General

38. This review covers the activities of the key banking regulatory and supervisory bodies in France, in particular the Banque de France (BdF), the Commission Bancaire (CB), the ComitÉ des établissements de Crédit et des Entreprises d’Investissement (CECEI), and the Comité de la Réglementation Bancaire et FinanciÈre (CRBF). The review was prepared on the basis of the Basel Core Principles Methodology, the April 2000 self-assessment by the French authorities, the August 2001 MAE assessment, information provided by the French authorities on how the recommendations of the 2001 assessment had been addressed, and the response to the pre-FSAP questionnaire. Furthermore, the mission studied laws and regulations relative to banking regulation and supervision, and held discussions with representatives of the regulatory and supervisory agencies, as well as with representatives of the major banks, rating agencies and of the accounting and auditing profession. Also, annual reports of the relevant agencies were consulted, as well as websites of the major banking groups, and other sources.

Institutional and macroprudential setting, market structure—an overview

39. France has chosen a specialized, sector-based approach to financial sector supervision, with separate structures for banking, securities and insurance supervision, each comprising distinct institutional layers for regulation, licensing, and supervision. Steps have been taken to streamline the supervisory structure, and additional steps may be considered as cross-sectoral financial groups become more prevalent. The presence of industry and government representatives in the boards of the supervisory bodies brings practical sectoral knowledge, promotes consensus, and may help facilitate consistency across regulators. However, it also raises concerns of potential conflicts of interest and limited supervisory independence, although such problems have reportedly not arisen in the recent past and safeguards are in place.

40. The French banking system, which has been modernized and restructured over the past two decades, is large, sophisticated, and of international importance. It is dominated by six vertically integrated universal banks and their subsidiaries. Four of the six are organized on a mutual basis. Further consolidation of the sector could pose a range of challenges, including stability concerns that many banks are “too big to fail.” Two large financial institutions, La Poste and the Caisse des DÉpôts et Consignations (CDC), remain in government ownership.

41. The banking sector is well capitalized. The reported level of nonperforming loans was stable throughout the recent economic downturn. Bank profitability has improved markedly over the past decade and is in line with average euro-area levels.

General preconditions for effective banking supervision

Main findings

49. Banking supervision in France meets high standards. Compliance with the BCP is strong; among other issues raised by the BCP assessment, it is suggested that the obligation to obtain prior approval from the CECEI (the licensing agency) for acquisitions of equity in non-financial enterprises by banks be introduced (measures have been developed but not yet enacted.)

Authorities’ response

58. The authorities are broadly in agreement with the assessment.

General

59. The assessment of observance of the IAIS Core Principles involved the review of: (i) an extensive self-assessment prepared in 2000 by the former Commission de Contrôle des Assurances (CCA), based on the old methodology; (ii) comparison with the Core Principles and the Core Principles Methodology; and (iii) a review of the relevant laws governing the insurance sector in France. The legal basis governing insurance is the Code des Assurances (as amended), which includes numerous decrees and implementation regulations, and the recent Loi de sécurité financière (Financial Security Law).

60. The assessment was undertaken during a period of transition. On the one hand, the Insurance Core Principles (ICP) are relatively new and were revised in 2003. On the other hand, the French supervisory environment has been significantly modified by the Financial Security Law of August 1, 2003. This legislation created a single supervisory body by merging the CCA, responsible for the supervision of companies regulated by the insurance code, and the Commission de Contrôle des Mutuelles et des Institutions de Prévoyance (CCMIP), responsible for the supervision of certain mutual insurers and provident institutions. The provisions of the law also gave financial independence to the new body, the Commission de Contrôle des Assurances, Mutuelles et Institutions de Prévoyance (CCAMIP), strengthened coordination with the banking sector supervisors, and extended the powers of the supervisory authorities to request and receive information from supervised entities and auditors. The implementation orders (decrets d’application) for the new law were under review by the Conseil d’État at the time of the assessment, and as of July 2004 the transition period has ended.

Institutional and macroprudential setting-an overview

61. The French insurance sector is large and of systemic importance. With a 5 percent market share of gross premiums in the OECD in 2001, France’s insurance sector was ranked the fifth largest in the world and the third largest in Europe. Overall, the condition of the French insurance industry suggests that systemic vulnerabilities are well contained. The sector seems to have demonstrated its resilience in the face of a number of significant shocks in recent years (including, among others, a significant fall in international equity prices in the period 2001-2003, historically low interest rates, and international and national natural catastrophes). However, the industry faces a number of longer-term challenges connected with: (i) the demographic trend (longer life expectancy and decline in working population); (ii) the upcoming implementation of the new International Financial Reporting Standards (IFRS) in 2005, which some in the industry believe expose it to accounting risks; and (iii) the possibility of a sharp and sustained increase in interest rates, which could generate a wave of contract repurchases. However, the authorities seem aware of these challenges and are considering how to take preemptive measures, such as the promotion of a new generation of private retirement products.

Main findings

62. The legal, regulatory, and supervisory framework observes a large majority of the essential criteria of the IAIS Principles Methodology.

63. The preconditions for effective insurance supervision are observed. Areas where improvements could be made can be grouped into five broad categories.

Authorities’ response

74. The French Ministry of Finances appreciates the IMF overall assessment that the French insurance sector is financially sound, as verified by the comprehensive stress tests carried out commonly by the IMF and the French supervisory authority.

General

87. This assessment evaluates implementation by the French authorities responsible for the regulation and supervision of securities markets and intermediaries of the IOSCO Objectives and Principles of Securities Regulation. The assessment was conducted, on- and off-site, during the first half of 2004 in accordance with the 2003 version of the IOSCO Objectives and Principles of Securities Regulation and the IOSCO Assessment Methodology adopted in October 2003. Reference was also made to the CPSS/IOSCO Recommendations on Securities Settlement Systems and the consultative draft of the Recommendations for Central Counterparties, together with relevant IOSCO reports and IMF guidance.

88. The assessment covers two broad areas: (i) the securities regulatory framework in France as simplified, enhanced and modernized by the Loi de Sécurité financière (Financial Security Law) N°. 2003-706 of August 1, 2003 and Decree N° 2003-1109 of November 21, 2003, relating to the Autorité des Marchés Financiers (AMF); and (ii) the powers, capabilities, and responsibilities of the competent French authorities, as compiled in the Code Monétaire et Financier (Monetary and Financial Code). The Financial Security Law creates the AMF, the new primary securities regulator for both securities and derivatives, which merges the Commission des Opérations de Bourse (COB), the Conseil des Marchés Financiers (CMF) and the Conseil de discipline de la gestion financière (CDGF).

Information used in the assessment

89. This assessment is based on various self-assessment documents provided by the AMF, including the draft answer prepared by AMF, to the IOSCO Methodology for Assessing the Implementation of the IOSCO Objectives and Principles of Securities Regulation. The assessment was also the result of (i) meetings with the Ministry of Economy, Finance and Industry (MINEFI); (ii) interviews with senior staff of the AMF responsible for each of the functional areas addressed by the Principles and the Chairman and Secretary General; (iii) sessions with staff of the Commission Bancaire (CB), the Comité des Établissements de Crédit et des Entreprises d’Investissement (CECEI), the Banque de France (BdF) (with respect to their respective roles in the securities framework), and the Agence des Participations de l’État (APE) (in connection with market structure); (iv) discussions with Euronext NV (Paris operations) (re: cash and derivatives markets), Euroclear (re: payments and settlement), LCH-Clearnet SA (re: clearing); (v) meetings with selected asset management and investment firms (and the related professional associations) representing different scales and complexity of financial services activity; (vi) selective review of the websites of the foregoing, annual reports, the Monetary and Financial Code, existing regulations and published guidance, instructions, recommendations, and statistics on operations; (vii) evaluation of the systems for publishing information on issuers, the combined data base composing the registry of licensing information, the official mechanisms for publication of regulatory actions; (viii) exchange operational oversight and regulatory surveillance systems; and finally (ix) the responses of the AMF and other authorities to multiple inquiries on matters of nuance and detail.

90. The assessors benefited from the full cooperation of the French authorities and received all necessary information. Although the Financial Security Law builds substantially on the old law and framework, which has been in place and effective for many years, there remain areas where the authorities are in the process of determining how best to fully implement the enhanced powers and new structures in the new law.

Capital market and structural overview

91. Capital markets in France are large and well developed, with a range of equity, debt, derivatives, and mutual fund products available to investors. Of French households’ 2002 savings flows, about 48 percent went into investments in securities and mutual funds,¹⁷ 38 percent into life insurance products and 15 percent into savings accounts.¹⁸

92. Mutual funds, of various types including Undertakings for the Collective Investment of Transferable Securities (UCITS), are an important investment vehicle in France. Among industrialized countries, only the United States has a larger mutual fund asset to GDP ratio (68 percent) than France (64 percent) in 2003. A large proportion of the mutual fund products held by investors are created and sold for the account of life insurance firms. The reason for this is that there are substantial tax benefits to households holding life insurance savings products, including those that are in the form of mutual funds.

93. The financial sector as a whole is dominated by universal banks—in large part by the six major domestic banking groups. There are 90 French-licensed investment/broker firms, 346 commercial banks (1,011 credit institutions) and approximately 500 asset management firms. The largest domestic broker/dealers (i.e., investment firms) are part of the six large banking groups. Also, an important portion of the assets under management in France (41.5 percent of the total) is managed by the asset management companies of the six largest banks.

94. France’s only stock exchange, Euronext Paris, which is a subsidiary of Euronext NV, operates a fully electronic equity exchange. In terms of stock market capitalization, France ranks fourth in the world after the United States, the United Kingdom, and Japan, with a market capitalization of 73 percent of GDP or EUR 877.7 billion as of end-2003.

95. Euronext Paris was formed as a result of the consolidation of several European stock markets that took place in 2000. The stock exchanges in Paris, Amsterdam, Brussels and, a little later on, Lisbon (and Porto, Portugal) joined forces under the Netherlands holding company Euronext NV, a demutualized, public company whose shares are listed on the primary market (Premier Marché) of Euronext Paris. The shareholders of the underlying national markets received shares in the new company in exchange for their original holdings. For regulatory oversight and other legal reasons, Euronext NVs exchange subsidiaries are licensed locally in each participating country. Maintaining the local exchange permits issuers, intermediaries and investors in each country to access a common platform through the local portal with which they are most familiar. Membership in one market permits access to all issues traded on the common platform. The maintenance of a single quote and a common cross-border order book for the listed securities emanating from each jurisdiction creates a broader liquidity pool and greater transparency for each local market. The principal portal for equities is Paris, for equity options Amsterdam, and for financial derivatives London.

96. The internal market structure of Euronext Paris remains as it was in the Bourse de Paris, with three segments: the primary market (Premier Marché), the secondary market (SecondMarché), and the new market (Nouveau Marché). Euronext also offers companies the option to trade its overlapping NextPrime and NextEconomy market segments.

97. Similarly, there is a single clearing system, LCH-Clearnet SA, and a single settlement system, Euroclear France, for all equity securities traded on Euronext markets. As the local exchanges are not merged, the clearing interface continues to be regulated through the respective local authorities. For Euronext Paris, this means that it is largely overseen by the AMF. The cross-jurisdictional nature of Euronext Paris, LCH-Clearnet SA, and Euroclear France has led to the implementation by the French authorities of innovative cooperative cross-border arrangements with the authorities in the other jurisdictions in which these firms are active.

98. The annual transaction value in equities (counted on one side) was EUR 877.7 billion in 2003, with an average daily turnover of EUR 3.442 billion. The number of trades was 101 million, with an average daily turnover of 396,287.¹⁹ The five most actively traded shares in 2003 accounted for 30 percent of turnover. In 2002, the nine most actively traded shares accounted for 30 percent of the total number of trades. According to BdF statistics, equities listed in France are primarily traded by institutions and foreign investors.

99. The exchange traded futures and options markets in Paris (MATIF and MONEP respectively) are now also part of Euronext. The Paris derivatives markets have been integrated into the Euronext-liffe trading structure and are cleared by LCH-Clearnet, Ltd. The derivatives traded in Paris are regulated by the French authorities. The CAC 40 is the most active Paris-based derivatives contract.

100. There is also Powernext, a commercial energy exchange owned by Euronext in which non-intermediated trading occurs. Additionally, the Marche Libre is an unregulated (OTC) equity market, in which 258 issues are traded.

101. The current structure of the government bond market includes long-term debt instruments (7- to 30-year initial maturities; OATs, OATis, OAT€is and TEC10 OATs), medium-term debt instruments (2 and 5 year initial maturities; BTANs) and short-term debt instruments (1 year or less; BTFs). OATs comprise 65 percent of the marketable government debt outstanding, BTANs 20 percent, and BTFs the remainder. Inflation-linked OAT issuances have grown, particularly with the recent introduction of European inflation-linked bonds (OAT€is) in 2001. Inflation-linked bonds now comprise about 10 percent (€44.5 billion) of the outstanding stock of OATs (or 8 percent of total outstanding government debt instruments). The main investors are insurance companies, international pension funds, asset managers and alternative traders.

102. The nonfinancial corporate bond market in France has grown substantially with the introduction of the euro. At the end of 1998, the corporate bond market comprised 12 percent of outstanding French bonds, while it currently stands at 22 percent.

103. Interdealer trading for the French government bond market, and to a lesser extent the nongovernment bond market, has almost completely migrated to the MTS electronic trading platform.

Regulatory structure and practices

104. The changes in the Financial Security Law concentrate all regulatory powers in an independent regulator. This new structure reflects the devolution of market oversight from a shared supervisory activity between a professional body, Conseil des Marchés Financiers (CMF), a successor to the Conseil des Marchés à Terme (CMT), and an independent administrative authority, the COB, effected in l996 by the Financial Modernization Act (Loi MAF) to today’s new model where AMF is the principal securities regulator.

105. The AMF is an independent public authority with a separate legal identity and “taxing” authority, comprised of a 16-member board (college), chaired by a full-time chairman and a separate 12-member Commission des Sanctions. It also has five consultative commissions, each with its own chairman and vice chairman, relating to implementation of the new investment services and market abuse directives, clearing and settlement, collective investments, application of the transparency directive, and minority shareholders and savings. The board members, like members of a typical business board, may engage in other professional activities in addition to their service on the college. There is no cross membership between the Commission des Sanctions and the board other than the representative of the ministry.

106. The AMF is accountable to the government through oversight of its budget, the role of the minister with respect to the adoption of regulations, and the review process with respect to the regulatory actions or sanctions it takes. The AMF has broad sanctioning powers which must be exercised through its separately constituted Commission des Sanctions. All members and staff are subject to confidentiality and professional conduct requirements as a matter of law. The CB also has the power to take prompt corrective action and certain sanctioning powers that can be applied to enforce its prudential oversight of investment services providers that are not subject to the sole competence of the AMF.

107. The AMF licenses and prudentially supervises operators of publicly offered collective investment schemes, and portfolio (asset) managers for third parties; regulates the public offer and reporting of financial information with respect to issues, and marketing generally, and also the flow of information relative to takeover bids. The AMF also has responsibility for market undertakings, depositories for securities and assets of collective investment schemes, and clearing and settlement systems and their related custodians, without prejudice to the functions of the BdF and its specific role with respect to payments.

108. Licensing (except for insurance companies engaging in insurance activities) is committed to the CECEI (i) in consultation with the AMF in the case of credit institutions and investment services providers engaged in investment services, pure custodians and clearing members; and (ii) with approval of the program of operation, if authorization for asset management activities is sought by such firms. Prudential oversight, including oversight over members of markets, clearing organizations and custodians, but not including insurance companies acting in the capacity of insurance companies, is the responsibility of the CB. The Financial Security Law therefore retains a modified “twin-peaks” structure for financial regulation.

109. The BdF commits staff to the licensing and prudential supervision, and provides leadership through its Governor’s participation as Chair of both the CB and the CECEI (articles 613-3 and 612-3 of the Monetary and Financial Code). The BdF also has competence over payment system functions and, as a consequence, certain aspects of securities settlement. And, in the case of markets, while regulated markets are the responsibility of the AMF, the CB is expected to oversee any Automated Trading Systems (ATS), which are viewed as intermediaries, and has other powers related to Euronext being a credit institution.

110. Coordination with the prudential authorities and the AMF is organized, in the case of day-to-day operations, through interstaff contacts, information sharing, certain combined databases, and regular monthly meetings. In the case of general policy and matters of particular cross-market or common interest, such coordination is accomplished through an inter-institutional, statutorily-prescribed board composed of the heads of the financial services agencies (Collège des autorités de contrôle des entreprises du secteur financier), which must meet at least three times a year, and is presided over by the Minister in charge of the Economy, Finance and Industry or his representative. Cross membership of the regulatory/supervisory authorities also fosters cooperation, for example, by the statutory participation of the AMF Chair as a participant on the Board of the CECEI and participation of the Governor of the BdF on the AMF Board.

111. In general, the exchanges and clearing and settlement organizations control/monitor their operations through rules adopted subject to review of the competent authority and those rules (and any powers or actions with respect to their infringement) are regarded as founded in contract and not in public law. In the case of regulated markets and related clearing arrangements, the AMF may delegate (license specified individuals to perform) certain compliance activities as to their members, including with respect to the transmission of orders by financial services providers.

112. There also exist protocols among the national regulators and markets within the Euronext, NV group, and the related clearing and settlement institutions in the various jurisdictions which comprise Euronext, Euroclear and LCH-Clearnet that apply to how those institutions are operated and supervised. In this respect, Euronext France and LCH-Clearnet, Ltd., the British-based holding company for the clearing organization as well as LCH-Clearnet SA are each credit institutions with consequent implications for how supervision and regulation of these entities is organized—that is, the CB and the BdF as well as the AMF have specific responsibilities.

General preconditions for effective securities regulation

113. In general, the preconditions for an effective regulatory framework for capital markets and the provision of financial services assume (i) the existence of a legal framework that supports the integrity of contract and property rights and recognizes the instruments traded in the market as well as the rules that facilitate their trading; (ii) a commercial and insolvency regime that facilitates the taking of collateral, the use of clearing services, and the enforcement of guarantees; (iii) sound company law that protects direct investors; (iv) laws which support the ability to identify and protect client assets; (v) reliable and consistent accounting standards; and (vi) the confidence of the marketplace that the rules will be consistently and equitably enforced and that the rules of the marketplace can be applied notwithstanding the bankruptcy of particular market participants. These conditions are premised on the assumption that the judicial, administrative, and regulatory authorities will reliably honor and equitably apply the rule of law. Certainty as to the application of the law, and confidence in its equity, is fundamental to the reliable functioning of markets and market confidence. There is no evidence that these preconditions are not met in France.

114. As for the openness of its markets, the market regulators in France historically have been open to cross-border arrangements within the European Union—and beyond—and they have been creative in facilitating these arrangements by putting in place the regulatory and legal supports necessary for their functioning. In particular, they indicated support for maximizing the use of the Lamfalussy process, which aims at better harmonizing the national approaches among various jurisdictions within the single European market, specifically by broadening the use of the mechanisms for regulatory development and consultation through the Committee of European Securities Regulators (CESR).²⁰

Main findings

115. The standard of securities regulation in France is very high. However, some refinements are recommended.

116. Principles Relating to the Regulator (1-5). The predecessors to the AMF have in the last 20 years made great strides in implementing effective financial regulation and have been leaders within Europe. In the Financial Security Law, the powers of the competent authorities charged with securities regulation have been further expanded, modernized, and simplified to reflect the need to meet international standards and European requirements and to assure that the AMF, the CB and the CECEI can allocate their respective resources most efficiently. Provisions for an internal audit facility and for all guidance to be accomplished through General Regulations also enhance the accountability of the AMF. The other authorities are subject to similar requirements. The AMF is in the process of combining and streamlining existing guidance and assuring it has sufficient human resources to exercise its new powers especially with respect to inspections and oversight of miss-selling (i.e., the use of improper sales practices or marketing) through the banking network.

117. The modified twin peaks structure in France is intended to permit the competent authorities to focus contemporaneously on high priority customer protection and prudential issues and thereby to address both stability and enforcement issues effectively.²¹ At the same time, the ability of the system to respond to general and specific problems in the market and to assure effective supervision of financial services providers subject to separate conduct of business and prudential supervision depends on effective and consistent cooperation among authorities with different functional competences on a day-to-day basis and in the event of a crisis. Although there is strong evidence of effective cooperation among the authorities, such cooperation is only explicitly required for licensing and for high-level policy matters.

118. With respect to independence, there is concern that the enforcement effectiveness of the Commission des Sanctions might be adversely affected to the extent that presence of the Ministry’s representative could be perceived to have a chilling effect on deliberations or the outcome of specific cases, even if in practice this is not the case. Maintaining as transparent as possible procedures with respect to the ministry’s representation may help mitigate any such perception. The assessor defers to the assessment of the structure of the CB and the CECEI with respect to assessment of compliance of the French system with the Basel Core Principles.

119. Principles Relating to Self Regulation (6-7). Since the French system does not make use of self-regulatory authorities, these principles are inapplicable.

120. Principles Relating to Enforcement of Securities Regulation (8-10). The AMF has comprehensive enforcement powers, including investigative, administrative and criminal referral powers, plus the right to make submissions in writing with respect to matters heard within the judicial system. In the first few months of operations, the AMF has, through its Commission des Sanctions, heard four substantial administrative cases and imposed penalties for violations of various portions of the law. Nonetheless, the execution of the AMF’s enforcement powers should be kept under review, both with respect to the treatment and timeliness of cases potentially subject to both civil and criminal penalties, the functioning of the Commission des Sanctions and the ability of the AMF to present evidence in administrative proceedings generated as the result of its monitoring and on-site inspection activity. Obtaining the capacity to settle cases and to obtain restitution administratively might also be explored. The CB also has powers to achieve compliance with prudential requirements and to sanction noncompliance and, in fact, the AMF cooperates with the CB in connection with the inspection of regulated entities that provide investment services.

121. Principles for Cooperation in Regulation (11-13). The AMF has a state-of-the-art capacity to cooperate domestically and with its foreign counterparts, and is a signatory of the IOSCO Multilateral Memorandum of Understanding, which requires a comprehensive peer review of the law supporting each signatory’s power to engage in the cooperative efforts specified therein. Ideally, however, the AMF should be able to obtain information requested by its foreign counterparts that pertains to competences within the remit of other domestic authorities with securities-related functions. This is because many jurisdictions provide for the securities regulator to have both prudential and conduct-of-business competences. In addition, many jurisdictions would not expect the appropriate counterparty with respect to regulation of an ATS, or market analogue, to be the prudential regulator. This being said, the Financial Security Law permits the other regulatory authorities involved in securities oversight also to provide cooperative assistance to foreign authorities directly.

122. Principles for Issuers (14-16). In France, the law affecting issuers is a complex combination of financial services legislation and company law. In general, the disclosure required of public companies meets international standards. The AMF has substantial authority to regulate the information provided in connection with the operation and marketing of public companies and in connection with takeover bids. Prospectuses of public companies must receive approval (a visa or agreement in the case of Collective Investment Schemes-CIS) from the AMF. Such prospectuses and related continuing information are readily available on the AMF website through a facility known as the DIF or Décisions et informations financières, or in the case of CIS, GECO (Gestion collective).

123. The AMF is in the process of improving the timely availability to the investing public of information with respect to insider transactions in securities and enhancing protections available to minority shareholders generally. The AMF has played a leadership role in the movement toward adoption of international financial reporting standards and in the development of robust auditor oversight arrangements. It is important that the securities regulatory authority continue to have active input into the audit standard setting and oversight process.

124. Principles for Collective Investment Schemes (17-20). France has a large, vibrant and sophisticated market for CIS of several types. The AMF’s new powers with respect to the oversight of depositories and with respect to financial advisers are in the process of being implemented, and resource requirements relative to such implementation are being assessed. The licensing of schemes and asset managers meets international standards as does the level of information provided to participants on an ongoing basis. Although conduct of business requirements are fully within the power of the AMF, further oversight of marketing requirements and the capacity to address miss-selling (currently based essentially upon complaints) would enhance oversight of the bank distribution network. The AMF is in the process of enhancing its CIS program generally and plans to review redemption practices and on-site inspection capabilities in the process. In the interim, the AMF has been proactive in addressing issues that have arisen in the market at large with respect to the regulation of CIS. In particular, it has taken steps to determine where it is likely that potentially improper late trading and/or market timing practices have taken place and to schedule on-site investigations of at-risk entities. It has also provided guidance on the valuation of products that do not have a reliable market price and required third party valuation of mark-to-model systems of valuation.

125. Principles for Market Intermediaries (21-24). Licensing, including fitness and capital requirements for French intermediaries are conservative and are overseen, except in the case of asset management companies, by the relevant banking authorities. Licensing requirements have been expanded to include employees and or agents of licensed intermediaries who solicit new customers directly under the auspices but outside the premises of licensed intermediaries. Information on compliance is shared between the regulators and the record of managing financial problems has been good. There are provisions for addressing large exposures and for winding down firms that experience financial deterioration. Required internal controls are specified and firms are required to have mechanisms in place to comply with applicable law, although internal audit requirements have not been extended to asset managers. Conduct of business requirements and provisions for assuring that investment services providers know their customers, consider the suitability of transactions when recommending investments to customers, and avoid conflicts of interest are contained in the Financial Security Law itself and may be implemented by the AMF within the General Regulations. This assessment recommends assuring continued cooperation between the competent authorities in executing their respective responsibilities for intermediaries.

126. The permission for retail customers to trade, without settling except on a net basis, deferred settlement contracts also raises some concerns. Permission for a 30-day settlement against the broker for transactions undertaken in the market in highly liquid securities puts a premium on the adequacy of margin collected by the broker and on adequate management of the amount of exposure undertaken. From a supervisory perspective, this practice raises a need for timely and accurate information on broker exposures vis-à-vis their customers and on customer exposures across multiple brokers. The current frequency of reporting and monitoring by the CB may not be sufficient to assure that a firm experiencing difficulties with these transactions would be identified prior to more serious financial exposures being incurred. As this is retail activity, there also may be conduct of business issues that need to be addressed.

127. Principles for Secondary Markets (25-29). The securities markets in France are subject to a well-developed regime for authorization and oversight by both the AMF and other authorities with regulatory competence over the exchanges that participate on the common platform of Euronext. With respect to ATS there is no very defined approach, and currently such systems, to the extent they exist, are subject to supervision by the CB. The AMF, in cooperation with the supervisors of the other markets integrated therein, has regulatory authority over Euronext within the French system (in preference to substantial reliance on the exchange itself). This permits intensified oversight of this demutualized and self-listed market. AMF can, and does, license certain personnel on site at the exchange to perform compliance and/or investigative work and the exchange continues to be responsible to enforce its rules under private law. Euronext is also a credit institution and subject to relevant oversight as such.

128. The markets are subject to stringent transparency requirements. There is the authority to relax certain of these in the future, consistent with an EU-wide trend. The AMF should keep under review whether any new regime maintains appropriate transparency levels for investors participating on the markets.

129. The COB and CMF have long had authority with respect to market abuses. The expanded authority that the Financial Security Law has granted the AMF to address insider dealing, as well as manipulation and dissemination of false information by any person at the administrative level, is to be commended. The AMF should keep under review how the interplay between criminal and civil authority affects the prosecution of market abuse cases.

130. The AMF and related authorities have the capacity to address concentrations at firms and in the markets and to transfer positions, wind down firms or halt trading as necessary to contain risks to the system. They should assure that there is adequate communication between the market and separate clearing agencies and that the very innovative arrangements that are in place to oversee the many linked markets of Euronext operate well not only on a day-to-day basis but also in crisis circumstances.

131. Principle 30. Clearing and settlement arrangements were assessed in accordance with the CPSS/IOSCO Recommendations for Securities Settlement Systems and the consultative draft of the Recommendations for Central Counterparties. As a consequence, Principle 30 was not assessed and such arrangements were only considered in connection with the securities sector assessment in so far as clearing and settlement support effective operation of France’s secondary markets.

Authorities’ response

132. The AMF contends that, within the French system, the AMF’s structure has been designed explicitly to be as independent as possible. While the AMF disputes that its current institutional structure is in any way susceptible to political interference, the AMF understands that the issues raised with respect to structure are issues that could be of relevance to outside observers and indicates that it expects to continue its record of assuring that no improper interference in individual cases occurs.

133. The AMF also notes that its enforcement system, which the assessor has found to have appropriate powers and authorities and to have produced significant cases, is currently effective and that the processes for working with the Public Prosecutor with respect to offenses that are both criminal and civil, such as insider trading and market abuse, have proved effective to date. The AMF does not have a history of settlement procedures or a process for administrative restitution, which are not required as a matter of international standards, but which may constitute enhancements. The AMF has always kept its programs under review and may consider further enhancing its existing enforcement powers over time. Where the judiciary has potentially put certain powers into question, the AMF has acted aggressively to contest the adverse judicial interpretation.

134. Although the AMF has contested some characterizations of the regulatory structure with respect to independence and transparency, indicated that despite lack of an explicit requirement to cooperate, in all cases domestic regulators do so in fact, and provided substantial comments addressing the detail and fact of application of their regulatory framework, the AMF essentially does not disagree with the specific recommendations and indicates that most recommended areas of enhancement are currently underway or under consideration.

135. In particular, the AMF supports assuring human resources are sufficient, among other things, to execute its expanded powers with respect to depositories and having sufficient authority to effect the outcomes with respect to audit oversight of the Haut Conseil.

General

136. As part of the Financial Sector Assessment Program, an assessment of the observance of the infrastructure for clearing, settlement and custody of securities on the CPSS/IOSCO Recommendation for Securities Settlement Systems was conducted.

137. Prior to the mission, the Banque de France (BdF) made a thorough self-assessment of the two securities settlement systems of Euroclear France, which was used as basis for the assessment.

Scope of the assessment

138. The assessment covers Euroclear France as Central Securities Depository (CSD) for a broad range of securities, such as treasury bills, all other negotiable short-term instruments, public sector and corporate bonds and equities. Almost all securities in France (99.7 percent) are dematerialized in Euroclear France. The residual securities are immobilized in this CSD.

139. Euroclear France operates two systems for the settlement of the aforementioned securities:

(i) Relit+ ensures delivery versus payments on a gross-net basis (model 2 DvP). The multilateral net positions at the cash side are settled three times a day in Transferts Banque de France (TBF), the Real-Time Gross Settlement (RTGS) payment system operated by the BdF. LCH-Clearnet SA settles via Relit+ its positions vis-à-vis its counterparties stemming from the transactions on the stock exchange;

(ii) RGV2 irrevocable channel (further on called RGV2-TFT) clears all transactions on a trade for trade basis with intraday finality (model 1 DvP). The cash leg is settled on dedicated cash accounts opened with the BdF and is directly operated by Euroclear France. A so-called liquidity bridge enables participants to transfer cash between these dedicated cash accounts in RGV2 and their cash account held in TBF and vice versa to optimize liquidity management. RGV2-TFT is, among other things, used for the executions of monetary transactions and the collateralization of intraday credit operations.

Institutional and market structure

140. Capital markets in France are large and sophisticated. In terms of stock market capitalization (in dollar value terms) and debt securities market capitalization, France ranks fourth in the world and the value of all listed securities amounted slightly above 200 percent of GDP at end-2003.

141. The stock exchange in Paris has been managed by Euronext-Paris, which since September 2000 is a wholly owned subsidiary of Euronext NV, a holding company incorporated under Dutch law. Euronext is the result of a merger between the stock exchanges of Belgium, France and the Netherlands. However, to meet regulatory requirements, the stock exchanges in the different countries retained a separate identity. Euronext Holding also operates the stock exchange in Portugal (Euronext Lisbon) and, since the beginning of 2002, the international futures and options exchange in London (Euronext liffe).

142. Both securities and derivatives are traded on Euronext Paris platforms. In the secondary market for securities, total turnover amounted to EUR 905 billion in 2003, against EUR 1,045 billion in the previous year (average daily turnover in 2003 amounted to EUR 3.5 billion).

143. All stock exchange transactions are cleared via Clearnet, a central counterparty. Clearnet is the single clearinghouse of the Euronext group and clears transactions in Belgium, France, the Netherlands and Portugal; it also clears over-the-counter (OTC) transactions in different markets in France and abroad. At the beginning of 2004, an alliance was formed between Clearnet and London Clearing House and Clearnet was renamed LCH-Clearnet SA.

144. The settlement of the securities transactions on the French markets takes place via the securities settlement systems of Euroclear France. Euroclear France is fully owned by the Belgian Euroclear Bank, which also possesses CSDs in Belgium, the Netherlands and the U.K.

145. The total value of all trades settled in Euroclear France’s securities settlement systems amounted to EUR 52,996 billion in 2002.

Year	1997	1998	1999	2000	2001	2002	2003
Instructions (millions)	18	22	28	41	31	29	28
Value (Euro billions)	22,660	32,046	38,892	36,835	43,635	52,996	52,528

View Table

Year	1997	1998	1999	2000	2001	2002	2003
Instructions (millions)	18	22	28	41	31	29	28
Value (Euro billions)	22,660	32,046	38,892	36,835	43,635	52,996	52,528

Main findings

Authorities’ response

167. The recommendations of the IMF are in line with the findings of Banque de France and the AMF, the relevant overseers/regulators of Euroclear France.

General

168. The assessments of the Systemically Important Payment Systems (SIPS) in France against the Committee on Payment and Settlement Systems (CPSS) Core Principles took place in two missions in February and May 2004. The assessments covered three systems: Transferts Banque de France (TBF) (a public sector Real-Time Gross Settlement system-RTGS), Paris Net Settlement (PNS) (a private sector large-value payment system) and Système Interbancaire de Télécompensation (SIT) (a private sector retail payment system). The assessments involved discussions with directors and senior officials from several departments of the Banque de France (BdF). In addition, several meetings with the private sector operators (Centrale des Réglements Interbancaire, CRI, and Groupement pour un Systeme Interbancaire de Télécompensation, GSIT), the Bankers’ Association and commercial banks took place.

169. The assessments benefited from previous assessments made by the BdF for each of the three systems. The ones for TBF and PNS had been written and finalized in the context of the activities at the level of the Eurosystem. The assessment on SIT was still preliminary and had not yet been commented on by its operator. Abundant material had been made available by all counterparties. Generally, the officials met during the assessment mission were competent, open and co-operative.

Institutional and market structure

170. Following the merger and consolidation process within the financial sector, roughly 1,000 credit institutions conduct business in France (compared to 1,608 in 1994). The Post Office’s financial arm plays a significant role in the French financial system as it holds a significant number of demand accounts and time accounts.

171. In addition to cash, the check is still widely used in France. However, the relative share of checks in cashless payments has been declining since 1993. Direct debits have been very successful ever since their introduction in 1967. They are generally used for recurrent payments such as electricity, gas, phone and water bill payments. The use of the interbank order Titre Interbancaire de Paiement (TIP) has been growing steadily. A TIP works in the same way as a direct debit, except the payer is required to consent to each payment by signing the TIP form, which is sent with the corresponding invoice.

172. Credit transfers are also widely used in the retail area, for instance, for payments made by companies, government agencies and local authorities. The interbank exchange of all credit transfers takes place in paperless form. Ordinary transfers are settled on the day of presentation while credit transfers for payment on a future due date are presented two or three days in advance of the settlement.

173. Bank cards are mostly debit cards which can be used for both payments and cash withdrawals through a nationwide network of Point of Sale (POS) terminals and Automated Teller Machines (ATM). For several years, cards have been equipped with a computer chip which resulted in a decline of fraudulent transactions to a very low level. A specific network is used for the transmission and authorization for withdrawals and payments. This network enables an ATM or a POS terminal to obtain authorization from the issuing bank. This authorization also means that the payment is guaranteed for the beneficiary. At the end of 2001, 32,500 ATMs and 750,000 POS terminals were installed nationwide. As in other EU countries, the circulation of electronic money is still fairly limited. Currently, three consortiums are providing their e-money schemes.

174. The interbank payments area is dominated by three systems, each of which is considered systemically important by the French authorities. Large-value operations are processed in two systems: the RTGS system TBF which is the French component of the Trans-European Automated Real-Time Gross settlement Express Transfer system (TARGET). TBF is managed and operated by the BdF. The hybrid system PNS is managed and operated by the CRI. CRI is an interbank body owned by 10 banks and the central bank.

175. Retail transactions are processed in the French Automated Clearing House SIT. SIT is a deferred net settlement system and is managed and operated by GSIT, a group of 12 founding members (banks).

176. The banking industry and the BdF are continuing their efforts to improve the safety and efficiency of the payment infrastructure. At the BdF, a separate oversight unit has been established within the payment department in order to deepen the quality and independence of this activity. Both TBF and PNS, while technologically still modern systems, are approaching the end of their life cycles since they will be obsolete with the introduction of TARGET 2 in 2007. The clearing of an increasing number of retail payment instruments in SIT has led to the appraisal of the BdF that SIT is of systemic importance. Hence, SIT is one of the very few retail payment systems that has to comply with the Core Principles. One of the challenges for SIT will be the still unclear effects of the Single European Payments Area (SEPA) on the landscape for the clearing and settlement of retail payments.

Prerequisites for effective payment systems oversight

177. France fulfills all prerequisites for effective payment clearing and settlement systems. Historically, the private sector has been playing an important role both in the provision of payment instruments as well as of payment clearing services. The BdF, in turn, is also an established player in the area of payment services. In the field of payments, the relationship between the BdF and the banking sector is well established and co-operative. The needs of the users are accounted for in the development of the payment infrastructure.

178. The oversight of payment systems is three-tiered: defining the principles or standards underpinning their conception and operation, monitoring their implementation and lastly overseeing actual conditions of operation and use. The oversight activities are embedded into the framework which was developed by the Eurosystem.

179. The legal framework is sound. Fraud and delays are minimal. Mechanisms for dispute resolution are in place and respected.

Main findings

180. The infrastructure for clearing and settlement of payments is generally well developed and modern. The functionality of the RTGS system, TBF, is more advanced than in most other countries. The other large-value payment system, PNS, relies on complex settlement algorithms that have become increasingly popular in recent years. The quality of the oversight activities of the BdF is sound and effective.

181. Some room for improvement was identified only in a few areas, for instance with regard to ensuring timely settlement in the multilateral netting system SIT. This system currently operates without protection against the default of the largest net debtor. The authorities and system operators have already identified steps to address this problem. The mission encourages these efforts, although it advises that the measures should be implemented as a matter of urgency and not be postponed until 2008.

182. Two of the three assessed systems, PNS and SIT, allow access only to a small number of direct participants who serve as settlement banks for several other financial institutions. Tiered structures can concentrate risk and increase the potential for widespread disruption if problems occur at a settlement bank. The mission came to the conclusion that neither safety nor efficiency would be lower with a broader direct access to these systems.

Transferts Banque de France (TBF)

PNS

SIT

The responsibilities of the central bank

Authorities’ response

221. The Banque de France takes note that the IMF largely endorses its own findings regarding both the overall situation of the French payment infrastructure and the assessments of TBF, PNS and SIT, performed against the Core Principles.

222. The Banque de France would also like to mention that it has already taken several steps to urge payment systems to achieve full observance with the Core Principles, in the few remaining areas where some improvement is still needed. In particular, compliance of SIT with CP V is planned to be achieved no later than 2008, in line with the policy stance endorsed by the Eurosystem.

Introduction

223. This assessment provides a summary of the level of compliance with the FATF 40+8 Recommendations²³ and provides recommendations to strengthen compliance. The views expressed in this document are those of the assessment team and do not necessarily reflect the views of the government of France or the Board of the IMF.

224. To conduct the assessment, the team reviewed the relevant Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) laws and regulations and supervisory and regulatory systems in place to deter money laundering (ML) and the financing of terrorism (FT) among prudentially regulated financial institutions and other financial intermediaries. The team also reviewed the capacity and implementation of criminal law enforcement systems. The assessment is based on the information available at the time the assessment mission concluded on April 22, 2004. Some additional information was provided by the French authorities following the conclusion of the mission that now has been taken into account in finalizing the assessment.

Main findings

Summary assessment against the FATF recommendations

259. The overall legal and institutional framework currently in place is comprehensive, and France maintains a high level of compliance with the FATF 40+8 Recommendations. Moreover, France has gone beyond the standard in a number of areas, including in the sectoral coverage of its regime and the reporting requirements for imports and exports of monetary instruments. However, further improvements could be achieved in some areas, mainly: the implementation of UN Security Council Special Resolution on terrorism financing, as in other European countries operating within the European Union regulatory framework; the overall quality of STRs; AML/CFT regulation, supervision and enforcement for sectors other than credit institutions and certain investment firms; and requirements for increased diligence and internal controls.

Table 6.

Recommended Action Plan to Improve Compliance with the FATF Recommendations

Table 6.

Recommended Action Plan to Improve Compliance with the FATF Recommendations

Reference FATF Recommendation	Recommended Action
Recommendations for AML
Scope of the criminal offence of money laundering (FATF 4-6)	Additional reflection is needed on the obstacles that requiring proof of the predicate offence constitutes for an effective fight against ML.
Customer identification and record-keeping rules (FATF 10-13)	Introduce more detailed requirements as to what constitutes adequate customer acceptance policies and procedures and, in particular, what are the reasonable steps to be taken to identify beneficial owners of accounts and transactions. Review the ML/FT risks associated with capitalization bonds/contracts and take corrective measures, as appropriate.
Increased diligence of financial institutions (FATF 14-19)	Review and broaden requirement to pay special attention to certain transactions. Align the scope of the reporting requirement with that of the predicate offences for money laundering. Review the usefulness of reporting requirements other than the reporting of suspicious transactions. Introduce more detailed internal control requirements via regulations, guidelines or other enforceable means for financial entities other than credit institutions and investment firms. Establish legal requirement that financial entities also take integrity into account when hiring employees, notably for sensitive positions. Further assist sectors other than credit institutions, investment firms and insurance companies in developing employee training programs.
Measures to cope with countries with insufficient AML measures (FATF 20-21)	Establish requirement for financial entities to ensure the comprehensive application of AML/CFT requirements to branches and majority owned subsidiaries located abroad. Introduce requirements for financial institutions to pay special attention to business relations and transactions with persons and legal entities in jurisdictions that do not have adequate systems in place to prevent and deter ML or FT.
Implementation & role of regulatory and other administrative authorities FATF 26-29)	Increase reporting parties’ awareness of the existence of TRACFIN’s opposition powers and extend the period of 12 hours to at least 24 hours. Increase the Judiciary’s involvement in the Liaison Committee. Improve TRACFIN’s dissemination ratio and ensure that it is systematically informed of the outcome of transmissions made to the judicial authorities. TRACFIN and supervisory authorities to provide further guidance and ML typologies to reporting entities to improve detection and reporting of suspicious transactions, the quality of STRs and overall implementation of AML/CFT requirements. Reach out to the DOM-TOM and monitor their compliance with AML/CFT obligations. Monitor adequacy of TRACFIN’s current staffing levels in view of the increasing number of STRs and the perceived need for outreach efforts vis-à-vis certain sectors. Consider pooling expertise in financial and terrorist-related aspects in one service. Increase supervisory resources of the CCA and the AMF and formalize training of supervisory staff. Shift responsibility for AML/CFT supervision and enforcement of la Poste to the CB or at a minimum increase supervisory efforts and resources of the IGF. Require that AML/CFT internal controls be taken into account in the licensing of financial entities. Where possible, supervisors should issue enforceable guidelines in support of the legal and regulatory framework.
Administrative Cooperation - Exchange of information relating to suspicious transactions (FATF 32)	TRACFIN should continue and enhance its efforts in systematically querying foreign FIUs in cases with an international dimension.
Other forms of cooperation - Basis & means of cooperation in confiscation, mutual assistance, and extradition (FATF 33-35)	Consider entering into additional arrangements providing for the transfer or the sharing of assets with another country when confiscation is a result of coordinated law enforcement actions.
Other forms of cooperation - Focus of improved mutual assistance on money laundering issues (FATF 36-40)	Efforts should be made to record the number, source, and purpose of requests for information exchange and their resolution by law enforcement authorities Further develop statistics maintained with regard to mutual legal assistance by including purpose/nature and results of requests.
Special recommendations on terrorist financing
III. Freezing and confiscating terrorist assets	Proceed with the adoption of a domestic act to enable France to comply fully with UNSCR 1373.
VI. Alternative Remittance	Review and monitor the adequacy of enforcement efforts with respect to unlicensed informal funds transfer businesses and develop complementary public outreach/awareness raising activities.

View Table

Table 6.

Recommended Action Plan to Improve Compliance with the FATF Recommendations

Reference FATF Recommendation	Recommended Action
Recommendations for AML
Scope of the criminal offence of money laundering (FATF 4-6)	Additional reflection is needed on the obstacles that requiring proof of the predicate offence constitutes for an effective fight against ML.
Customer identification and record-keeping rules (FATF 10-13)	Introduce more detailed requirements as to what constitutes adequate customer acceptance policies and procedures and, in particular, what are the reasonable steps to be taken to identify beneficial owners of accounts and transactions. Review the ML/FT risks associated with capitalization bonds/contracts and take corrective measures, as appropriate.
Increased diligence of financial institutions (FATF 14-19)	Review and broaden requirement to pay special attention to certain transactions. Align the scope of the reporting requirement with that of the predicate offences for money laundering. Review the usefulness of reporting requirements other than the reporting of suspicious transactions. Introduce more detailed internal control requirements via regulations, guidelines or other enforceable means for financial entities other than credit institutions and investment firms. Establish legal requirement that financial entities also take integrity into account when hiring employees, notably for sensitive positions. Further assist sectors other than credit institutions, investment firms and insurance companies in developing employee training programs.
Measures to cope with countries with insufficient AML measures (FATF 20-21)	Establish requirement for financial entities to ensure the comprehensive application of AML/CFT requirements to branches and majority owned subsidiaries located abroad. Introduce requirements for financial institutions to pay special attention to business relations and transactions with persons and legal entities in jurisdictions that do not have adequate systems in place to prevent and deter ML or FT.
Implementation & role of regulatory and other administrative authorities FATF 26-29)	Increase reporting parties’ awareness of the existence of TRACFIN’s opposition powers and extend the period of 12 hours to at least 24 hours. Increase the Judiciary’s involvement in the Liaison Committee. Improve TRACFIN’s dissemination ratio and ensure that it is systematically informed of the outcome of transmissions made to the judicial authorities. TRACFIN and supervisory authorities to provide further guidance and ML typologies to reporting entities to improve detection and reporting of suspicious transactions, the quality of STRs and overall implementation of AML/CFT requirements. Reach out to the DOM-TOM and monitor their compliance with AML/CFT obligations. Monitor adequacy of TRACFIN’s current staffing levels in view of the increasing number of STRs and the perceived need for outreach efforts vis-à-vis certain sectors. Consider pooling expertise in financial and terrorist-related aspects in one service. Increase supervisory resources of the CCA and the AMF and formalize training of supervisory staff. Shift responsibility for AML/CFT supervision and enforcement of la Poste to the CB or at a minimum increase supervisory efforts and resources of the IGF. Require that AML/CFT internal controls be taken into account in the licensing of financial entities. Where possible, supervisors should issue enforceable guidelines in support of the legal and regulatory framework.
Administrative Cooperation - Exchange of information relating to suspicious transactions (FATF 32)	TRACFIN should continue and enhance its efforts in systematically querying foreign FIUs in cases with an international dimension.
Other forms of cooperation - Basis & means of cooperation in confiscation, mutual assistance, and extradition (FATF 33-35)	Consider entering into additional arrangements providing for the transfer or the sharing of assets with another country when confiscation is a result of coordinated law enforcement actions.
Other forms of cooperation - Focus of improved mutual assistance on money laundering issues (FATF 36-40)	Efforts should be made to record the number, source, and purpose of requests for information exchange and their resolution by law enforcement authorities Further develop statistics maintained with regard to mutual legal assistance by including purpose/nature and results of requests.
Special recommendations on terrorist financing
III. Freezing and confiscating terrorist assets	Proceed with the adoption of a domestic act to enable France to comply fully with UNSCR 1373.
VI. Alternative Remittance	Review and monitor the adequacy of enforcement efforts with respect to unlicensed informal funds transfer businesses and develop complementary public outreach/awareness raising activities.

Table 7.

Other Recommended Actions

Table 7.

Other Recommended Actions

Reference	Recommended Action
Statistics	Maintain comprehensive statistics on the amounts of property frozen, seized, and confiscated relating to predicate offences, ML and FT. Consider the establishment of a centralized body responsible for managing seized and confiscated assets. TRACFIN should consider maintaining more detailed/refined statistics that would give a better insight on the performance and characteristics of all the components of the AML/CFT efforts.
Designated non-financial businesses and professions (DNFBP)	Review options for the regulation and supervision of non-financial businesses and professions and designate competent supervisory authorities.
Overall Capacity of Judicial System in Combating Financial Crime	Monitor the implementation of the recent reform (Law of March 9, 2004 entering into force on October 1, 2004) introducing specialized jurisdictions that is expected to enhance the overall capacity of the judicial system to combat financial crime.
VII. Wire transfers	Requirements for Special Recommendation VII should be put in place in early 2005, in accordance with FATF Interpretative Note.

View Table

Table 7.

Other Recommended Actions

Reference	Recommended Action
Statistics	Maintain comprehensive statistics on the amounts of property frozen, seized, and confiscated relating to predicate offences, ML and FT. Consider the establishment of a centralized body responsible for managing seized and confiscated assets. TRACFIN should consider maintaining more detailed/refined statistics that would give a better insight on the performance and characteristics of all the components of the AML/CFT efforts.
Designated non-financial businesses and professions (DNFBP)	Review options for the regulation and supervision of non-financial businesses and professions and designate competent supervisory authorities.
Overall Capacity of Judicial System in Combating Financial Crime	Monitor the implementation of the recent reform (Law of March 9, 2004 entering into force on October 1, 2004) introducing specialized jurisdictions that is expected to enhance the overall capacity of the judicial system to combat financial crime.
VII. Wire transfers	Requirements for Special Recommendation VII should be put in place in early 2005, in accordance with FATF Interpretative Note.

Authorities’ responses

260. The French authorities wish to thank the members of the IMF assessment team for all the work done to prepare this fair and balanced report. Notwithstanding, they have the following comments:

General

267. This assessment of observance of the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies (MFP) assesses the transparency of France’s policies and practices in the area of banking regulation and supervision. The assessment is based on discussions with representatives of the relevant regulatory and supervisory agencies and with representatives of major banks, rating agencies and the accounting and auditing profession. It was further based on a pre-mission self-assessment prepared by the authorities; study of the relevant laws and regulations; a review of the annual reports, other publications and websites of the Banque de France (BdF), Commission Bancaire (CB) and Comité des Etablissements de Crédit et des Entreprises d’Investissement (CECEI); and an earlier assessment made by an IMF team in the context of the 2000 Article IV consultation.

268. The legal framework for banking regulation and supervision in France is defined by the Code Monétaire et Financier (Monetary and Financial Code). This code allocates different responsibilities to three main players: the CB for supervision, the CECEI for licensing, and the Minister in charge of the economy for regulation. In the current government set-up, the Ministry of Economy, Finance and Industry (MINEFI) handles regulation. Until earlier this year, this last function was performed by the Comité de la Réglementation Bancaire et Financière (CRBF). The CRBF has now been transformed in an advisory body, the Comité Consultatif de la Législation et de la Réglementation Financières (CCLRF), advising the MINEFI in drawing up bank legislation and regulations. The CB, CECEI, and CCLRF are set up as specialized agencies within the BdF group. They draw on the BdF for their staff and other resources and the Governor of the BdF is also president of the CB and the CECEI.

Main findings

269. France reaches a high level of transparency in its bank regulation and supervision policies and practices. Transparency is supported by a clear legal framework, a culture of extensive disclosure and consultation, and a range of informative publications.

270. The roles, responsibilities and objectives of the agencies involved in bank regulation and supervision are clearly defined, explained and disclosed. The Monetary and Financial Code lays down the broad objectives, responsibilities and authority of the CB, CECEI and MINEFI. These broad objectives cover in particular (i) building a system of prudential regulations addressing bank soundness and maintenance of fair and competitive markets; (ii) client asset protection; (iii) enforcement of applicable laws and regulations; and (iv) maintenance of market and systemic liquidity. Disclosure and explanation of these objectives, responsibilities and authority is effected through official publications such as the Journal Officiel de la République Française (JORF), the Bulletins of the CB and BdF, and the annual reports and websites of the different agencies. The Monetary and Financial Code—and to a lesser extent other legislation (including the constitution)—also outlines the broad modalities of accountability; the procedures for appointment, terms of office and general criteria for removal of the heads and members of the agencies’ governing bodies; and the framework for the relationships between the different agencies.

271. There is a high degree of openness in the process of formulating and reporting banking regulation and supervision policies, thanks to a transparent and comprehensive consultation process. The regulatory framework is clearly set out in legislation and regulations, and disclosed/explained through the above-mentioned official publications and an annual compendium of laws, regulations, and directives applicable to the banking and financial sectors. The Monetary and Financial Code specifies the framework for cooperation and exchange of information between domestic agencies, and between domestic agencies and their foreign counterparts. The CB, CECEI and BdF publish informative annual reports. Extensive consultations are held before substantive changes in legislation or regulations, and this consultation process benefits from the compulsory membership of all licensed banks and investment firms in a professional organization. This allows for comprehensive distribution of drafts to all market participants, but this is not always done consistently, creating the risk of deviations between the positions defended by the organization and the consensus view of its membership. Once fully operational, the new CCLRF will further enhance the consultation process.

272. Information on banking regulation and supervision is publicly available and easily accessible. The CB and CECEI both publish an annual report that describes major developments in the banking and financial sectors—seen from their respective angles of responsibility—and reports aggregate data. The CB also publishes a semiannual Bulletin and an annual comparative analysis, which provide further information and data on banking sector developments. The BdF provides reports on a quarterly and annual basis and a Financial Stability Review. All these publications are available online on the websites of the BdF and CB. The CB, CECEI and CCLRF use the BdF’s Communications Divisions to provide public information services. The Governor of the BdF (including in his capacity as president of the CB and the CECEI) and senior officials of the CB’s General Secretariat explain their agencies’ objectives and performance at parliamentary hearings and through public speeches. Texts of regulations are made available through the agencies’ websites and publications, the compendium and other French government information services (such as http://www.legifrance.gouv.fr). None of the three financial agencies engaged in banking supervision and regulation provide emergency financial support to supervised institutions, although support operations can be undertaken by the BdF.

273. Transparent mechanisms for accountability and assurances of integrity exist for the different bank supervision agencies. The Governor of the BdF is required to issue an annual report to the President of the Republic and to Parliament, and must appear before the Finance Commissions of the National Assembly or the Senate if so requested, or if the Governor wishes to be heard by these bodies. These provisions also apply to his functions as Chairman of the CECEI and the CB. Assurance of the integrity of operations of the banking supervisory agencies rests with l’Inspection Générale of the BdF. The existence and mission statement of the Inspection Générale is stated on the organization chart of the BdF. Internal standards for the conduct of personal financial affairs are set out in the BdF’s Code de deontologie financiere which is published in the Official Bulletin of the BdF. A recent internal but published rule complementing the Code de déontologie financière focuses more specifically on good practices to be applied by officials and staff when they are offered gifts in the conduct of their official duties. CB staff is adequately protected by the general principles of administrative law applicable to persons in charge of a public function, and the relevant essential judicial rulings are widely publicized and discussed in the legal press. Nevertheless, a form of disclosure and clarification of these rules that is more accessible to the general public would be helpful.

Table 8.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Banking Supervision

Table 8.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Banking Supervision

Reference Principle	Recommended Action
None.

View Table

Table 8.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Banking Supervision

Reference Principle	Recommended Action
None.

Authorities’ response

274. The authorities are in broad agreement with the assessment.

General

275. This assessment of observance of the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies assesses the transparency of France’s deposit insurance policies and practices, as implemented by the French deposit insurance agency, the Fonds de Garantie des Dépôts (FGD). The assessment is based on discussions held with the director of the FGD, other representatives of regulatory and supervisory agencies in France, and representatives of the major banks. It was further based on a pre-mission self-assessment prepared by the authorities; study of the relevant laws and regulations; a review of the FGD’s website; and an earlier assessment made by an IMF team in the context of the 2000 Article IV consultation.

276. The FGD was established by the Savings and Financial Security Act of June 25, 1999, which was subsequently transposed into the Monetary and Financial Code. This basic legal framework is complemented by two decrees, as well as by a series of regulations issued by the CRBF. The FGD is set up as a special purpose legal entity under private law, of which all credit institutions licensed in France must be members. It is overseen by a supervisory council composed of representatives of the member credit institutions. On a day-to-day basis, the FGD is managed by a board consisting of three directors, one of which is designated President. The directors and President are nominated by the supervisory council, but the nomination of the President is subject to MINEFI approval. The FGD covers bank deposits, certain securities, and a specific type of bank guarantees (cautions) that some professions in France must obtain. The limit of its coverage is set at EUR 70,000 per individual per bank. In addition, it can preventatively intervene in a financial institution at the request of the CB.

Main findings

277. Although many aspects of the deposit insurance system in France are very transparent, the assessment reveals that in several areas, significant scope for improvement exists. In particular, the observance of the MFP Transparency Code could be improved through the following actions: (i) the publication of an annual report by the FGD, including audited financial statements; (ii) more proactive use of the FGD’s authority to explain its functioning to the public; and (iii) clarification of the legal protection of officials of the FGD.

278. The main objectives of the FGD are clearly laid out in the Monetary and Financial Code, as being to reimburse the clients of financial institutions when (i) their deposits become unavailable, (ii) certain securities become unavailable, or (iii) a financial institution is unable to honor the cautions it has granted. The Monetary and Financial Code, appurtenant decrees and regulations and the FGD’s own (publicly disclosed) internal rules define the basic institutional framework of the FGD; its concrete responsibilities; its broad modalities of accountability; the procedures for appointment and removal, and the terms of office, of the members of its supervisory council; and its relationships with other financial agencies. All of this is further explained on the website of the FGD.

279. There is scope for greater openness in the process for the formulation and reporting of deposit insurance policy. The FGD’s regulatory framework and operating procedures are publicly disclosed and explained in the Monetary and Financial Code and appurtenant regulations and decrees, as well as on the FGD’s website. This is also the case for its funding arrangements. The Monetary and Financial Code also outlines the basic framework for information sharing between the FGD and other financial agencies, and allows the FGD to conclude agreements with foreign counterparts, but it does not prescribe whether or not such agreements must be publicly disclosed. Significant changes in deposit insurance policy are subject to the transparent consultation and disclosure practices that apply to all laws and financial sector regulations in France. However, there is insufficient transparency towards depositors on the fact that branches and subsidiaries of foreign banks in France may not have the same level of coverage as domestic institutions. Furthermore, an important factor impeding transparency is the absence of an annual report published by the FGD. While the FGD website is very informative, it is not a substitute for a periodic report.

280. While in some respects, the public availability of information on deposit insurance policy is very good, overall it suffers from the absence of an FGD annual report and of a proactive communications policy. In part because it does not publish an annual report, the FGD does not disclose aggregate data on areas related to its jurisdictional responsibilities or its financial activities. The FGD prepares audited annual financial statements, which are audited by two different auditors and presented to the Minister in charge of economic affairs, but these statements are not publicly disclosed. Apart from its very informative website, the FGD has no public information services and, thus far, its senior officials have not felt the need to explain their policy objectives and performance to the public in any way other than through the website. All legal provisions, regulations and instructions relative to the functioning of the FGD are readily available to the public, through publication in the Monetary and Financial Code, the Recueil de Textes Reglementaires of the CRBF, the JORF, the websites of the FGD and the BdF, and http://www.legifrance.gouv.fr.

281. There is also significant scope for improvement of transparency in the area of accountability and assurances of integrity by the FGD. There are no rules prohibiting or providing for the appearance of FGD officials before designated authorities to publicly report on the FGD’s activities, objectives and performance. There is also no track record of officials doing so, in part because thus far no perceived need has arisen. The FGD produces audited financial statements, but these are only reported to the MINEFI and not publicly disclosed. The decisions of the FGD can be challenged before an administrative judicial authority. There are no specific rules of conduct on separation of private financial matters of officials and staff of the FGD from those of the FGD itself, nor on avoidance of conflict of interest, abuse of insider information and similar rules. There is no specific legal protection for officials of the FGD personally. However, under French administrative law, suits must be brought against the legal entity, not against the individual managers or officials.

Table 9.

Recommended Plan of Action to Improve Observance of IMF’s MFP Transparency Code Practices—Deposit Insurance

Table 9.

Recommended Plan of Action to Improve Observance of IMF’s MFP Transparency Code Practices—Deposit Insurance

Reference Principle	Recommended Action
VI. Open Process for Formulating and Reporting of Financial Policies
6.1.1	Increase transparency on the fact that deposits in branches and subsidiaries of foreign banks in France may not have the same level of coverage as domestic institutions.
6.1.5	Disclose the formal procedures for information sharing between the FGD and domestic and international financial agencies in greater detail.
6.3	The FGD should issue a periodic public report that provides an update on how its policy objectives are being pursued.
VII. Public Availability of Information on Financial Policies
7.2	Periodically publish aggregate data on the FGD’s operations.
7.3 and 7.3.1	Publicly disclose the FGD’s balance sheet on a pre-announced schedule, as well as a report on its market operations and, after an appropriate delay, aggregate information on any emergency financial support by the FGD to financial institutions.
7.4, 7.4.1 and 7.4.2	The FGD should establish a publications program and a more proactive policy for public communication by its senior officials.
VIII. Accountability and Assurance of Integrity by Financial Agencies
8.1	Establish a policy or practice on the appearance of FGD officials before a designated public authority to report on the conduct of the FGD’s policies, explain its policy objectives and describe its performance.
8.2 and 8.3	Publicly disclose the FGD’s audited accounts, including its operating expenses and revenues, on a pre-announced schedule and at least annually.
8.4.1	Clarify and publicly disclose the existing legal arrangements governing the protection of officials and staff of the FGD.

View Table

Table 9.

Recommended Plan of Action to Improve Observance of IMF’s MFP Transparency Code Practices—Deposit Insurance

Reference Principle	Recommended Action
VI. Open Process for Formulating and Reporting of Financial Policies
6.1.1	Increase transparency on the fact that deposits in branches and subsidiaries of foreign banks in France may not have the same level of coverage as domestic institutions.
6.1.5	Disclose the formal procedures for information sharing between the FGD and domestic and international financial agencies in greater detail.
6.3	The FGD should issue a periodic public report that provides an update on how its policy objectives are being pursued.
VII. Public Availability of Information on Financial Policies
7.2	Periodically publish aggregate data on the FGD’s operations.
7.3 and 7.3.1	Publicly disclose the FGD’s balance sheet on a pre-announced schedule, as well as a report on its market operations and, after an appropriate delay, aggregate information on any emergency financial support by the FGD to financial institutions.
7.4, 7.4.1 and 7.4.2	The FGD should establish a publications program and a more proactive policy for public communication by its senior officials.
VIII. Accountability and Assurance of Integrity by Financial Agencies
8.1	Establish a policy or practice on the appearance of FGD officials before a designated public authority to report on the conduct of the FGD’s policies, explain its policy objectives and describe its performance.
8.2 and 8.3	Publicly disclose the FGD’s audited accounts, including its operating expenses and revenues, on a pre-announced schedule and at least annually.
8.4.1	Clarify and publicly disclose the existing legal arrangements governing the protection of officials and staff of the FGD.

Authorities’ response

282. The authorities are broadly in agreement with the assessment.

General

283. This assessment examines France’s observance of the IMF’s MFP Transparency Code in the area of insurance supervision. The assessment is based on discussions with the French authorities during the FSAP missions that visited Paris in January-February and May 2004. It is further based on a review of the website of the Commission de Contrôle des Assurances, Mutuelles et des Institutions de Prévoyance (CCAMIP) and its predecessor’s (the CCA) most recent annual report, relevant laws and regulations, and other publications. It was also based on an earlier assessment performed in 2000 by an IMF team (see http://www.imf.org).

284. Insurance regulation and supervision in France was significantly reformed by the August 2003 Financial Security Law. Formerly, insurance supervision was divided between two agencies—the CCA for insurers governed by the Code des Assurances (Insurance Code), and the Commission de Contrôle des Mutuelles et des Institutions de Prévoyance (CCMIP) for mutual and provident insurers, dependent respectively from the Ministry of Finance and the Ministry of Social Affairs. The Financial Security Law merged those two agencies into a single autonomous insurance supervisor, the CCAMIP. Insurance regulation remains the responsibility of the Ministry of Finance.

285. Insurance regulation and supervision in France is governed by the Insurance Code, the Mutuality Code (Code de la Mutualité) and the Social Security Code (Code de la Sécurité Sociale), as amended by the Financial Security Law, and by accompanying regulations. These three codes contain the same provisions on prudential matters, applied to different types of institutions.

Main findings

286. Insurance supervision in France has achieved a high level of transparency, and the reforms put in motion by the 2003 Financial Security Law have especially improved the transparency of supervision of mutual and provident institutions, by harmonizing their prudential framework with that of the insurance companies governed by the Insurance Code. Nevertheless, the assessment identified a number of areas where improvements are possible. In most if these areas, the transparency problems found are related to the ongoing institutional transition, as well as to a general insufficiency of resources, which the CCAMIP expects to be able to address.

287. The role, responsibilities and objectives of the CCAMIP are clearly specified in the Insurance Code, as are the roles of other agencies involved in insurance regulation and supervision, notably the MINEFI, the Comité des Entreprises d’Assurance (CEA), which is responsible for licensing insurance companies and the Comité consultatif de la législation et de la réglementation financières (CCLRF). The CCAMIP’s objectives are (i) the protection of policyholders and (ii) the enforcement of relevant laws and regulations. The broad modalities of accountability and the main governance provisions for the CCAMIP are also specified in the Insurance Code. The relationships between the CCAMIP and other agencies are provided for in the Insurance Code and are disclosed and explained in the CCAMIP’s annual report and on its website.

288. Open processes exist for the formulation and reporting of the CCAMIP’s policies. The CCAMIP’s regulatory framework, operating procedures, regulations and fee structure are disclosed in the Insurance Code and appurtenant texts. Policies are further explained and reported in an annual report. A two-round consultation process exists for proposed substantive technical changes to the structure of insurance regulation. Information on the formal procedures for information sharing and consultation between the CCAMIP and other financial agencies is publicly available on the former’s website.

289. Information on the CCAMIP’s policies and on the insurance market is made available to the public through its annual report, other publications and its website. The CCAMIP intends to publish its financial accounts, but the practical modalities for doing so have not yet been established. The CCAMIP has not yet published an annual report. As a result of a lack of resources and the ongoing institutional reform, its predecessor (the CCA) only published two reports during the past four years, covering two years each (2000-2001 and 2002-2003).

290. While the Insurance Code and the envisaged functioning of the CCAMIP aim for a high level of accountability and assurances of integrity, in the current transitional phase, there is significant scope for improvement. Officials of the CCAMIP stand ready to appear before a designated public body to report on the conduct of insurance supervision. The CCAMIP intends to disclose its financial statements, but the practical modalities for doing so have not yet been determined. The financial accounts will be audited by the Cour des Comptes, but at its discretion and not necessarily annually. At present, the CCAMIP’s internal governance procedures are not publicly disclosed. General standards for the conduct of personal financial affairs of civil servants are specified in the general statute of the French civil service. A specific Code of Conduct (Code de Déontologie) for CCAMIP staff was approved in July 2004, and is publicly disclosed on the CCAMIP’s website. The legal protections for officials and staff of the CCAMIP are clearly specified in the law.

Table 10.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Insurance Supervision

Table 10.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Insurance Supervision

Reference Principle	Recommended Action
VI. Open Process for Formulating and Reporting of Financial Policies
6.3	The annual report should be published every year, on schedule.
VII. Public Availability of Information on Financial Policies
7.1 and 7.4.1	The publications program, in particular the schedule for the publication of the annual report, should be strictly implemented.
7.3	The publication of the CCAMIP’s accounts should happen on a pre-announced schedule.
VIII. Accountability and Assurance of Integrity by Financial Agencies
8.2	Publication of the CCAMIP’s financial statements will need to occur on a pre-announced schedule and the statements will need to be audited on a regular basis by an auditor independent from the accountant.
8.2.1	The financial statements to be published by the CCAMIP should be audited on a regular basis, and should include information on accounting policies as well as any qualification of the statements.
8.2.2	The CCAMIP’s internal governance procedures and its internal audit arrangements should be publicly disclosed.
8.3	The operating expenses and revenues of the CCAMIP should be published on an annual basis, preferably as part of the financial statements.

View Table

Table 10.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Insurance Supervision

Reference Principle	Recommended Action
VI. Open Process for Formulating and Reporting of Financial Policies
6.3	The annual report should be published every year, on schedule.
VII. Public Availability of Information on Financial Policies
7.1 and 7.4.1	The publications program, in particular the schedule for the publication of the annual report, should be strictly implemented.
7.3	The publication of the CCAMIP’s accounts should happen on a pre-announced schedule.
VIII. Accountability and Assurance of Integrity by Financial Agencies
8.2	Publication of the CCAMIP’s financial statements will need to occur on a pre-announced schedule and the statements will need to be audited on a regular basis by an auditor independent from the accountant.
8.2.1	The financial statements to be published by the CCAMIP should be audited on a regular basis, and should include information on accounting policies as well as any qualification of the statements.
8.2.2	The CCAMIP’s internal governance procedures and its internal audit arrangements should be publicly disclosed.
8.3	The operating expenses and revenues of the CCAMIP should be published on an annual basis, preferably as part of the financial statements.

Authorities’ response

291. The CCA’s report for the years 2002 and 2003 has been endorsed by the board, and is to be published.

292. 8.2.2. The respective roles of the board and the Secretary General are defined by the law (L.310-12-1). More detailed rules will be specified in the decrees establishing the CCAMIP, to be published soon.

293. The CCAMIP’s financial accounts will be established according to general accounting rules, by an accounting agent, who will not have any hierarchical link with the CCAMIP staff and cannot be given any order by the CCAMIP management. These financial accounts will be verified by the Cour des Comptes according to rules that are applicable to all administrative institutions.

General

294. This assessment of observance of the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies assesses the transparency of the role of the Autorité des Marchés Financiers (AMF) within the framework for securities regulation and supervision in France. It is based on discussions with representatives of the AMF that took place during the FSAP missions to Paris in January-February 2004 and May 2004. It was further based on a review of the relevant legislation and regulations, diverse publications, the AMF’s website (http://www.amf-france.org), and an earlier assessment made by an IMF team in the context of the 2000 Article IV consultation.

295. The assessment took place in a context of transition. The August 2003 Loi de Sécurité Financière (Financial Security Law) significantly reformed the framework for securities regulation and supervision in France, in part by merging three existing agencies, the Commission des Opérations en Bourse (COB), the Conseil des Marchés Financiers (CMF), and the Conseil de Discipline de la Gestion Financière (CDGF) into a single new agency, the AMF. The implementation of this merger was still ongoing at the time of the FSAP missions. For this assessment, where there was an insufficiently long track record of practices at the AMF: it was assumed that good transparency practices of the former agencies would be maintained, while taking into account the changed regulatory and legal framework.

296. Securities regulation and supervision in France is governed by the Monetary and Financial Code, as modified by the Financial Security Law of August 1, 2003. The law gives the AMF responsibility for ensuring the protection of public savings invested in financial instruments and gives it the authority to issue regulations and to supervise issuers and markets. The CB, the CECEI and the BdF are also involved in securities oversight, although to a lesser extent than the AMF.

Main findings

297. The AMF reaches a high degree of transparency in its policies and functioning. The few areas for improvement that the assessment identified are in part related to the current transitional state and further improvements are expected as the AMF overcomes its start-up challenges. In this context, the recommendations outlined in Table 1 are meant to further enhance what is already a highly transparent situation.

298. The AMF’s roles, responsibilities and objectives are clearly defined and publicized in the Monetary and Financial Code, as amended by the Financial Security Law. The law also clearly sets out the responsibilities of other agencies involved in securities regulation and supervision. It further prescribes the AMF’s broad modalities of accountability, its main governance provisions, the framework for its relationships with other domestic and foreign agencies, and its role in payment and settlement systems. The AMF’s website and publications provide additional information and explanation on its roles, responsibilities and objectives.

299. An open process is in place for the formulation and reporting of the AMF’s regulatory and supervisory policies. The conduct of its policies is transparent, governed by publicly disclosed laws, regulations and operating procedures. Nevertheless, transparency could be further enhanced by bringing these documents together in a single reference text. The AMF also issues an annual report that discusses how its policy objectives are being pursued. For proposed substantive technical changes to the structure of securities markets regulations, consultations are routinely held with market participants and working groups of experts, although the AMF is not publicly committed to such consultations.

300. Comprehensive information on securities regulation and supervision is made publicly available through the annual report of the AMF, the publication of quarterly statistics, and broader public information services, as well as through the AMF’s highly informative website. Information on the asset protection scheme and consumer protection arrangements the AMF oversees is publicly available in the relevant laws and regulations, and further elaborated on the websites of the BdF and the AMF respectively.

301. The AMF reaches a high degree of transparency in its accountability and assurances of integrity, but further enhancements are possible. AMF officials are available to appear before the Commissions of Finance of both chambers of parliament. The AMF’s accounts are produced by an independent accountant and audited by the Cour des Comptes. However, these audits take place at the discretion of the Cour des Comptes, rather than on a regular basis, and the results of the audits are not published along with the financial statements. Some of the modalities for the publication of the AMF’s annual report remain to be determined. The AMF’s internal governance procedures and its internal audit division are not yet fully in place and hence not fully disclosed, although the framework for them is foreseen in the law.

Table 11.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Securities Regulation and Supervision

Table 11.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Securities Regulation and Supervision

Reference Principle	Recommended Action
VIII. Accountability and Assurance of Integrity by Financial Agencies
Public disclosure of audited financial statements (8.2 and 8.2.1)	Have the AMF’s financial statements audited at least annually, rather than on an occasional basis. Publish the audited financial statements fully, on a pre-announced schedule. Include the accounting policies and any qualifications to the statements as an integral part of these publicly disclosed financial statements
Disclosure of internal governance procedures (8.2.2)	Elaborate and publicly disclose the AMF’s internal governance procedures, and make them operational.

View Table

Table 11.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Securities Regulation and Supervision

Reference Principle	Recommended Action
VIII. Accountability and Assurance of Integrity by Financial Agencies
Public disclosure of audited financial statements (8.2 and 8.2.1)	Have the AMF’s financial statements audited at least annually, rather than on an occasional basis. Publish the audited financial statements fully, on a pre-announced schedule. Include the accounting policies and any qualifications to the statements as an integral part of these publicly disclosed financial statements
Disclosure of internal governance procedures (8.2.2)	Elaborate and publicly disclose the AMF’s internal governance procedures, and make them operational.

Authorities’ response

302. The AMF notes that its financial statements are subject to several statutory mechanisms of accountability to the President of the Republic, to the Parliament and its commissions of finance, a special investigative committee that can be convened by the Parliament, and a routine basis accountability to the Cour des Comptes. The transmission of the financial statements to the latter is made yearly and the justifying documents are kept at its disposal for ten years. Those can be audited at any time by the Cour des Comptes and any practice that is not compliant with the principle of good governance shall be made public in its annual report. Moreover, it should be noted that the IOSCO principles and methodology, although defining clear accountability and transparency criteria, do not go as far as to require an external auditor to audit the regulator’s account annually and to publish the findings of this audit on a pre-announced schedule.

303. The AMF notes that under this principle relating to internal governance, several interrelating issues seem to have to be taken into consideration. These include provisions on the governance of staff and members of the Board on conflict of interests, but might also encompass questions related to the integrity of the decision making process as a whole and the integrity of the internal procedure mainly of operational areas. In this regard, as noted by the experts in their conclusion, the AMF is in the process of hiring an internal control officer and his deputy and will therefore soon be able to comply with the requirements set forth under this principle, although it is worth noting that this new internal control division will only add an independent level of control on procedures already set up by the management of the AMF accountable to the Secretary General.

General

304. This assessment examines France’s observance of the IMF’s MFP Transparency Code in the area of the payment systems oversight exercised by the BdF, including the oversight of Securities Clearing and Settlement Systems (SCSS). The assessment is based on discussions with the French authorities during the FSAP missions that visited Paris in January-February and May 2004. It is further based on a review of the website of the BdF, the BdF’s most recent annual reports, relevant laws and regulations, and other publications. It is also based on an earlier assessment performed in 2000 by an IMF team (see http://www.imf.org).

305. Payment systems oversight and the oversight of securities settlement systems in France are based on a legal and regulatory framework established at the European level, by the European Central Bank (ECB) and the ESCB, as well as on the French Monetary and Financial Code. It encompasses France’s contribution to the oversight of pan-European systems such as the Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET), Clearnet and the Euroclear group, as well as the oversight of purely domestic systems such as Paris Net Settlement System (PNS) and Système Interbancaire de Télécommunications (SIT), for which the BdF bears sole responsibility.

Main findings

306. The BdF achieves a high level of transparency in its payment systems oversight function, although further improvements are possible. This is especially the case regarding openness of the processes for the formulation and reporting of payment systems oversight policies.

307. The role, responsibilities and objectives of the BdF in the oversight of payment systems and securities settlement systems are clearly specified in the Monetary and Financial Code, and in treaties, protocols and other legal texts at the European level. They are further disclosed and explained in the BdF’s annual report and other publications, on its website, and during presentations by BdF officials. The broad modalities of accountability for the BdF, as well as its main governance provisions, are also specified in the Monetary and Financial Code. The relationships between the BdF and other agencies, domestic as well as foreign, are disclosed in legislation, treaties and other publications. The BdF encourages the timely public disclosure of general policy principles by the operators of payment systems through its promotion of applicable international standards.

308. Open processes exist for the formulation and reporting of the BdF’s policies in the area of payment systems oversight, but significant improvements are possible. The BdF discloses and explains the regulatory framework for payment systems oversight, but there is currently no publicly disclosed overall set of operating procedures in place governing the conduct of this oversight. Financial reporting by payment systems operators is governed by undisclosed bilateral agreements. The framework for information sharing and consultation is publicly disclosed, but detailed formal procedures are only partially disclosed. Significant changes in oversight policy are publicly announced and explained, and public consultations are systematically organized in case of substantive technical changes to the structure of financial regulations. The BdF reports on its payment systems oversight function in reports to the legislature, its official bulletin and its annual report, as well as on its website.

309. Information on payment systems oversight is made publicly available in various ways. The BdF reports on major developments in payment and settlement systems in its annual reports, on its website and in its bulletin. The BdF also maintains extensive public information services and a publications program, both of which cover payment systems oversight issues as well as the BdF’s other functions. A specific section of the BdF’s website deals with payment systems issues. Regulations and other generally applicable directives and guidelines are available through official websites and publications. Senior officials of the BdF stand ready to explain its payment systems policies in public fora and through other channels.

310. The BdF’s accountability and integrity are assured, through provisions covering the BdF as a whole. As the BdF’s department responsible for payment systems is not an independent entity, it is covered by these provisions and there are no additional specific mechanisms for accountability and integrity in the domain of payment systems oversight. The Governor of the BdF can be asked, or ask, to appear before parliament. Internal governance procedures, standards for the conduct of personal financial affairs of BdF officials and staff, and information on legal protections are publicly disclosed, through laws and/or other published documents.

Table 12.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Payment systems oversight

Table 12.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Payment systems oversight

Reference Principle	Recommended Action
VI. Open Process for Formulating and Reporting of Financial Policies
6.1.1	Clearly specify, publicly disclose and explain the operating procedures governing the conduct of the BdF’s payment systems oversight function. Improve efforts to explain and clarify international standards and the way they should be implemented in the French context by the different payment systems operators.
6.1.5	Disclose the formal procedures for information sharing and consultation in greater detail.

View Table

Table 12.

Recommended Action Plan to Improve Observance of IMF’s MFP Transparency Code Practices—Payment systems oversight

Reference Principle	Recommended Action
VI. Open Process for Formulating and Reporting of Financial Policies
6.1.1	Clearly specify, publicly disclose and explain the operating procedures governing the conduct of the BdF’s payment systems oversight function. Improve efforts to explain and clarify international standards and the way they should be implemented in the French context by the different payment systems operators.
6.1.5	Disclose the formal procedures for information sharing and consultation in greater detail.

Authorities’ response

311. The Banque de France welcomes the IMF’s assessment that it reaches a very high level of transparency in its payment systems oversight function. It also takes good note of the recommendations above to further improve its observance of the IMF’s MFP Transparency Code Practices.