.

The obligation provided in Sovereign Ordinance No. 1,284 of 10 September 2007 to enquire about clients’ financial situation, investment experience and objectives sets out the exact scope of the informational and warning duties due to the client for the contemplated transactions.

Besides, as stated in question 19, the general obligation set out by Monegasque case law requires banks to enquire about clients’ investment experience and inform them about the risks relating to the contemplated transactions. The content of the delivered information is, in this respect, subject to the type of client, the obligation being alleviated when the client is a sophisticated investor.

Consumer protection

Is there consumer protection or similar legislation in your jurisdiction relevant to private banking and wealth management?

There is no specific consumer legislation in Monaco.

However, regarding clients’ protection in private banking, professionals have a duty of information and in some cases duty to warn the client about risks related to the contemplated transaction.

For wealth management activities, Law No. 1,338 of 7 September 2007 and Sovereign Ordinance No. 1,284 of 10 September 2007 offer protective provisions for clients. In this regard, prior to entering into wealth management contracts with the client, the private bank or asset manager shall enquire about the client’s objectives, experience in investment and financial situation.

In addition, since the adoption of Law No. 1,448 of 7 July 2017, non-professional Monegasque residents benefit from a jurisdictional privilege in some cases. Under this privilege and notwithstanding any exclusive jurisdiction clause, non-professional Monegasque residents are granted a right to seize the Monegasque Courts. In accordance with the aforementioned law, foreign consumer protection provisions can be applied if the Monegasque bank directs its activities in a foreign country to contract with such a consumer.

Exchange controls and withdrawals

Exchange controls and restrictions

Describe any exchange controls or restrictions on the movement of funds.

There are no exchange controls in Monaco.

Concerning restrictions on cross-border transport of cash and bearer instruments, all individuals entering or leaving the territory of Monaco in possession of cash or bearer instruments whose total amount is more than €10,000 must, on request from the police commission, make a declaration using the form established for this purpose.

Finally, regarding cash payments, the retail sale price of an article whose total value reaches or exceeds an amount of €30,000 may not be paid in cash.

Withdrawal restrictions

Are there restrictions on cash withdrawals imposed by law or regulation? Do banks customarily impose restrictions on account withdrawals?

There is no restriction on cash withdrawals imposed by law.

In the case of a transaction that appears complicated or unusual, particularly a cash transaction, all banking institutions have a regulatory duty to obtain relevant information and supporting documents concerning the transaction from their clients and to ascertain the source and destination of the funds.

Banks usually impose contractual restrictions on account withdrawals in general conditions or in account agreements with clients.

Are there any restrictions on other withdrawals from an account in your jurisdiction?

No, except for contractual restrictions, if any.

Confidentiality

Obligations

Describe the private banking confidentiality obligations.

Managers and employees of financial institutions operating in Monaco are bound by the rules of professional secrecy. A breach of these rules may be prosecuted under the provisions of article 308 of the Criminal Code.

This commitment is designed to protect clients’ interests and create the confidence required for the banking and financial sector to operate effectively.

In their relationships with depositors and borrowers, banks obtain extensive information on clients’ financial status, business affairs and private lives. All of this information is protected by professional secrecy, as is the very existence of a bank account and all of the transactions made to it, particularly those involving asset management.

Scope

What information and documents are within the scope of confidentiality?

The scope of confidentiality covers all information regarding operations carried out on the accounts, the existence of accounts in the name of a person and the nature of these accounts, and the identity of agents or guarantors, as well as information relating to business secrets or privacy.

Precise and non-public information, collected in the privacy of professional relationships with clients, is covered by professional secrecy.

Expectations and limitations

What are the exceptions and limitations to the duty of confidentiality?

As in all countries with an organised financial system, professional secrecy does not apply to information requested by the financial industry’s supervisory and money laundering authorities, which themselves are bound by secrecy rules, or by local legal authorities involved in a criminal investigation.

Pursuant to the 1963 tax treaty between France and Monaco, the other exception to professional secrecy concerns persons with France as their fiscal domicile.

Breach

What is the liability for breach of confidentiality?

Article 308 of the Criminal Code provides that any person who, by his or her position or profession, is the depositary of the secret entrusted to him or her, and who discloses that secret, other than in cases where the law obliges or permits him or her to do so, shall be punished by six months to one year’s imprisonment and by a fine from €8,000 to €18,000, or one of these penalties.

In addition, the client may sue the company with a civil claim for damages relating to violation of professional secrecy.

Cross-border services

Framework

What is the general framework dealing with cross-border private banking services into your jurisdiction?

Concerning banking operations, the French banking restrictions (banking monopoly) apply in Monaco according to treaties between France and Monaco. Banking operations include the receipt of repayable funds from the public, credit operations and banking payment services. Banking operations cannot be conducted in Monaco by a non-authorised entity owing to the principle of banking monopoly.

Financial activities (defined in question 10) in Monaco are subject to a similar monopoly. Any company that wishes to carry financial activities in Monaco is required to obtain an authorisation from the CCAF.

Consequently, cross-border private banking services are strictly prohibited in Monaco.

Licensing requirements

Are there any licensing requirements for cross-border private banking services into your jurisdiction?

No licence exists in Monaco to allow foreign entities to provide cross-border banking or financial services in Monaco. The only way for a foreign bank to carry out banking or financial activities in Monaco is to be licensed by the ACPR (for banking services) and/or by the CCAF (for financial services). An additional authorisation from the Minister of State shall also be obtained.

Regulation

What forms of cross-border services are regulated and how?

Cross-border private banking services are strictly prohibited in Monaco.

Employee travel

May employees of foreign private banking institutions travel to meet clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?

Employees of foreign banking institutions may travel to Monaco to meet clients and prospective clients at their request only, providing that they refrain from performing, in Monaco, any activity considered as a banking or a financial activity (eg, investment advice). This is to be construed very strictly.

In addition, Monegasque Law No. 1,144 of 26 July 1991 provides that any commercial activity conducted in Monaco requires a business authorisation from the Minister of State.

Exchanging documents

May foreign private banking institutions send documents to clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?

Sending documents relating to banking or regulated financial activities in Monaco and their acceptance by clients or prospective clients in Monaco may be considered as the conclusion of underlying operations in Monaco and therefore may fall under the banking monopoly or financial activities licence requirements. It will be analysed on a case-by-case basis.

Tax disclosure and reporting

Taxpayer requirements

What are the main requirements on individual taxpayers in your jurisdiction to disclose or establish tax-compliant status of private banking accounts to the authorities in your jurisdiction? Does the requirement differ for domestic and foreign private banking accounts?

To date, there are none.

Reporting requirements

Are there any reporting requirements imposed on the private banks or financial intermediaries in your jurisdiction in respect to their domestic and international clients?

Reporting requirements leading to a state-to-state exchange of information are imposed according to the following procedures:

  • exchange on request, where a requesting state, on the basis of a bilateral agreement, makes a formal request to Monaco. Such a procedure must meet substantive and procedural requirements. Clients are informed by Monaco and may litigate Monaco’s decision to exchange information, as the case may be;
  • voluntary exchange is a unilateral decision made by Monaco under some specific circumstances. On 13 October 2014, Monaco signed the Convention on Mutual Administrative Assistance in Tax Matters; and
  • automatic exchange: the new automatic exchange of information standard issued by the OECD is effective in Monaco as from early 2018.

Within the framework of the Common Reporting Standard, Monegasque financial institutions are required to collect information on their clients annually.

The collecting operations started on 1 January 2017. The above-mentioned institutions must disclose annually, by 30 June, the collected information regarding the previous calendar year.

The Monegasque tax department, in turn, has until 30 September of each year to disclose to the relevant foreign tax authorities the information collected.

The first annual disclosure occurred for both financial institutions and the Monegasque tax department in 2018, which concerned information collected in 2017.

Client consent on reporting

Is client consent required to permit reporting by the private bank or financial intermediary? Can such consent be revoked? What is the consequence of consent not being given or being revoked?

Client consent is not required. The client may challenge Monaco’s decision to exchange information before a specific chamber of the Monegasque Court of First Instance only if the exchange of information is made on request.

Structures

Asset-holding structures

What is the most common legal structure for holding private assets in your jurisdiction? Describe the benefits, risks and costs of the most common structures.

Private assets are commonly held either directly by the clients or through Monegasque civil companies, trusts or foreign foundations. The benefits, risks and costs would depend of the type of client, the client’s objectives and the client’s estate structuring.

Know-your-customer

What is the customary level of know-your-customer (KYC) and other information required to establish a private banking relationship where assets are held in the name of a legal structure?

When identifying clients that are legal persons, verification must be carried out using the following documents:

  • the original, or an authenticated or certified copy, of a deed or extract from an official register giving the name, legal form and registered office of the legal person;
  • the articles of association of the legal person;
  • any substantiating documents allowing the list of directors to be established; and
  • in case of legal representation of the legal person, any document certifying the power of attorney of the company representative.

Professionals must also understand the economic background of the legal person as well as its structure of ownership and control.

When identifying clients that are legal entities or trusts, professionals should familiarise themselves with the existence, nature, purpose and means of management and representation of the legal entity or trust concerned. This identification also includes familiarity with and verification of the list of persons authorised to administer or represent these clients. Professionals must also understand the structure of ownership and control of the legal entity or trust.

Professionals are to check this information using substantiating documents in written form. For that purpose, a copy of the relevant documents shall be kept.

If the client is a legal entity or trust, the obligations to identify the client will be extended to the identification of the beneficial owner of the legal structure. The effective beneficiary is defined as the natural person who ultimately controls the client or for whom the transaction or the activity is carried out.

Controlling person

What is the definition of controlling person in your jurisdiction?

There is no legal definition of controlling person, per se.

AML legislation provides a definition of the beneficiary owner as being the individual or individuals who, ultimately, own or control the entity. For this purpose, an individual or an entity is deemed to control an entity where the shareholder owns the majority of the voting rights or where the shareholder is empowered to appoint or to revoke the majority of the board members.

In addition, an individual or an entity is presumed to be controlling an entity if it holds at least 40 per cent of its voting rights.

Obstacles

Are there any regulatory or tax obstacles to the use of structures to hold private assets?

There are no regulatory or tax obstacles to the use of structures to hold private assets.

Contract provisions

Types of contract

Describe the various types of private banking and wealth management contracts and their main features.

Private banking contracts include management mandates, advisory agreements, securities account agreements, account agreements and mandates for transmission of orders.

By a management mandate a client gives to the asset management company the authority to administer, on his or her behalf and for his or her account, his or her assets in currency and financial instruments. The asset management company will take all investment decisions without having to consult the client and without obtaining his or her prior approval to any decision to invest.

An advisory mandate allows the client to receive personalised investment recommendations and advice based on his or her profile of risk against payment by the client of an advisory fee.

Clients shall deposit the funds or securities to be managed with a credit institution, which will have custody of the securities, keep the cash and securities account and keep accounts of transactions on the various markets.

Mandates for transmission of orders provide terms and conditions for transmitting orders.

The parties may choose the governing law subject to complying with mandatory provisions of Monegasque law. In practice, Monegasque law is usually chosen as the governing law in private banking contracts concluded in Monaco. It should also be noted that where a banking or wealth management activity is directed in a foreign activity, the chosen governing law cannot be in contradiction with the consumer protection rules of the foreign country in which the client is domiciled. A few exceptions are nevertheless provided by article 70 of the Monegasque Private International Law Code.

Liability standard

What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?

Financial institutions have an information and advice obligation towards their clients. However, it is an obligation of means.

According to case law, courts consider on a case-by-case basis the failure of a private bank regarding its obligations of vigilance, information and advice.

Regarding the vigilance obligation, financial institutions shall detect the apparent abnormalities affecting the client’s account activity.

Concerning the advice obligation, this may be lightened in the case of a sophisticated client or if the client expressly accepted the risks related to the contemplated transaction.

Private banking contracts usually provide a period of between one and six months for contesting operations. Expiry of this period does not prevent the client from contesting the operations, but shifts the burden of proof onto the client rather than the financial institution.

Contractual limitation of responsibility, if any, will not be applicable in the case of gross negligence of the financial institution. Moreover, in the event of litigation, the court will decide on a case-by-case basis upon the application of the contractual limitation of responsibility.

In the case of management mandate or mandate for transmission of orders, the financial institution shall be responsible if it has acted outside of its mandate.

Finally, concerning account agreements, the depository credit institution shall not be responsible for negotiations carried out on its clients’ behalf by the asset management company.

Mandatory legal provisions

Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?

A management mandate shall set out the service provider’s obligations with regard to the client. The agreements shall be drawn up in duplicate and signed by the client and the company. One copy shall be provided to the client.

Before the contract’s conclusion, the company must make enquiries about the client’s objectives, investment experience and financial situation. The proposed services must be adapted to the client’s financial situation and experience in financial products. The authorised company shall provide the client with all relevant information.

The mandate shall include at least the following information:

  • the management objectives;
  • the classes of financial instrument that the portfolio may contain;
  • procedures for informing clients about the management of their portfolios;
  • the method for compensating the company; and
  • the term of the mandate and the conditions for renewing or terminating it.

Where the mandate allows leveraged transactions, the client’s express consent must be given in a special agreement that indicates the conditions under which such transactions are to be carried out and how the client is to be informed of them. The mandate must state the risks inherent in certain transactions.

Concerning accounts agreements, the parties must sign a written agreement in order to open an account. The depository credit institution shall not accept deposits or withdrawals of funds or securities on the asset management company’s initiative unless the client has issued a special power of attorney in writing, renewable for each transaction.

Concerning the reception and transmission of orders, any authorised company mandated to transmit orders with a view to their execution on financial markets by an intermediary authorised to take part in trading must be able to furnish proof that each order has been given by the client. Authorised companies must inform their clients of the conditions for transmitting orders.

Limitation period

What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?

The general limitation period for civil claims in Monaco is five years as from 21 December 2013. A special limitation period is also provided for the claims of professionals against their clients for the services they render.

Private banking contracts usually provide between one and six months for contesting operations. Expiry of this period does not prevent the client from suing in court, but shifts the burden of proof concerning litigious operations onto the client rather than the financial institution.

Disputes

Competent authorities

What are the local competent authorities for dispute resolution in the private banking industry?

Monegasque ordinary courts are competent for disputes in the private banking industry.

Monegasque ordinary courts include the First Instance Court, the Court of Appeal and the Court of Revision.

Disclosure

Are private banking disputes subject to disclosure to the local regulator? Can a client lodge a complaint with the local regulator? How are complaints investigated?

Private banking disputes are not subject to disclosure to the local regulator. However, clients may lodge a complaint with the CCAF regarding financial activities and with the ACPR concerning banking operations.

UPDATE & TRENDS

Recent developments

Describe the most relevant recent developments affecting private banking in your jurisdiction. What are the trends in this industry for the coming years? How is fintech affecting private banking and wealth management services in your jurisdictions?

Recent developments and fintech47 Describe the most relevant recent developments affecting private banking in your jurisdiction. How is fintech affecting private banking and wealth management services in your jurisdictions?

There are two recent developments that are likely to affect private banking activities in Monaco in the near future. On the one hand, the appendices of the Monetary Agreement between Monaco and the European Union have been recently amended. Simply, Monaco is now required to adopt equivalent measures to the provisions of Directive (EU) 2018/843 of 30 May 2018 (Fifth Money Laundering Directive). For this purpose, amendments to the existing Monegasque AML legislation are expected to be adopted before 31 December 2020. On the other hand, Monaco and the European Union are discussing entering an association agreement. A declaration of the EU Parliament of 13 March 2019 describes the principal objectives of this future international agreement. Increased integration of Monaco into the EU market and a specialisation of the relations between the European Union and Monaco are the main official targeted outcomes of this agreement. In practice, the Monaco banking services market might be opened to EU financial institutions and, similarly, Monaco financial institutions might have easier access to the EU market. Consequently, it is likely that the Monaco banking and financial services market will evolve within the next decade.

Fintech

A draft bill to frame blockchain technology in Monaco remains under discussion in the Monegasque parliament since its submission by the Monegasque government on 4 June 2019. This draft bill proposes a secure and unencumbered framework for private bankers and asset managers (among others) to implement blockchain technology into their banking and wealth management activities.