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The regulatory regime applicable to banks

i Brief overview of the bilateral relationship between Monaco and France in the banking sector

France and Monaco entered into a treaty on exchange control on 14 April 1945, which established the principle of the application of French banking regulations to credit institutions established in Monaco. The exchanges of letters entered into between France and Monaco on 18 May 1963, 6 April and 10 May 2001, 8 November 2005 and 20 October 2010 detailed the scope of the application of this general principle. Pursuant to such exchanges of letters, the rules provided for in the French Monetary and Financial Code (CMF) governing the organisation, functioning and supervision of credit institutions shall apply to credit institutions established in Monaco.

In addition, pursuant to the provisions of Sovereign Ordinance No. 3.021 of 26 November 2010 implementing the exchange of letters entered into between France and Monaco on 20 October 2010 (Ordinance No. 3.021), Monegasque credit institutions are under the supervision of the French prudential regulator, the ACPR.

Furthermore, in the context of the introduction of the euro in Monaco, Monaco and France, itself acting on behalf of the EU, entered into a monetary agreement on 5 December 2011 (Monetary Agreement), implemented into Monegasque legislation by Sovereign Ordinance No. 3.559 dated 5 December 2011 (Ordinance No. 3.559).

Pursuant to Article 9 of the Monetary Agreement, Monaco:

  1. directly applies, without need for any internal implementation, decisions taken by the European Council in application of Article 129 of the Treaty on the Functioning of the European Union that concern the European system of central banks;
  2. directly applies, without need for any internal implementation, EU legislation relating to bank notes and coins taken in application of Article 133 of the Treaty on the Functioning of the European Union;
  3. directly applies, without need for any internal implementation, EU legislation relating to the activities and supervision of credit institutions, and to the prevention of systemic risks, which are directly applicable in France (i.e., EU regulations) or transposed into French regulations (i.e., EU directives), in particular into the CMF. The EU legislation directly applicable in Monaco is listed under Annex A of the Monetary Agreement; and
  4. implements into Monegasque legislation equivalent measures to those contained in certain EU legislation listed under Annex B of the Monetary Agreement. The EU legislation listed under Annex B regards the fields of financial law, anti-money laundering regulations, and the fight against fraud and counterfeiting.

The list of EU legislation included under Annex A of the Monetary Agreement is amended by the European Commission from time to time whenever the texts concerned are amended and whenever a new text is adopted by the EU, taking into account the date of entry into force and, as the case may be, the date of their transposition into French legislation (although, formally, any modification of the list provided for under Annex A is published in Monaco through the publication of a sovereign ordinance in the official legal gazette of Monaco).

Where they come from an EU directive and must be transposed into French legislation, the legal measures set out under Annex A should be applied by Monaco as soon as they are incorporated into French law.

As regards EU legislation included under Annex B, a joint committee composed of representatives of Monaco and representatives of the EU is competent to amend the list under Annex B and to examine the equivalence between the legal measures taken by Monaco and those taken by EU Member States. Decisions from the joint committee are made unanimously.

On the contrary, and pursuant to Article 11 of Ordinance No. 3.021, French regulations that do not strictly concern the organisation and regulation of credit institutions do not apply in Monaco. Consequently, Monegasque credit institutions remain subject to Monegasque-specific regulations in all other fields, such as notably contract law, securities law, anti-money laundering law and financial activities. Such financial activities are governed by Law No. 1.338 of 7 September 2007 (Law No. 1.338) and Sovereign Ordinance No. 1.284 of 10 September 2007, and are defined as follows:

  1. management, on behalf of third parties, of a portfolio of securities or forward financial instruments;
  2. management of mutual funds or other collective investment vehicles incorporated under Monegasque law;
  3. receipt and transmission on financial markets of orders relating to securities or forward financial instruments on behalf of third parties;
  4. provision of advice or assistance in the areas referred to in (a) to (c) above;
  5. execution of orders on behalf of third parties;
  6. management of collective investment vehicles incorporated under a foreign law; and
  7. proprietary dealing.

Consequently, a credit institution carrying out such financial activities in Monaco will also be subject, for those activities, exclusively to this specific Monegasque legislation and under the local supervision of the CCAF.

ii Legal forms of Monegasque credit institutions and licensing requirements

Monegasque credit institutions may take the form of either a local limited liability company, the société anonyme monégasque (SAM), or a registered branch of a foreign banking company. In practice, the Monegasque authorities now tend to require that any new banking establishment in the Principality takes the form of a local SAM, and do not favour the setting up of branches of foreign credit institutions, with the exception of branches of French credit institutions involved in retail banking activities.

Pursuant to Law No. 1.144 of 26 July 1991 governing the conditions to exercise economic activities in Monaco, in particular banking activities, and to Ordinance No. 3.021, the creation of a Monegasque credit institution, whether in the form of a SAM or in the form of a local branch, is subject to the delivery of both an authorisation from the government and a licence from the ACPR, which will ensure that the prudential requirements imposed by both EU and French legislation are satisfied.

Ordinance No. 3.021 further states that a representative of the government attends all meetings of the ACPR that are considering files related to Monegasque credit institutions and that, before granting a banking licence to a credit institution, the ACPR should confirm that the establishment of such credit institution has been, in principle, approved by the government.