Front Matter Page
© 2008 International Monetary Fund
July 2008
IMF Country Report No. 08/217
Monaco: Assessment of Financial Sector Supervision and Regulation
This Assessment of Financial Sector Supervision and Regulation for Monaco was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on June 19, 2008. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Monaco or the Executive Board of the IMF.
The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org • Internet: http://www.imf.org
Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
Principality of Monaco
Assessment of Financial Sector Supervision and Regulation
Prepared by the Monetary and Capital Markets Department
Approved by Jaime Caruana
June 19, 2008
This Assessment of Financial Sector Supervision and Regulation (AFSSR) is based on the work of the Offshore Financial Center (OFC) Program Update team, which visited the Principality of Monaco during March 4–17, 2008. The OFC Program Update team comprised Messrs. Alessandro Giustiniani (Mission Chief), Renzo Avesani (risk management expert), and Richard Britton (securities market expert). The OFC Program Update team received excellent cooperation from the Monegasque and French authorities as well as from market participants and associations.
The main findings of the OFC Program Update are the following:
Since the 2002 OFC assessment, the Principality of Monaco has taken important steps to further strengthen an already comprehensive legal framework, supervisory structure, and practices supporting a well-regulated environment. Nonetheless, given Monaco’s ambition to develop into a fully-fledged financial center, there is a case for intensifying ongoing efforts to comply with international best practices, in particular regarding the sharing of information with foreign regulatory authorities. Moreover, the newly created Commission de Contrôle des Activités Financières (CCAF—Financial Activity Supervisory Commission) would need to strengthen its independence as well as its human resources, should it assume a greater direct role in overseeing local nonbank institutions.
In its recent mutual evaluation of compliance with FATF 40+9 Recommendations, MONEYVAL acknowledged that Monaco has a satisfactory Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) legal framework, but identified a range of issues on which further action by the authorities is needed. A Report on the Observance of Standards and Codes (ROSC) based on the Executive Summary of the MONEYVAL evaluation supplements this AFSSR. The authorities expressed their commitment to implement MONEYVAL’s recommendations.
The Monegasque banking sector is generally robust. Private banking and asset management are the main services offered by the Monegasque banks, the majority of which are subsidiaries of large internationally active groups. In general, their investment activity is conservative, thus entailing limited risks. Nevertheless, financial market turmoil may heighten challenges for the Monegasque banks, especially if serious difficulties were to emerge at a parent institution.
The main author of this AFSSR is Mr. Giustiniani, with contributions from the rest of the OFC Program Update team.
The AFSSR is a summary report on implementation of the indicated financial sector regulatory standards. It has been developed to help jurisdictions identify and remedy weaknesses in financial sector supervision and regulation. The reviews do not directly assess risks, such as those associated with asset quality, markets, or fraud, which could affect the soundness of financial systems or individual institutions.
Contents
Glossary
Executive Summary
I. Introduction
II. Background
III. Financial System Features
A. Overview
B. Banking Sector
C. Nonbank Financial Sector
D. Risks and Vulnerabilities
IV. Supervisory Architecture
A. Banking Sector
B. Nonbank Financial Sector
C. Information Sharing
D. Development of Self Regulation
V. Anti-Money Laundering and Combating the Financing of Terrorism
Tables
1. Monaco: Financial System Structure; 2003–2006
2. Monaco: Banking Sector Financial Soundness Indicators; 2002–06
3. Monaco: Breakdown of Public Collective Investment Schemes; 2003–07
4. Monaco: Regulatory Structure
5. Monaco: Suspicious Transaction Reports; 2005–2007
Figures
1. Total Private Sector Turnover; 2002–07
2. Financial Sector Depth in Selected OFCs; 2006
3. Monaco: Sector Breakdown of Suspicious Transactions Reports; 2007
4. Compliance with 40+9 FATF Recommendations
Appendix
I. Status of Implementation of the 2002 Recommendations
Glossary
| AFSSR |
Assessment of Financial Sector Supervision and Regulation |
| AMAF |
Association Monégasque des Activités Financières (Monegasque Association of Financial Activities) |
| AML/CFT |
Anti-Money Laundering and Combating the Financing of Terrorism |
| AMF |
Autorité des Marchés Financiers (French Financial Market Authority) |
| AMPA |
Association Monégasque des Professionnels en Administration de Structures Étrangères (Monegasque Association of Company Service Providers) |
| CB |
Commission Bancaire (French Banking Commission) |
| CBFA |
Commission Bancaire, Financiére, et des Assurances (Belgian financiѐ sector regulator) |
| CECEI |
Comité des établissements de Crédit et des Entreprises d’Investissement (French Credit Institutions and Investment Companies Committee) |
| CCAF |
Commission de Controle des Activités Financieres (Monegasque Financial Activity Supervisory Commission) |
| CIS |
Collective investment scheme |
| COB |
Commission des Opérations de Bourse (the predecessor body to the AMF) |
| CONSOB |
Commissione Nazionale per le Societa’ e la Borsa (Italian securities market regulator) |
| CSP |
Company service provider |
| CSSF |
Commission de Surveillance du Secteur Financier (Luxemburg financial sector regulator) |
| DEE |
Direction de l’Expansion Economique (Division of Economic Expansion) |
| EEA |
European Economic Area |
| EU |
European Union |
| FATF |
Financial Action Task Force |
| FIU |
Financial Intelligence Unit |
| FSA |
Financial Services Authority (UK financial sector regulator) |
| HHI |
Herfindhal-Hirshman Index |
| IOSCO |
International Organization of Securities Commissions |
| MoU |
Memorandum of Understanding |
| MMoU |
Multilateral Memorandum of Understanding |
| OFC |
Offshore Financial Center |
| ROSCs |
Report on Observance of Standards and Codes |
| SICCFIN |
Service d’Information et de Contrôle sur les Circuits Financiers (Monegasque Financial Intelligence Unit) |
| SO |
Sovereign Order |
| STR |
Suspicious Transaction Report |
| UCITS |
Undertakings for Collective Investment in Transferable Securities |
Executive Summary
Since the 2002 OFC assessment, the Principality of Monaco has taken important steps to further strengthen an already comprehensive legal framework, supervisory structure, and practices supporting a well regulated environment.
The creation of the independent CCAF, resulting from the merger of two previous Commissions in charge of supervising nonbank financial institutions; the establishment of a Coordinating Committee to help cooperation and information sharing on a broad range of financial services issues; the introduction of some elements of self-regulation into the system; the signing of a number of Memoranda of Understanding (MoUs) with foreign security regulators; and the continuing action of the Service d’Information et de Contrôle sur les Circuits Financiers (SICCFIN—Service for the Information and Supervision of Financial Networks) in raising market awareness about AML/CFT prevention mechanisms are all welcome developments.
Nonetheless, given Monaco’s ambition to develop into a more fully-fledged financial center, there is a case for intensifying efforts to comply with international best practices so as to minimize potential reputational risk, which is the main risk that Monaco’s financial sector faces.
In particular, should the CCAF fully develop its role of supervisor and inspector of collective investment schemes, it would need additional resources. In addition, the law and practices regarding its sharing of information with both domestic and foreign regulatory authorities need to be raised to international standards. In particular, the staff encourages the Monegasque authorities to initiate talks with the International Organization of Securities Commissions (IOSCO) with a view to joining the organization as an Ordinary Member, noting that admission is now conditional on an applicant becoming a full signatory to the IOSCO Multilateral MoU (MMoU).
The mission welcomes the authorities’ commitment to address the weaknesses identified by MONEYVAL in its recent evaluation of Monaco’s compliance with FATF 40+9 Recommendations. The mission encourages the authorities to rapidly adopt the necessary legislative and regulatory changes and to strengthen the resources assigned to AML/CFT purposes even beyond what is actually planned.
Monegasque banks are generally reported to enjoy robust capitalization, strong liquidity, sound asset quality, and solid profitability. Given their specialization in private banking and asset management and their belonging to large and internationally active financial groups, risks appear to be contained. Nevertheless, current financial market turmoil may heighten challenges for Monegasque banks, especially if serious difficulties were to emerge at a parent institution.
Main Recommendations
Main Recommendations
| Recommendation | Priority |
|---|---|
| Amend Act 1.338 to enhance information sharing and cooperation both domestically and between the CCAF and foreign regulatory authorities, particularly regarding the requirements of an MoU and comparable professional secrecy obligations, in line with best international practices. | High |
| Amend Act 1.338 to bring the offences of insider dealing and market manipulation into line with international best practices. | High |
| Require licensed firms to report to the CCAF transactions which create reasonable suspicion of insider dealing or market manipulation, and develop the Commission’s expertise to analyze such reports so as to take timely remedial actions. | High |
| Adopt conflicts of interest policies (including reporting of trades) for members and staff of the CCAF along with monitoring compliance. | High |
| Give consideration to assigning to the CCAF a greater direct role in overseeing local nonbank financial institutions, which may require reviewing the current cooperation arrangements with the French securities regulator (Autorité des Marchés Financiers—AMF). | High |
| Bring the AML/CFT framework more into line with international standards, in particular with regard to foreign activities and internal controls in financial institutions, and strengthen staffing levels in the SICCFIN. | High |
| Strengthen the independence of the CCAF by removing the mandate of the Commissaire du Gouvernement to attend its meetings particularly when decisions on licensing or administrative sanctions are to be taken. | Medium |
| Introduce legal protection of members of the CCAF from liability when carrying out duties in good faith. | Medium |
| Strengthen staffing levels in the CCAF. | Medium |
| Monitor valuation of collateral required by banks for Lombard lending activity and banks’ liquidity conditions. | Medium |
Main Recommendations
| Recommendation | Priority |
|---|---|
| Amend Act 1.338 to enhance information sharing and cooperation both domestically and between the CCAF and foreign regulatory authorities, particularly regarding the requirements of an MoU and comparable professional secrecy obligations, in line with best international practices. | High |
| Amend Act 1.338 to bring the offences of insider dealing and market manipulation into line with international best practices. | High |
| Require licensed firms to report to the CCAF transactions which create reasonable suspicion of insider dealing or market manipulation, and develop the Commission’s expertise to analyze such reports so as to take timely remedial actions. | High |
| Adopt conflicts of interest policies (including reporting of trades) for members and staff of the CCAF along with monitoring compliance. | High |
| Give consideration to assigning to the CCAF a greater direct role in overseeing local nonbank financial institutions, which may require reviewing the current cooperation arrangements with the French securities regulator (Autorité des Marchés Financiers—AMF). | High |
| Bring the AML/CFT framework more into line with international standards, in particular with regard to foreign activities and internal controls in financial institutions, and strengthen staffing levels in the SICCFIN. | High |
| Strengthen the independence of the CCAF by removing the mandate of the Commissaire du Gouvernement to attend its meetings particularly when decisions on licensing or administrative sanctions are to be taken. | Medium |
| Introduce legal protection of members of the CCAF from liability when carrying out duties in good faith. | Medium |
| Strengthen staffing levels in the CCAF. | Medium |
| Monitor valuation of collateral required by banks for Lombard lending activity and banks’ liquidity conditions. | Medium |