France is embarking on a major reform of the banking sector as a result of the financial crisis, making it the first European country to set off on a reform of such a scale. This is the most important banking law reform in France since the Banking Law of January 24, 1984.
The Bill [n°365 (2012-2013)] (“the Bill”) separates banking activities, implements a new regime for banking resolution, creates a Financial Stability Board (conseil de stabilité financière) andinstitutes new protective measures for banking consumers. After being modified by the French Senate, the Bill has been sent back to the French National Assembly for a second reading.
Separation of Proprietary Trading Activities from the Activities for Financing the Economy
Inspired by the now repealed Glass-Steagall Act of 1933 and the current Volcker Rule, the Bill will separate financing activities and customer services from the proprietary trading activities in order to reduce the risks incurred by the depositors. Proprietary trading activities will be restricted to banking institution’s autonomous and separate subsidiary.
Moreover, the Bill will forbid banking institutions from owning hedge funds in order to stop the transfer of speculative operations which could endanger them.
The New Regime for Bank Winding Up
The Prudential Supervisory Authority (Autorité de contrôle prudentiel) will be renamed the Prudential Supervisory Authority and Resolution (Autorité de contrôle prudentiel et de résolution) (“ACPR”) and will be given the tasks to prevent bank difficulties and to undertake of winding up measures.
Furthermore, the ACPR will now have the power to forbid banking institutions from undertaking investment and commercialization operations likely to endanger the financial stability and the smooth functioning of the financial markets.
Under the proposed Bill, shareholders of banking institutions might have to bear some losses in the event of a public rescue. In addition, a new guarantee fund will guarantee the losses incurred in case of bankruptcy.
Prevention and the Fight against Systemic Risks
In order to implement the Basel III Agreement, the Financial Stability Board (Conseil de stabilité financière), will replace the Council of Financial Regulation and Systemic Risk (Conseil de régulation financière et du risque systémique) (COREFRIS).
In addition to the current prerogatives of the COREFRIS (cooperation and exchange of information between banking institutions, risk assessment and synthesis of the work on international standards development), the Financial Stability Board will be charged with identifying the systemic risks incurred by the banks and will have the power to prescribe riskreduction measures (capital requirements, control of credit granting, etc.).
Protection of Banking Consumers
The Bill also includes several provisions dealing with the protection of banking consumers, such as imposing upper limits on bank charges for the most vulnerable customers or the improvement of personal insolvency procedures.
Finally, the Bill contains several provisions without any direct link to the separation and the regulation of banking activities. These deal with the equality of access of men and women to insurance products, partial release of an account holder in the event of the death or access to the national database of incidents of credit repayment of natural persons (fichier national des incidents de remboursement des crédits aux particuliers).
The transparency of financial statements, the scope of the upper limit of intervention commissions and an article of the Corrective Finance Law of 2009 relating to the transfer of ownership of the assets of the former Iraqi regime were also modified.
A Bill to be watched.