Fund management regulation

Regulatory framework and authorities

How is fund management regulated in your jurisdiction? Which authorities have primary responsibility for regulating funds, fund managers and those marketing funds?

In France, fund management is regulated by European regulations of direct application in France (such as the Market Abuse Regulation) and by French asset management legislation and regulations that specifically implement the European asset management regulations (the undertaking for collective investment in transferable securities (UCITS) directive and the Alternative Investment Fund Managers Directive (AIFMD)) into French law, in particular the regulations enacted by the French portfolio management companies regulator, the AMF.

The AMF is the prudential supervisor of portfolio management companies and the investment funds they manage. The main duties of the AMF include, in particular, the preparation of regulations and rules of good conduct applicable to the asset management industry and to the licensing of French asset managers (SGPs).

A separate and independent enforcement committee of the AMF may also impose disciplinary sanctions on SGPs, investment funds and depositaries.

Fund administration

Is fund administration regulated in your jurisdiction?

Fund administration activities are carried out in France under the supervision of the SGP, which generally delegates such functions (including, inter alia, the net asset value (NAV) calculation of funds) to specialised entities that are not themselves specifically licensed or authorised under French law for performing fund administration activities.

Authorisation

What is the authorisation or licensing process for funds? What are the key requirements that apply to managers and operators of investment funds in your jurisdiction?

Certain funds must be authorised by the AMF before any marketing action. This applies, in particular, to funds distributed to the public and to certain funds directed to professional investors. For licensing by the AMF, a fund (or its SGP) must submit an application file to the AMF, which will review the documentation (prospectus, Key Investor Information Document, etc).

Legal entities that manage one or several UCITS (French or foreign) or alternative investment funds (AIFs), compliant with the AIFMD (ie, SGPs) must hold a fund manager licence.

In this respect, a company that wishes to manage French collective investment schemes, whatever their form (UCITS, private equity funds or real estate funds), must, as a matter of principle, first be duly licensed by the AMF as an SGP (the same requirements apply to self-managed investment funds).

Before licensing a company as an SGP, the AMF will verify, in particular, that:

  • the company’s registered office and central administration are located in France;
  • the company has sufficient initial capital (minimum share capital of €125,000 plus additional amounts of share capital above certain thresholds depending on the assets under management);
  • the company has provided the names of shareholders with significant equity holdings to allow the AMF to assess their qualifications; and
  • the company is managed and its policies are determined by individuals with the necessary integrity, qualifications and experience commensurate with their positions.

 

An additional and key condition is that SGPs must have a structure and procedures in place tailored to the specific asset management activities, most importantly skilled managers, sufficient human and technical resources, suitable internal controls and risk management (with internal procedures preventing conflicts of interests), and a viable business plan.

SGPs managing AIFs are also subject to additional requirements (additional own funds, liquidity management, valuation policy, etc).

The licensing procedure consists of submitting an application file to the AMF, which has a maximum of three months in which to grant the licence to the SGP.

Territorial scope of regulation

What is the territorial scope of fund regulation? Can an overseas manager perform management activities or provide services to clients in your jurisdiction without authorisation?

French asset management regulations have a territorial scope of application.

Any person or legal entity providing investment services on French territory on a regular basis must, as a matter of principle, be duly licensed as an investment services provider (ie, being duly licensed by the French supervisory authorities as an investment services provider or benefiting from the European passport).

This is particularly the case for the provision of the investment services of portfolio management and investment advice.

Similarly, the management of French funds may, as a matter of principle, only be carried out by regulated and licensed portfolio management companies.

Non-compliance with such provisions may expose the offender to criminal sanctions.

Therefore, as a matter of principle, an overseas manager (with the exception of EU passported managers) cannot perform management activities on a regular basis or provide asset management services to clients residing in France without prior authorisation from the French banking and financial regulator.

Acquisitions

Is the acquisition of a controlling or non-controlling stake in a fund manager in your jurisdiction subject to prior authorisation by the regulator?

The AMF must be notified in advance of any transaction that enables a person (acting alone or in concert with other persons) to acquire, increase, decrease or dispose of a directly or indirectly held equity interest in a French SGP when one of the following conditions are met (the qualifying interest):

  • voting rights held by the aforementioned person increase above or below the threshold of a tenth, fifth, third or half of the voting rights of the SGP; or
  • the SGP becomes, or ceases being, a subsidiary of the aforementioned person.

 

Transactions whereby a person acquires or increases a qualifying interest in an SGP are subject to prior authorisation from the AMF.

Restrictions on compensation and profit sharing

Are there any regulatory restrictions on the structuring of the fund manager’s compensation and profit-sharing arrangements?

Compensation of investment managers is governed by French regulations that implement the relevant provisions deriving from the AIFM and UCITS directives.

The purpose of this regulatory regime is to permit sound risk management in the portfolio management companies and enable supervision of employees’ behaviour in relation to risk taking.

In particular, SGPs must establish remuneration policies and practices that are compatible with sound and effective risk management and that apply to all categories of staff whose professional activities have a material impact on the risk profile of the UCITS and AIFs under management.

Law stated date

Correct on

Give the date on which the information above is accurate.

17 April 2020.