Private banking and wealth management

Regulation

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

The main sources of law and regulation regarding private banking in France are described below.

French banking legislation

The primary laws are set out in the Monetary and Financial Code promulgated in December 2000, which comprises a number of laws, in particular the Banking Act of 24 January 1984, which provides for the ordinary legal status of credit institutions and their supervision, and the Financial Act of 2 July 1996, which concerns not only investment firms but also credit institutions in their activities constituting investment services.

In addition, the ordinance of 23 June 2016 implemented Directive 2014/65/EU (MiFID II) while the ordinance of 1 December 2016 and the law of 9 December 2016 (Loi Sapin 2) reinforced anti-money laundering and anti-corruption rules.

French banking legislation supplemented by European Union Law

Most EU directives are directly applicable in France. EU law includes the Capital Requirements Directive IV package, which became applicable in France in 2014 that dictates:

  • the global standards for banks;
  • the conditions governing the access and conduct of the business of banks;
  • the rules on freedom of establishment and freedom to provide services; and
  • the principles and technical instruments for prudential supervision and information and all prudential requirements.

In particular, Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms and Regulation (EU) No. 1024/2013 of 15 October 2013, which entrusted the European Central Bank (ECB) with the prudential supervision of credit institutions in euro-area member states.

Regulatory bodies

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

The power to regulate the banking and financial sector is now shared between the EU legislature (the EU Parilament and EU Council), the Financial Markets Authority (AMF) and the Minister of Economy and Finance, assisted by a consultative authority, the Advisory Committee on Financial Legislation and Regulation.

Prudential and Resolution Control Authority (ACPR)

Until the law of 20 January 2017, the prudential control and resolution authority was qualified as an independent administrative authority. It now appears as an ad hoc entity without any legal personality, operated under the supervision of the French Central Bank.

The ACPR has a supervisory and control mission that has two objectives: the preservation of the stability of the financial system and the protection of clients, policyholders, participants and beneficiaries of persons under its control. Thus, it is responsible for supervising and controlling the financial system and granting and withdrawing licences for banking activities.

Financial Markets Authority

The AMF, an independent public authority with legal personality, ‘comprises a college, a sanctions commission and, where appropriate, specialised commissions and advisory commissions’. It is responsible for ensuring the protection of savings, investor information and the proper functioning of financial instruments markets, and is vested with several powers with regard to markets, professionals intervening in them and, more generally, all participants, issuers and investors. It has regulatory power, supervisory power concerning the regularity of transactions and compliance with professional obligations, power of injunction, direct and indirect power of sanction, both administrative and disciplinary, and power of administrative composition, which is a power of transaction. The AMF thus has complete power: it is a legislator, a judge and a police officer.

Minister of Economy and Finance

The minister has exclusive jurisdiction in respect of general conditions governing the relationships of credit institutions with customers, instruments and credit rules.

ECB

The ECB supervises all banks in the euro area, in the framework of the single supervisory mechanism (SSM). It is responsible for ensuring appropriate monitoring of all those banks’ performance under supervisory tasks. The ECB has a responsibility in particular for the direct supervision of banks:

  • having assets of more than €30 billion or constituting at least 20 per cent of their home country’s gross domestic product (GDP); and
  • which have requested or received direct public financial assistance from the EU Financial Stability Facility or the EU Stability Mechanism.
Private wealth services

How are private wealth services commonly provided in your jurisdiction?

Private wealth services are provided by banks and asset management companies, but they are also provided by family offices - organisations specialising in the administrative and financial management of important assets.

Definition of private banking

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

There is no legal definition of a private bank: it is a specialised financial institution which may be an independent bank or a bank tied to a banking network. All the major banks have their own private banking centres, either set up by themselves or acquired as an existing family establishment.

A private bank will offer financial and portfolio management services, sometimes including real estate investments, in addition to personalised services tailored to the client’s situation or wishes.

Licensing requirements

What are the main licensing requirements for a private bank?

Private banking activities are not specifically regulated. These activities, which combine the performance of credit activities and the performance of investment activities, require an investment services licence and a banking licence. The French legal framework does not set out specific licensing requirements for the provision of private banking and wealth management services. The relevant licensing requirements are those imposed on banks when they apply for their authorisation.

Applications for bank licences must be presented to the ACPR under the conditions below:

  • suitability of the legal form for the proposed activity;
  • minimum paid-up capital;
  • programme of operations, technical and financial resources and organisation;
  • identity and status of capital contributors, and where applicable, of their guarantors, and the size of their holding;
  • central administration located in the same national territory as the registered office;
  • 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.

While the ACPR is involved in the authorisation decision and its preparation, the decision on authorisation now rests with the ECB. The ACPR still remains competent:

  • for decisions to refuse authorisation; and
  • for licensing branches of banks in third countries.
Licensing conditions

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

The ACPR must be informed if there are changes to the credit institutions that may affect one of the conditions above necessary for licence authorisation.

Organisational forms

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

While a credit institution cannot be constituted as a personal business, no particular legal form is required by the French Code. However, this freedom to choose the form is not absolute; not only must specific legal statutes be taken into account, but also the form chosen must be adapted to the activity of banks.

In practice, the most common form or organisation for a private bank is a French société anonyme (limited company).

Licences

Obtaining a licence

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

All applications for accreditation must be submitted to the ACPR. The ACPR’s commission examines whether the application meets all the requirements of French law. If this is the case, it shall, within the period prescribed by French law, adopt a draft decision proposing to the ECB that authorisation be granted. The draft shall be notified to the ECB and to the applicant. If the application does not meet the requirements, it shall reject the application for authorisation. The ECB must act within the time limit set by national law; six months in principle, the maximum period being 12 months.

All applications for accreditation must be submitted to the ACPR. The ACPR’s commission examines whether the application meets all the requirements of French law, and it has six months to decide from receipt of a completed file. As from receipt of a properly constituted application for approval, failure to reply by the end of the six-month period shall constitute an implicit decision to reject. If this is the case, it shall, within the period prescribed by French law, adopt a draft decision proposing to the ECB that authorisation be granted. The draft shall be notified to the ECB and to the applicant. If the application does not meet the requirements, it shall reject the application for authorisation. The ECB must act within the time limit set by national law; six months in principle, the maximum period being 12 months.

Licence withdrawal

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

Both the ECB and the ACPR have the right to initiate the withdrawal of a banking licence in certain circumstances. A licence will be withdrawn:

  • at the request of credit institutions; or
  • automatically:
    • if the establishment no longer meets the conditions or commitments to which its approval was subject;
    • if the establishment has not made use of its approval within 12 months; or
    • if the establishment has not operated for at least six months.

Decisions refusing approval may be appealed in the following circumstances:

  • if the ECB has decided to reject the application, the appeal must be lodged with the Court of Justice of the European Union; or
  • if the refusal has been decided by the ACPR, an action for annulment must be brought before the French Council of State.
Wealth management licensing

Is wealth management subject to supervision or licensing?

The following financial activities are subject to licensing:

  • order reception and transmission for third parties;
  • order execution for third parties;
  • proprietary trading;
  • portfolio management for third parties;
  • investment advice;
  • underwriting;
  • guaranteed placement;
  • non-guaranteed placement; and
  • operation of a multilateral trading facility.
Requirements

What are the main licensing requirements for wealth management?

In order to obtain a licence authorising the financial activities mentioned in question 10, a licence application for investment services must be sent to the ACPR and shall fulfil the following conditions:

  • registered office located and business effectively run in France;
  • sufficient initial capital and appropriate financial resources for the proposed activities;
  • identity and status of direct and indirect shareholders, 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 propriety, knowledge, experience and fitness requirements, both individually and collectively, and also satisfy availability requirements;
  • managers of key functions must meet propriety, knowledge, experience and fitness requirements;
  • suitability of the legal form for the proposed activity; and
  • a programme of operations for each of the proposed services, and, where applicable, a programme of operations for the portfolio management or investment advice activity approved by the AMF.

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

The requirements for granting the licence must be maintained on an ongoing basis.

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?

Some obligations are applicable to entities regulated by the AMF.

Obligation of vigilance

This implies maintaining updated identification of clients, including occasional clients and effective beneficiaries of ‘legal personality’ clients. The level of vigilance depends on the level of risk incurred. This obligation requires professionals to perform their own classification of the risks and to implement a formalised control system for their activity developed in accordance with the AMF guidelines specifying certain provisions on the prevention of money laundering and the fight against the financing of terrorism.

Obligation to report suspicions to TRACFIN

France’s anti-money laundering unit, TRACFIN, handles the processing of information and action against illegal financial entities. The obligation to report any suspicions is based on money laundering risk analysis and applies to any suspicion of tax fraud or breaches of ordinary law punishable by a prison sentence of more than one year. In 2017, 71,000 reports were received by TRACFIN in the fight against money laundering and terrorist financing.

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?

The 4th Money Laundering Directive and the provisions in paragraphs 2 and 3 of article L. 561-10 define PEPs as follows:

The client, where applicable his beneficial owner, the beneficiary of a life insurance or capitalisation contract, where applicable his beneficial owner, is a person who is exposed to specific risks because of the political, judicial or administrative functions he or she exercises or has exercised on behalf of another country or those exercised currently or in the past by direct family members or persons known be closely associated with him or her in the course of a business relationship.

The product or operation presents, by its nature, a particular risk of money laundering or terrorist financing, in particular when they promote anonymity.

The nature of the additional vigilance to be implemented with respect to business relationships with PEPs is specified within the organisation’s internal procedures. The measures implemented are based on objective elements according to the risk profile of each of the business relationships with PEPs.

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.

The bank has obligations in terms of customer knowledge, particularly regarding combating money laundering and terrorist financing. These obligations begin before entering into a business relationship with the client. As such, before opening an account, verification must be carried out, including:

  • ensuring the identity of the applicant:
    • for an individual, by the production of a valid official document carrying his or her photograph (national identity card or passport, generally); and
    • for a legal person, by the production of any act or official register extract dating from less than three months prior (Extrait KBis business identity card);
  • checking the applicant’s home address using a recent proof of address, such as a rental agreement, telephone or electricity bill, rent receipt or insurance certificate;
  • asking about the purpose and nature of the business relationship and any other relevant information about this customer; and
  • requesting a specimen of the applicant’s signature.
Tax offence

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

Regarding the general offence of money laundering, any misdemeanour or felony can constitute a predicate offence, including a tax or an embargo offence, if the perpetrator of the predicate offence results in a profit or receives an asset from that offence. The offence of money laundering is independent of the predicate offence. Therefore, French courts could consider that, under certain circumstances, a predicate offence exists even if:

  • it falls outside the territorial scope of French criminal law, as it was committed entirely abroad;
  • the perpetrator of the predicate offence was not charged or even prosecuted;
  • the statute of limitations applicable to the predicate offence has expired;
  • the perpetrator of the predicate offence is immune to prosecution; or
  • the circumstances of the predicate offence are not fully established.
Compliance verification

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

The new article 1740 A-bis of the General Tax Code provides that where the tax authorities impose an increase of 80 per cent on the taxpayer (in the event of abuse of rights or fraudulent practices), any natural or legal person who, in the exercise of a professional advisory activity of a legal nature, financial or accounting or holding property or funds on behalf of a third party, intentionally provided that taxpayer with a benefit directly enabling the commission of the sanctioned conduct, is liable to a fine of €10,000, which may be increased to 50 per cent of the income derived from the benefit provided to the taxpayer.

Moreover, on 13 March 2018, EU economic and financial affairs ministers adopted the EU Commission’s June 2017 proposal on new transparency rules for intermediaries designing or selling potentially harmful tax regimes.

Liability

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

Disregard of professional obligations is punished by the ACPR, usually by a reprimand, a financial penalty and public notification, the extent of the penalty depending on the number of grievances and breaches against the credit institution. However, disciplinary liability is not the only one that can be applied, civil and criminal liability can also apply.

Client categorisation and protection

Types of client

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

There are three types of client:

  • non-professional client: any client who does not fall into either of the other two categories, or who optionally applies to be recognised as a non-professional client;
  • professional client: a client with the experience, knowledge and expertise to make his or her own investment decisions and properly assess the risks involved. They are classified by both nature and size; and
  • eligible counterparties: professional legal persons authorised or regulated to operate on the financial markets.

There are three types of opt-out:

  • from eligible counterparties to professional client:
    • at the initiative of the institution or at the request of the counterparty;
    • on a case-by-case basis or by general agreement; or
    • the institution is not under any obligation to accept; and
  • from professional client to non-professional client:
    • at the initiative of the institution or at the request of the client;
    • requires a written document;
    • either in general or for certain services, types of transactions or products only; or
    • the institution is not under any obligation to accept; and
  • from non-professional to professional client on several conditions:
    • an adequate assessment of knowledge and experience; and
    • a verification of a certain number of criteria such as the transactions carried out, the value of the portfolio, etc.

The exercise of the option is subject to a restricted procedure, written notification of the client and information, etc.

Client categorisation

What are the consequences of client categorisation?

The purpose of client categorisation is to establish different levels of client protection based on their knowledge of financial instruments and services and their ability to bear the risks involved. The highest level of protection is granted to non-professional clients. In particular, they should benefit from services whose adequacy and appropriateness must first be assessed on the basis of their profile and more complete information. Accordingly, the lowest level of protection is reserved for eligible counterparties, who, for example, are the only ones that do not benefit from the best protection obligation. This categorisation applies to all clients, regardless of nationality.

The purpose of client categorisation is to establish different levels of client protection based on their knowledge of financial instruments and services and their ability to bear the risks involved. The highest level of protection is granted to non-professional clients. In particular, they should benefit from services whose adequacy and appropriateness must first be assessed on the basis of their profile and more complete information. Accordingly, the lowest level of protection is reserved for eligible counterparties, who, for example, are the only ones that do not benefit from the best protection obligation. This categorisation applies to all clients, regardless of nationality. With the entry into force of MiFID II, service providers will have to comply with new obligations, in particular a greater obligation of transparency on the costs for which information must be provided annually and must cover all costs and expenses associated with financial instruments, in absolute value and percentage.

Consumer protection

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

It is the purpose of customer protection rules and the duty of each professional to reduce this asymmetry of information so that each customer can be offered products adapted to his or her needs and expectations in order for him or her to make his or her purchase or subscription decision in an informed manner. This is crucial for public confidence in the financial sector. The role of the ACPR is to promote fair business conduct and practices among professionals, taking into account the interests of clients, limiting risks to clients and preventing conflicts of interest to the detriment of clients.

Some principles can be identified in terms of good business conduct and customer protection:

  • to ensure that the client is properly informed and that explanations are given fairly, including on costs and risks;
  • ensuring that the client’s interests are taken into account in all circumstances and that excessive risks are not transferred to the client; and
  • beyond the necessary compliance with regulations, these principles of clarity and loyalty towards customers must govern the conduct of companies and their staff.

Exchange controls and withdrawals

Exchange controls and restrictions

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

The freedom of transfer of funds presupposes not only that they are not subject to prior authorisation, but also that the operations at their origin are not either. Otherwise, this authorisation indirectly limits the said transfers. With certain exceptions, transfers of funds - known as investments - are not subject to prior authorisation and are themselves free. Individuals and companies are free to open foreign accounts and foreign currency accounts in France, and credit institutions may grant loans to non-residents. However, this is a freedom supervised by the public authorities; the transfer of funds generates an obligation of information, at the expense of both banking institutions and non-banking agents. These obligations are imposed for monetary, fiscal or anti-money laundering reasons without being considered as obstacles to the freedom of cross-border transfers.

Withdrawal restrictions

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

Credit institutions are covered by article R. 152-1, I of the Monetary and Financial Code. According to this article, these institutions:

are required to draw up monthly statistical returns relating to payments between residents and non-residents, made in France and exceeding €12,500, on the basis of information communicated to them by the residents who are the authors or beneficiaries of these payments.

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

French law does not prescribe other restrictions. On the contrary, there is genuine political will to provide a regulatory framework for cryptocurrencies; first by establishing a real tax regime, and then by setting up an authorisation for digital service providers with the AMF, as well as the possibility of investing in these securities through a life-insurance contract.

Confidentiality

Obligations

Describe the private banking confidentiality obligations.

For a long time, no text expressly provided banking secrecy. If it was recognised that the banker was bound by a civilly sanctioned duty of discretion, there was discussion as to whether this secrecy should be sanctioned criminally. The Banking Act of 24 January 1984 removed all uncertainty by referring to the Criminal Code. It is therefore clear that bankers must refrain from disclosing information about their clients, under penalty of civil and criminal sanctions.

Based upon respect for private life, confidentiality obligations are simply about protecting the customer - more generally the persons concerned by confidential information - so that they can waive secrecy and thus authorise the banker to communicate the said information. In the absence of such authorisation, banking secrecy precludes any communication; it is said to be enforceable against third parties.

Persons liable for the obligation to secrecy are defined in article L. 511-33, I of the Monetary and Financial Code. These are all those who, in any capacity, participate in the management or direction of a credit institution or who are employed by it. In addition to this first tier of debtors, a second tier includes persons who, in the course of their duties, may obtain access to confidential information held by credit institutions. Thus, for example, all persons participating in the supervisory tasks entrusted to the ACPR are bound by professional secrecy.

Scope

What information and documents are within the scope of confidentiality?

Banking secrecy covers only confidential information. The banker is therefore prohibited from disclosing to third parties the amount of an account balance or the amount of credit granted to a customer. However, general information that may be given by a banker to a third party that enquires about the creditworthiness of one of his or her clients is not confidential. This information is of such a nature if the banker merely indicates that due dates are difficult or that payments are regular.

Expectations and limitations

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

Exceptions to banking secrecy are tending to increase. The causes of this are various, among them are the control of the administrative authorities over credit institutions, the controls exercised over customers, internal cooperation between the various financial authorities and European cooperation. Because of the basis of banking secrecy, namely the protection of customers, these derogations are strictly interpreted. Thus, there a limited series of exemptions:

  • direct exemptions: according to paragraph 2, I of article L. 511-33 of the Monetary and Financial Code, ‘in addition to cases where the law so provides, professional secrecy may not be invoked against the Autorité de contrôle prudentiel et de résolution, the Banque de France, the judicial authority acting in criminal proceedings or committees of inquiry’; and
  • indirect exemptions: where persons to whom banking secrecy cannot be invoked are authorised to communicate information of which they have knowledge. In principle, these persons are themselves bound by professional secrecy. However, the Monetary and Financial Code provides for cases where communication may take place.
Breach

What is the liability for breach of confidentiality?

According to article L. 511-33 of the Monetary and Financial Code, any person who does not comply with this obligation can face tortious or criminal liability. The disclosure of information subject to banking confidentiality is punishable by up to five years’ imprisonment and a €300,000 fine (article 226-16 of the French Penal Code).

Cross-border services

Framework

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

A service provider authorised in France that intends to do business in another EU country must notify the French regulatory authority before starting its activities. Depending on the intent to create an establishment or to exercise the freedom to provide services across the European Union, a specific notification form should be sent to the regulatory authority. Once it has given its decision, services authorised in France can be provided across the European Union. Moreover, the French service provider must appoint a senior manager for the new EU member state branch. Before the appointment can be effective, the French authority must be notified in order to give its approval.

Licensing requirements

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

Banking or financial institutions with a registered office in France can benefit from the European passport if the following conditions are met:

  • the institution is a subsidiary of one or more Etablissements de Crédit (ECs) approved in France and holding at least 90 per cent of the voting rights attached to its shares;
  • the parent undertaking or undertakings shall justify the prudent management of the financial institution and declare, with the agreement of the ACPR, that they are jointly and severally liable for the commitments entered into by the financial institution; and
  • the financial institution effectively provides banking services of the same kind on the territory of the French Republic and is included, in particular for those activities, in the supervision on a consolidated basis to which its parent undertaking or each of its parent undertakings is subject.
Regulation

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

See questions 25 and 26.

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?

The European passport enables banking institutions, having obtained authorisation from the authority of their country of origin, to operate throughout the EU or in a state party to the Agreement on the European Economic Area (EEA). If a banking institution in another member state wishes to provide its services in France, the term ‘passport in’ is used; if a French management company wishes to provide its services in the EU or in another state party to the EEA Agreement, the term ‘passport out’ is used.

The AMF ensures that branches established in France under cover of the European passport comply with the laws and regulations applicable to them. A regularly updated list of foreign management companies holding the European passport in France and the associated valid services and activities is available on the AMF’s GECO database.

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 France and their acceptance by clients or prospective clients may be considered as conclusion of underlying operations and could fall under the banking or financial activities licensing requirements.

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?

France has imposed a requirement to disclose any foreign bank accounts and any foreign life insurance policies.

Moreover, until December 2017, France allowed taxpayers to voluntarily repatriate their assets, subject to less heavy penalties than during a tax audit and control. This ‘Service de traitement des déclarations rectificatives’ has generated nearly €7 billion in revenue in three years.

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?

Institutions that pay interest, dividends, income or other income from transferable securities (the ‘paying institutions’) are required to submit an annual summary declaration, known as the Imprimé Fiscal Unique (IFU), to the French tax authorities no later than 15 February following the year in which they made these payments.

In banking institutions, failure to comply with this obligation may lead to:

  • commercial difficulties, with payment recipients needing these elements to prepare and verify (pre-filled returns) their own tax returns; and
  • tax penalties, the amounts of which may prove significant in the event of repeated infringements (a fine equal to 50 per cent of the sums not declared).

Sending accurate and complete IFUs is therefore a major annual challenge for banks. Thus, the IFU can no longer be considered a simple formal obligation to limit the risks of non-reporting of income by customers. In just a few years, this declaration has become a strategic subject, in terms of both taxation and commercial and marketing responsibility.

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?

No consent is required.

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.

Insurance policies

Life insurance may be the preferred investment for French people. First, life insurance is a savings product whose gains on withdrawal or surrender are taxed less the longer the contract is held (for gains from premiums paid before 27 September 2017). It is important to know this so as to optimise the management of these policies. Life insurance benefits from a specific civil regime in terms of transmission; the sums paid to the beneficiaries of the contract at the time of the insured’s death are paid out outside the estate. These sums are transferred without tax to the beneficiary, up to €152,500 per person, if they come from premiums paid by the subscriber before the age of 70.

Consequently, life insurance is the ideal investment to meet three objectives:

  • to enhance the value of capital;
  • to receive additional low tax income, immediately or in retirement; and
  • to optimise the transfer of assets.
Civil companies

A société civile is an entity with civil activity that does not correspond to a business entity for which the law assigns a commercial nature as a result of its form (ie, type of entity) or purpose.

They are subject to the tax treatment of partnerships is characterised by the taxation of profits, not in the name of the legal entity, but in the personal name of each of the partners for the fraction corresponding to his or her rights.

A société civile immobilière (SCI) can be an ideal tool to make many real estate investments that could not have been made by one person alone. It makes it possible to raise capital in order to increase the financial capacity of the partners and to facilitate the obtaining of external financing (in particular bank loans), with a view to purchasing a property complex or a rental property portfolio (furnished rental SCI). An SCI also makes it possible to pool (share) the expenses and costs related to the holding of real estate. The civil real estate company of attribution makes it possible to prepare the division between the partners of a real estate property.

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?

In order to establish a banking relationship with a structure, the following information is required:

  • name of the structure;
  • legal form;
  • names of the members of the representative body;
  • registration numbers;
  • activity of the company;
  • address, phone number and email address; and
  • an extract from the register.
Controlling person

What is the definition of controlling person in your jurisdiction?

A ‘controlling person’ or ‘beneficial owner’ is defined as the individual who directly or indirectly owns or controls the company. Under no circumstances may it be a legal person. The beneficial owner is:

  • an individual holding, directly or indirectly, more than 25 per cent of the capital or voting rights of the company;
  • an individual who exercises, by other means, a power of control over the management, administrative or management bodies of the company or over the general meeting of its members or shareholders; or
  • only in the absence of identification of an ultimate beneficiary, according to the two preceding criteria, the individual who directly or indirectly occupies (through one or more legal persons) the position of legal representative of the company.
Obstacles

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

No.

Contract provisions

Types of contract

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

There are several types of private banking contract:

  • investment advisory agreements;
  • bank account agreements; and
  • asset management agreements.

These contracts are usually accompanied by a general private banking framework describing the features of the new relationship between the individual and the private bank.

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?

The sanctions incurred by credit institutions are various; they may be professional, criminal or civil. The most general sanction remains the civil liability of credit institutions, which obeys the rules of ordinary law; it is tortious towards third parties and contractual in the relations of credit institutions with their customers.

Credit institutions generally incur liability in tort for their personal acts and for the acts of their employees, whereas the extent of the contractual liability depends on the obligations stipulated by the contracts binding them to their customers. However, this responsibility is sometimes difficult to retain because many contracts are only verbal, which makes it difficult to prove the content of the obligations. Even if this proof is provided, compensation may only be partial, or even excluded, if clauses lightening liability have been stipulated, which is common in banking matters.

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?

There are no specific mandatory provisions or requirements imposed by law or regulation with respect to private banking. Nevertheless, according to the MiFID II Regulations, a written framework agreement between the financial institution and its private client is required.

This cannot be satisfied by a simple discussion between the private banker and his or her client, no matter how thorough and regular it may be. The client must systematically and periodically answer long and precise questionnaires.

MiFID II also requires banks always to have their customers sign a contract. Until now, some forms of advice were given without a contract.

In order to guarantee maximum transparency, banks will have to send information regularly to their customers about the validity of what is offered to them, the characteristics of the products purchased and on the fees they are charged.

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 applicable limitation period for claims under a private banking contract is the ordinary five-year limitation period. Since this limitation is provided by law, it is not possible for parties to waive or alter it.

Disputes

Competent authorities

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

French private courts such as Tribunal de Grande Instance, Court of Appeals and the Court de Cassation are competent to rule on disputes relating to banking and financial services.

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?

There is no general obligation to disclose the outcome of private banking disputes to such authorities.

The ACPR has no jurisdiction to settle any dispute. However, the ACPR can provide the client with general information on the regulations and to whom the client can address his or her complaint.

In addition, sending a copy of the complaint that the client sent to the professional to the ACPR is useful in order to be informed of areas of dissatisfaction and to detect the worst practices.

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?

The banking sector, particularly the private banking sector, has been in the grip of major changes over recent years. It must face many complex factors that weigh on their profitability and the level of customer service such as:

  • increased regulatory weight;
  • lower returns on financial assets;
  • the emergence of new customer needs; and
  • the recent management and transparency of tariffs.

In addition, it must also face the rise of fintech. Several banks have included these in their service offerings.

Today, according to Banque de France, France is the leading European country using internet banking services, leading to many foreign companies to set up in France. Finance accounts for more than 4 per cent of French GDP; it is the third largest sector in the Île-de-France region in terms of employment; and, according to Business France, the country has nearly 750 fintech companies.

At the regulatory level, fintechs in France benefit from more flexible regulations than banks. But some sectors are regulated, in particular by the implementation of the RGPD regulation and crowdfunding. The AMF, in partnership with the ACPR, has created the fintech, innovation and competitiveness cluster to help develop a financial centre of excellence in terms of both the level of security and the ability to adapt regulations. In January 2019, Finance Innovation and a global competitiveness cluster of five French fintechs created WealthCockpit to rethink the world of private banking. To date, France has opted for the ‘tailored regulation’ system, as in the Netherlands, instead of the German ‘same risks, same regulation’ or English ‘sandbox’ systems.