Monaco
Assessment of the Supervision and Regulation of the Financial Sector Volume II––Detailed Assessment of Observance of Standards and Codes

The detailed assessments of the Offshore Financial Center Assessment of Monaco reviews the assessments of the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) related principles of the Basel Core Principles for Effective Bank Supervision, of the AML/CFT regime based on the Bank/IMF Draft Methodology, and of securities regulation on the basis of the International Organization of Securities Commissions Objectives (IOSCO) and Principles of Securities Regulation.

Abstract

The detailed assessments of the Offshore Financial Center Assessment of Monaco reviews the assessments of the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) related principles of the Basel Core Principles for Effective Bank Supervision, of the AML/CFT regime based on the Bank/IMF Draft Methodology, and of securities regulation on the basis of the International Organization of Securities Commissions Objectives (IOSCO) and Principles of Securities Regulation.

I. Introduction

1. The detailed assessments in this volume of the Offshore Financial Center Assessment of Monaco were carried out during the mission of April 22 to May 3, 2002, by a team that consisted of Ms. Mary G. Zephirin (Mission Chief), Ms. Jennifer Elliott (both MFD), Messrs Louis Forget (Consulting Counsel, LEG), Marcel Maes (Banking Consultant), and Ronald Ranochak (Consultant on companies and trusts service providers). They were updated in May 2003 to take account of legislative changes made, and regulatory measures undertaken, since the mission. The assessments include assessments of the AML/CFT-related principles of the Basel Core Principles for Effective Bank Supervision, of the AML/CFT regime based on the April 2002 Bank/Fund Draft Methodology, and of securities regulation on the basis of the IOSCO Objectives and Principles of Securities Regulation.

II. Basel Core Principles for Effective Banking Supervision

2. As described in Volume I, the Monegasque banking system is subject to French banking law and regulation and the supervision by the French Commission Bancaire (FCB). In 2000, France completed a self-assessment and received an IMF-led assessment of its compliance with the Core Principles for Effective Banking Supervision as developed by the Basel Committee on Banking Supervision. By extension, the conclusions from these assessments are broadly applicable to the supervision of the Monegasque banking system.

3. However, given the specific responsibility of the Monegasque authorities for AML/CFT, the supervisory regime in place was assessed vis-á-vis Basel Core Principle (BCP) 1.6 and BCP 15.

Table 1.1.

Detailed Assessment of Compliance of Two of the Basel Core Principles

article image
article image
article image

Authorities’ response to the assessment

4. The authorities’ response is given in paragraph 17, Chapter III, Section F.

III. Anti-Money Laundering and Combating the Financing of Terrorism

A. General

5. The assessment of the AML/CFT arrangements in Monaco, based on the April 2002 Bank/Fund AML/CFT Methodology,1 was coordinated by Louis Forget with sectoral inputs from Jennifer Elliott, Marcel Maes, Ronald Ranochak, and the legal input by Louis Forget.

B. Information and Methodology Used for Assessment

6. The assessment includes assessments of the legal and institutional framework under Part 1 of the Draft Methodology, the banking and securities sectors under Part 2 on prudentially-regulated institutions and company and trust service providers, and gaming under Part 3 of the Methodology covering non-prudentially-regulated institutions. Inclusion of these institutions was dictated by the characteristics of Monaco’s financial sector and the features of its macroeconomy. In particular, account was taken of the reputational risk to which a small jurisdiction focusing on wealth management is potentially vulnerable. As discussed in Volume I, company and trust service providers are a key feature of the wealth management services offered by the jurisdiction and good, demonstrable AML coverage of these entities limits reputational risk. Gaming is an industry vulnerable to ML and the image of Monaco is closely associated with its casino with resulting reputational, and hence, macroeconomic implications for the jurisdiction. Only one company is licensed to operate games in Monaco—the Société des Bains de Mer (SBM), a company about 70 percent owned by the Monegasque government, and an important employer. The company owns not only the famous Monte Carlo casino, but four hotels, as well as entertainment and conference centers which cater to the other main (in addition to finance) growth sector of the economy—tourism. Ensuring that the casino has in place effective AML/CFT measures, protects the overall reputation of the jurisdiction and the sustainability of its growth strategy.

7. The assessment was based on information furnished by the authorities, including the completed OFC questionnaire, on the review of laws, regulations, and other documents describing the legal framework, supervisory provisions, and onsite inspections, and on interviews with public officials, private financial institutions, and professionals. In particular, discussions were held with SICCFIN, the FIU, and AML/CFT supervisory authority, the Attorney-General, the Director of Judicial Services, the gaming supervisor, the government representative in the SBM, and both Monegasque and French supervisory staff. Meetings were also held with the President of the Monegasque Bar Association, lawyers in private practice, and several private financial institutions. All of those interviewed provided the information requested and were very helpful.

C. Main Findings

8. Overall, the AML/CFT legal and institutional framework and supervisory system provides a sound basis for the prevention, detection, and prosecution of money laundering and the financing of terrorism. The penal code criminalizes money laundering and provides a list of predicate offenses (which does not yet include financing of terrorism offenses). The 1993 AML Law requires the reporting of suspicious transactions on the part of financial institutions and a number of professionals who may become aware of evidence of money laundering activities in the course of their work. The AML Law and supporting Sovereign Orders also require customer identification, record keeping, and internal controls by financial institutions. SICCFIN is actively engaged in monitoring compliance. Effective sanctions are provided for failure to apply the AML Law. Integrity standards are set out in the laws regulating each industry in the financial sector and are also implemented through licensing requirements under general laws on business activity. An amendment to the AML Law, enacted on July 12, 2002, added a requirement to report transactions related to terrorism financing and made CSPs subject to the full requirements of the AML Law. Freezing of suspect transactions is possible, first on the initiative of the FIU, and, after a period of 12 hours, by court order. Confiscation of laundered funds is also possible by court order.

D. Detailed Assessments

Part 1. Adequacy of the legal and institutional AML/CFT elements

Supervisory authority for financial institutions
General

9. Under the agreement between France and Monaco of April 14, 1945, and exchanges of letters between the two parties of May 18, 1963, November 27, 1987, and April 6 and May 10, 2001 (SO 14.892), the legislation in force in France concerning banks and financial institutions, and the regulations of a general nature issued in their implementation by the Comité de la Réglementation Bancaire (CRB) apply to Monaco, and so do amendments to these rules. The French Comité des Établissements de Crédit et des Entreprises d’Investissement (CECEI) licenses banks to operate in Monaco, and the FCB is responsible, in those matters which concern it, for supervising credit institutions established in Monaco (Article 2 of the Exchange of Letters of November 27, 1963). However, certain provisions of French law, such as those regarding company law or criminal law, to which banking law may refer, cannot be applied in Monaco, which has its own laws on business entities and its own criminal code. Similarly, it is the Monegasque law on money laundering that applies to Monegasque banks and not the French law. Within these limits, French Law of January 24, 1984, on banking, as amended by the law of July 2, 1996, on the modernization of financial activities, applies in Monaco, but the provisions of the law of 1996 which regulate non-bank financial activities do not apply in Monaco. In this regard, Monaco has enacted its own laws on mutual funds (Law of January 8, 1990), and on portfolio management (Law of July 9, 1997).

Banks

10. With respect to banks, the FCB advises the Monaco authorities of the results of onsite controls pursuant to the provisions of Article 49 of the 1984 Law. As stated in the Exchange of Letters of November 27, 1987, decisions of the CECEI and of the FCB relating to Monegasque institutions “shall be notified to the Monegasque government which undertakes, where appropriate, to ensure compliance with decisions issued by the Commission Bancaire in disciplinary matters that apply on Monegasque territory” (Article 2 of the Exchange of Letters of November 27, 1987).

Insurance

11. The insurance sector is governed by the Franco-Monegasque convention on the regulation of the insurance activity of May 18, 1963, and the Decree No. 4.118 of December 12, 1968, defining the control of the State on insurance companies. In order to set up a subsidiary of an insurance company in Monaco, the prior authorization of the Ministry of State of Monaco is required and would be given only after the French authorities would have approved the establishment of the subsidiary. To date, no Monegasque insurance company has been established. All firms operating in this sector in Monaco (about 150) do so through some 50 brokers and agents. The companies they represent must be authorized by the French authorities, and they fall within the competence of the French Commission de Contrôle des Assurances. Brokers and agents are subject to Law No. 1.144 of July 26, 1991 relating to the exercise of certain economic activities, and must be authorized to operate in accordance with this law.2

Securities

12. Mutual funds are regulated by Monaco Law No. 1.130 of January 8, 1990, relating to mutual funds, as amended by Law No. 1.230 of July 6, 2000. Portfolio management activities are regulated by Monaco Law No 1.194 of July 9, 1997, related to portfolio management and similar stock market activities, as amended by Law No 1.241 of July 3, 2001, and implemented by Sovereign Order (SO) No. 13.184 of September 16, 1997, and SO No. 14.966 of July 27, 2001.

Company Service Providers

13. The Minister of State is the competent authority for the regulation and supervision of the company and trust service providers as part of the Monegasque financial services sector. Operational responsibility resides with the Counselor for Finance and the Economy (equivalent to Minister of Finance and Economy). The General Administration Division of the Direction de l’Expansion Économique (DEE) carries out actual oversight.

The Monaco AML Law

14. Law No. 1.162 of July 7, 1993, relating to the participation of financial institutions in countering money laundering and the financing of terrorism (the AML Law) contains two lists of institutions which are subject to it. Under Article 1, financial institutions are subject to all provisions of the law regarding customer identification, special scrutiny for certain transactions, record keeping, vigilance, and internal controls and suspicious transaction reporting. Financial institutions covered by these provisions include banks, insurance companies, brokerage firms, securities houses, and bureaux de change. Under the July 2002 amendment to the AML Law, company service providers were added to this list. Under Article 2, persons who “in the conduct of their business, carry out, control or advise on transactions entailing the movements of funds”, who may become aware of evidence of money laundering in the course of their dealings with their clients, are made subject to suspicious transaction reporting requirements. A list of particular professionals, subject to STR requirements, is set out in SO No. 14.446 of April 22, 2000. The list includes statutory auditors, chartered accountants, and liquidators in bankruptcy; legal and financial advisers, business agents and property dealers; estate agents; cash transporters; retailers, and persons organizing the sale of precious stones, precious materials, antiques, works of art, and other valuable objects; company service providers; and persons carrying out investment and fund transfer activities on behalf of others.

Table 2.1.

Detailed Assessment of the Legal and Institutional AML/CFT Elements

article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image

Part 2: AML/CFT Elements in the Prudentially-Regulated Financial Sectors

Module 1—AML/CFT Core Criteria for Prudentially-Regulated Financial Sectors
Table 2.2.

Detailed Assessment of AML/CFT Core Criteria for Prudentially-regulated Sectors

article image
article image
article image
Module 2—AML/CFT sector-specific criteria for the banking sector
Table 2.3.

Detailed Assessment of AML/CFT Sector-Specific Criteria for the Banking Sector

article image
article image
article image
article image
article image
article image
Module 4—AML/CFT Sector-specific Criteria for the Securities Sector
Table 2.4.

Detailed Assessment of AML/CFT Sector-Specific Criteria for Securities Regulation

article image
article image

Part 3. AML/CFT Elements for Other Service Providers

Table 2.5.

Detailed Assessment of AML/CFT Elements for Other Service Providers—Company and Trust Service Providers

article image
article image
article image
article image
article image
article image
Table 2.6.

Detailed Assessment of AML/CFT Elements for Other Service Providers—Gaming Establishments

article image
article image
Table 2.7.

Summary of Compliance

article image
n.a. = not applicable

This table provides compliance ratings in terms of the sections of the April 2002 assessment methodology rather than the AML/CFT standard, FATF’s Forty Recommendations and the Eight Special Recommendations on Terrorist Financing.

E. Recommended Action Plan

15. The following actions are recommended to improve the legal and institutional framework and to strengthen the implementation of AML/CFT measures in the areas of banking, insurance and securities.

Table 2.8.

Recommended Action Plan

article image

Authorities’ response to the assessment

16. With regard to customer identification and due diligence, it should be noted that the Swiss supervisor recently asked all Swiss banks present in the center to carry out a thorough review of the application of Swiss standards concerning PEP (politically exposed persons). During 2001 and 2002, 11 Swiss subsidiaries/branches in Monaco were inspected by their group external auditors. The reports were made available to the local supervisor and resulted in the confirmation of the effectiveness of the procedures used.

17. With regard to SICCFIN information sharing with foreign financial supervisors, the authorities commented that, since 1992 Law 1.162, art.31 provides that: “Subject to reciprocity, and provided that no criminal proceedings have already been instituted in the Principality on the basis of the same facts, the Minister of State (in practice SICCFIN) may provide foreign competent authorities with information relating to transactions that appear to have a link with drug trafficking or organized criminal activity, with terrorism, terrorist acts or terrorist organizations, or with the financing thereof” As mentioned in the report, SICCFIN, the Monegasque financial intelligence unit (FIU) also has an active supervisory role that goes beyond the core functions of an FIU. It supervises the anti-money laundering procedures of all financial institutions. Hence, it was deemed necessary to allow SICCFIN to cooperate in that field with foreign bank supervisors. Indeed, in many countries, including France, these supervisors, and not the FIU, are in charge of monitoring the AML procedures put in place by financial institutions. SO 15.454, Art. 1, broadens SICCFIN’s ability to communicate information to foreign supervisors. By addressing a former major weakness in SICCFIN’s role this amendment is making SICCFIN compliant with BCP 15. As a result, SICCFIN can now cooperate with other FIUs or financial supervisors in all the fields in its scope of competence. This comment also applies to paragraph 53 of volume 1 (p. 29) and to Section 5 of Table 2.2. With regard to Section 2 of Table 2.3, it is noted that “if the signing of an agreement with the FCB is still important to ensure cooperation and information sharing between SICCFIN and FCB, the new legislation makes this agreement unnecessary on the point of the information sharing with foreign supervisors—(re eighth paragraph of the ‘Comment’ area).

18. With regard to Table 2.1 on Legal and Institutional AML/CFT elements, Section 6 on International Cooperation in AML/CFT Matters, the authorities stressed that the report could make a clearer distinction between the two separate possible channels—one being the judicial authorities, the other the administrative authority, namely SICCFIN. Extradition is also possible on the basis of multilateral conventions such as the UN or EU conventions regarding narcotics. Finally, the comments made on Section 6 only address administrative exchange of information. Professional and banking secrecy cannot, and never could be, opposed to the judicial authorities. Further, the judicial authorities have demonstrated through statistics that their cooperation with their foreign counterparts is very efficient and that the requests are processed rapidly.

19. With regard to Table 2.3 on the banking sector, Section 5 on cooperation, the authorities noted that cooperation between banking supervisors is provided for through SO 14.892 implementing the exchange of letters of April 2001. It was not found necessary to entrust the CCGP with the powers to inform foreign banking supervisors, the useful information concerning prudential purpose for banks being collected directly by the FCB. In addition, the AML/CFT supervisor, SICCFIN, has been empowered by SO 15.454 to exchange information with foreign supervisors.

IV. IOSCO Objectives and Principles of Securities Regulation

A. General

20. A detailed assessment of the IOSCO Principles was carried out as part of the IMF OFC mission, April 22–May 3, 2002. The assessment was completed by Jennifer Elliott.

B. Information and Methodology Used in the Assessment

21. The assessment was based on the authorities’ response to the OFC questionnaire, interviews with staff at the Department of Finance and Economics, and the two supervisory Commissions, interviews with portfolio management firms, collective investment schemes, external auditors, and a review of relevant legislation. Information was also obtained from the staff of the Commission des Operations des Bourses (COB), the French securities regulator, and the Commission Bancaire, the French banking supervisor. The commissions, the government and the private market participants were all extremely helpful and accommodating of requests for information.

22. The assessment is based on the IOSCO Objectives and Principles of Securities Regulation (1998). The assessment utilizes the four categories recognized by IOSCO: implemented, where the Principle is fully implemented, partly implemented, where the regulatory system addresses the concerns but there are shortcomings, and nonimplemented where the regulatory system does not address the area of concern and not applicable where there is no activity in this area of concern. Because of its unique market structure, Monaco, unlike most jurisdictions, has been given a number of “not applicable” designations—since many activities are not permitted in Monaco, many of the Principles did not apply.

C. Institutional and Macroprudential Setting, Market Structure

23. Every company operating a business in the Principality must be registered and, as part of this registration, must have its activities approved. The Monegasque system therefore does not permit what is not specifically provided for. Securities legislation permits only two kinds of activity: the establishment, operation and distribution of mutual funds and operation of investment firms which are limited to portfolio management, investment advice and transmission of orders.5

24. Monaco securities law focuses on the institutions operating within Monaco. Monegasque residents also have access to a full range of services from outside providers—banks and securities firms in France and Italy and elsewhere.

25. Market intermediaries in Monaco are all portfolio managers and are defined as such in the law—they do not execute orders on markets, do not offer margin accounts, and do not engage in proprietary trading, corporate finance, underwriting activities or any of the activities associated with traditional full-service brokerage firms. There are 67 companies in Monaco with a license to carry on portfolio management activities, 43 of which are banks, managing €20 billion in assets and 24 of which are portfolio management firms, managing €5 billion. The law allowing this activity was introduced in 1997—prior to this date, portfolio management took place inside banks alone. Portfolio management firms cater to wealthy individual clients although services are to a lesser extent also provided to smaller investors and corporations.

26. The mutual fund industry is relatively new to Monaco—the law allowing the operation of mutual funds was passed in 1987. The total size of the industry is €5.2 billion, including funds that are publicly available and “dedicated” funds which are open only to one investor or institution. A range of funds are offered to the public; 66.8 percent of those funds under management are in money-market funds, followed by 28.6 percent in diversified funds. Funds may invest in a wide-range of products, depending on their approved mandates. The mutual fund business is targeted to Monaco investors with accounts too small to justify private portfolio management fees and also to portfolio managers who outsource some asset management (for example, a portfolio manager who wishes to invest some client money in money market funds). The fund industry is concentrated, with a majority of funds under management located in three banking groups.

27. The Monegasque authorities have indicated they would like to have Monegasque mutual funds accepted as EU qualified UCITS (which would grant the funds a “passport” and allow them to be sold throughout the EU). Beyond that, there appears to be very limited interest in expanding activities to corporate finance, underwriting, or trading—these services and products are not currently contemplated by the legislation, and there does not appear to be demand for them. Residents of Monaco have full access to such services in France or Italy or elsewhere.

D. Regulatory Structure

28. The mutual fund law is contained in Law 1.130 of January 8, relating to mutual funds as amended by Law No. 1.230 of 6 July 6, 2000, and a number of Sovereign Orders and Ministerial Orders (collectively “the mutual fund law”). The law governing market intermediaries is contained in Law No. 1.194 of July 9, 1997, relating to portfolio management and similar stock market activities, as amended by Law No. 1.241, and two additional Sovereign Orders (collectively “the portfolio management law”). These laws are largely modeled on French securities law and on the relevant EU directives.

29. Authority to regulate securities activity in Monaco is vested in the Minister of State as the administrator of all laws in Monaco. The mutual fund law appoints a supervisory commission to advise the minister in matters related to mutual fund regulation and the portfolio management law appoints a separate supervisory commission to advise the minister in matters related to market intermediaries. The mutual funds supervisory commission is made up of five members plus a president and the portfolio management supervisory commission has six members plus a president. Currently, the president of both supervisory commissions is the same individual. Three of five members of the mutual fund supervisory commission are senior staff from the COB (acting in their personal capacity), one an academic and one employed in industry—all members are resident in Paris. The portfolio management supervisory commission is made up of the Director of Budget and Treasury, two staff of the Bank of France (acting in their personal capacity), a staff member of the COB (acting in his personal capacity), a representative of the Monegasque Bankers Association and a representative of the Monegasque Chartered Accountants Association. The supervisory commissions act in an advisory capacity and make recommendations to the Minister of State but do not have binding authority in any matter.

30. Each supervisory commission has a staff secretary—the secretary to the mutual fund supervisory commission is a staff member at COB located in Paris, and the secretary to the portfolio management supervisory commission is a member of the staff of the Budget and Treasury division of the Department of Finance and Economics. Regulatory work is also carried out by staff of the Department of Finance and Economics, which is itself responsible to the Ministry of State. Inspections of mutual fund companies are undertaken by staff of the COB pursuant to a 1992 agreement between the Ministry of State and the COB. Enforcement activities are undertaken by the public prosecutor. Although the structure appears to be somewhat fragmented in description, the very small number of people involved and the centralized and concentrated nature of government in Monaco mean that, in practice, communication between the relevant parties appears relatively smooth and activity well-coordinated.

31. There are no self-regulatory organizations in Monaco. The Monegasque Bankers Association (the AMB) represents banks and portfolio management firms in Monaco and is in constant contact with the government on securities regulatory matters. The AMB produces voluntary codes of good practice and has an active Compliance Officers Committee which promotes good compliance practices at portfolio management firms.

E. General Preconditions for Effective Securities Regulation

32. The general preconditions to effective securities regulation are in place in Monaco—there does not appear to be any legal, tax, accounting, or macroeconomic policy obstacles to regulation and Monaco has an effective bankruptcy law and court system with effective enforcement of property rights.

F. Principle-by-Principle Assessment

33. Regulator: There is no independent regulator in Monaco—responsibility remains vested in the Minister of State although two supervisory commissions are in place to provide the Minister with recommendations. The supervisory commissions have the authority to inspect or investigate regulated entities; however, they do not have licensing or sanctioning authority; nor do they have independent rule-making power. The Monegasque structure does not fully implement the IOSCO Principles concerning the regulator and its powers; however, it would appear that the structure is adequate at present in the context of the market. Monaco is by design a very controlled environment, and this style of regulation is in step with the overall control of commercial activity. It is also evident that, in practice, the Minister of State defers to the recommendations of the commissions. The merger of the two supervisory commissions, whose efforts are currently coordinated through Department of Finance and Economics staff but who cannot work directly together, which would capture the synergies involved and focus regulatory efforts, should be considered. Increased independence—specifically the conferring of licensing power on the commissions—might also be considered. Additional attention to transparency and accountability, including publication of reasons for withdrawal of licenses, greater reporting on regulatory activity, and the development of conflicts of interest policies, would further enhance the regulatory structure. The terms of removal of commission members should be set out in law, and commission members should also be explicitly protected from liability while carrying out their duties in good faith.

34. Information sharing: The recent changes to the law allowing sharing of information have been quickly implemented in the form of an information sharing arrangement between the portfolio management supervisory commission and the COB. This gives the supervisory commission full authority to obtain and share relevant information with their most important counterpart. Further development through formal agreements with other supervisors should be encouraged and extended to the mutual funds supervisory commission. Provision should also be made for information sharing between the two supervisory commissions. Information sharing between the Commission Bancaire and the portfolio management commission could also be clarified. The ability to share information on portfolio management activities of banks with the Commission Bancaire must be clarified in law.

35. Mutual funds: Mutual fund regulation in Monaco has kept pace with the European framework for collective investment schemes and includes licensing, internal control, and disclosure requirements. A full program of reporting and inspections is carried out. Rules regarding valuation of illiquid securities and related party transactions should be considered. The Minister of State’s authority to put an end to a halt on redemption should be clarified. More frequent calculation and publication of net asset valuations for small funds would improve disclosure to clients as would clear disclosure to investors regarding the accounting standards used by the fund in preparing its financial reports.

36. Market intermediaries: Portfolio management firms are subject to comprehensive laws and a full inspection system. It is clear that great improvement has been made in this area since the portfolio management law was passed in 1997. The authorities could consider more frequent reporting of capital as a means of monitoring the industry more closely and should develop a contingency plan for the failure of a portfolio management firm. The securities regulatory authorities do not have the power to appoint a liquidator in the case of an insolvency and this should be clarified. For the majority of portfolio management which is carried on within banks or at subsidiaries of banks, coordination with the Commission Bancaire would be required. The inspections program should, in future, address compliance with new insider trading rules.

Comments

37. The Monegasque system of securities regulation as it is currently structured is effective—but it must be understood in its own very unique context. Those who wish to carry out securities related activities in Monaco are already subject to a rigorous and controlled company registration system which requires that every company submit to a registration process that includes police and other background checks, and be subject to annual controls that they continue to meet the registration requirements. The mutual fund or portfolio management firm (or bank carrying on portfolio management activity) is then also subject to separate licensing for its securities business. The government is small and centralized and carefully plans its approach to all commercial activity. An additional layer of control is added through the explicit limits on permitted securities activities. The Monegasque authorities have very deliberately chosen mutual funds and portfolio management as businesses that complement the core industry of private banking in Monaco, and have chosen not to permit activities which would introduce greater risks and would require an expansion of the regulatory structure.

38. The IOSCO Principles envision an independent separately funded regulator with enforcement and rule-making powers—while in less controlled and larger environments such a regulator is necessary, in Monaco it would appear that regulation can be carried out efficiently and effectively through the central government, at least in the medium term. Given its careful planning and central control, there is little chance that securities activities will be lost in the general business of government or that the concerns of the industry or investors will go unaddressed. There appears to be adequate legal authority in place, and the authorities seem to have practical ability to manage the regulatory process. The legislative process appears to be a viable means of changing securities rules, and the use of the public prosecutor appears to be a reasonably efficient means of undertaking enforcement—whereas the ineffectiveness of these structures in larger jurisdictions would point to the need for a separate regulator. There do not appear to be any binding resource or budgetary constraints, and the government has made a concerted effort to bring expertise into the system through the use of the supervisory commissions, the hiring of experienced staff, and the outsourcing of mutual fund inspections to COB staff. The result is an effective system which controls mutual fund operation and portfolio management in Monaco—although, it must be stressed that the bifurcation of securities regulation in the two commissions is less than optimal, and in the longer term it is clear that some rationalization should be made, and that greater independence in the regulator should be considered.

Table 3.1.

Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation

article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
Table 3.2.

Summary Observance of the IOSCO Objectives and Principles of Securities Regulation

article image

Recommended actions and authorities’ response to the assessment

Recommended actions
Table 3.3.

Recommended Plan of Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

article image
article image

Authorities’ response

39. With regard to IOSCO principles 11 and 12, the authorities do not find it necessary to include provisions on the information sharing of the mutual funds commission, as this commission deals with and controls CIS (collective investment schemes) that are not legal entities. Hence, all operations concerning these entities are proceeded through financial institutions that are submitted to controls by their own supervisors which, in turn, are able to enter into cooperation with foreign financial supervisors.

1

Since the assessment was undertaken, this has been superceded, in October 2002, by a revised methodology endorsed by FATF, the Fund, and the World Bank.

2

Source: Department of Finance and the Economy, Direction du Budget et du Trésor, The Insurance Industry in Monaco, June 6, 2001.

3

Financial service providers should ensure that the criteria relating to customer due diligence are also applied to branches and majority-owned subsidiaries located abroad, subject to local laws and regulations.

4

The FIU is a central, national agency responsible for receiving (and, as permitted, requesting), analyzing, and disseminating to the competent authorities, disclosures of financial information (i) concerning suspected proceeds of crime; or (ii) required by national legislation or regulation, in order to counter money laundering.

5

“Transmission of orders” is interpreted by the Monegasque authorities to mean that the investment firm may pass an order to a brokerage firm for execution but may not itself execute an order or be a member of an exchange.