## 1fraea2025006 ## Source details **Canonical URL:** [1fraea2025006](https://www.imf.org/-/media/files/publications/cr/2025/english/1fraea2025006.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1fraea2025006.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1fraea2025006.pdf.json) --- ### Market evolution and supervisory context - Financial markets in France have evolved since the previous FSAP with: - attraction of new types of trading activities and movement towards consolidation in wholesale trading and asset management; - increased complexity of markets and supervision alongside trends toward simplification and standardization (for example, ETFs and neo-brokers). - Regulatory scope and supervisory responsibilities have expanded to include digital asset markets, sustainable finance, and digital operational resilience. - Technical focus of the note: institutional and supervisory arrangements and two materially changed areas with financial stability relevance — supervision of fund liquidity risk and oversight of trading systems. ### AMF governance, resources, and conflicts of interest - Institutional facts and governance: - The AMF established in 2003; Board consists of sixteen members; a representative of the Minister of Economics and Finance attends in a non-voting capacity. - Chairperson appointed for a non-renewable five-year term; legal requirements prescribe gender parity in appointments. - Sanctions Committee: twelve persons, members appointed for five-year terms renewable once; gender parity required. - Resource and financial statistics: - 2023 revenue: €115.9 million with 515 employees. - AMF cash reserves: €54.4 million at end 2016; €35 million end 2021; €22 million end 2022. - Recent annual transmission to general government budget from excess revenues and penalties: around €15.5 million per year. - Proposed budget increase for financial year commencing January 1, 2025: 4-5 percent (subject to legislative approval at mission time); footnote: Finance Bill 2025 adopted after first mission allowing the AMF an additional 25 FTE and budget increase around €5m. - In the three years to December 31, 2021: AMF rate of headcount increase 0.2 percent; rate of budget increase 11 percent. - Investments committed for 2023 on technology and real estate: nearly €20 million. - Governance risks and mitigants: - Broad composition brings expertise but can raise real or perceived conflicts of interest given ex officio members and government representative’s attendance. - Representative of the Minister can ask for second deliberation of Board decisions (Article L. 621-3) — has never been used in practice but presents perception risk. - Key governance recommendation: - "To avoid any perception of a potential conflict of interest and facilitate operationally independent functioning, the government should recuse itself from all supervisory decision-making committees at the ACPR and the AMF." - Financial governance recommendation: - "Ensure that the funding of the AMF provides adequate resourcing by conducting a bottom-up review of resources and needs and developing a multiyear strategic workforce plan (both in terms of numbers and skills)." ### Supervision of firm resilience and inter-agency cooperation - Supervisory scope and practice: - AMF applies a risk-based supervisory framework combining individual and thematic actions; heavy use of SPOT inspections (shorter thematic inspections typically four to five months) and classic inspections. - Regulated population: around 700 management companies supervised by the AMF; AUM around €4.6 trillion in 2022 (up from €3.8 trillion in 2018). - Supervisory tiering: internal ratings inform meeting frequency (Tier 1: minimum 2 supervisory meetings a year; Tier 2: minimum 1; Tier 3: meetings where relevant; Tier 4: reactive supervision). - Some sole-AMF supervised firms manage over €50bn; some firms may go many years without in-person interactions. - Dual regulation and coordination: - MiFID II investment firms are authorized by the ACPR; ACPR is lead regulator for MiFID investment firms; AMF is lead regulator for managers of UCITS and AIFs. - Legal gateway for information sharing: Article L. 631-1 of the Monetary and Financial Code; coordination includes RAF meetings; sharing of prudential SREP reports recently started. - Limitations: information sharing is not automated; joint inspections remain uncommon. - Recommendations on cooperation and prudential oversight: - The AMF and ACPR should more formally document their cooperation arrangements. (ST AMF, ACPR) (¶ 46, 47) - The AMF and ACPR should work together to ensure holistic supervisory oversight of jointly supervised firms, such as through joint-inspections, and ensure information silos do not limit supervision. (ST AMF, ACPR) (¶ 44, 45) - For non-investment firms solely supervised by the AMF, ensure appropriate ongoing supervision of financial and operational resilience, prioritizing significant institutions in line with a risk-based approach. ### Supervision of fund liquidity and Money Market Funds (MMFs) - Market scale and structure: - AMF supervises around 700 management companies; AUM around €4.6 trillion in 2022. - At end-2022 French MMFs NAV: €384 billion across 183 MMFs. - France, Luxembourg, and Ireland are major EU domiciles for MMFs; France is in the top three EU jurisdictions by MMF AUM. - French managers managed around €900 million on behalf of foreign clients in 2023. - MMF regulatory structure and resilience features: - France does not have CNAV or LVNAV MMFs; French MMFs are standard NAV. - Standard NAV MMF requirements: 7.5 percent of assets with residual maturity of one day; 15 percent of assets with residual maturity of one week; weighted average maturity of 6 months. - MMFs generally low risk but can transmit investor liquidity shocks (reference: March 2020 “dash for cash”). - Outflows in France during March 2020 were lower than other significant EU MMF jurisdictions, in part reflecting French MMFs being only Variable NAV. - AMF supervisory actions, tools, and uptake: - AMF strongly incentivized adoption of Liquidity Management Tools (LMTs); AMF Instruction DOC-2017-05 provided methodologies for gates. - AMF estimates: - 66 percent of retail opened-ended collective investment scheme AUM are equipped with gates. - 45 percent of retail opened-ended collective investment scheme AUM are equipped with swing pricing. - Adoption in MMFs is understood to be significantly lower. - Adoption of gates in AIFs is understood to be significantly higher, approaching 100 percent for the most commonly marketed funds. - AMF published "Monitoring of the Adoption of Liquidity Management Tools by French Funds" in November 2024 and introduced transitional arrangements to December 31, 2023 to increase uptake. - AMF and Bank of France developed automated tools to read prospectuses and detect LMT disclosure and abnormal NAV variations. - Reporting, leverage, and supervisory requirements: - UCITS leverage limit: 100% of NAV (derivative leverage). - UCITS borrowing limit: 10% (with term restrictions). - AIFMD leverage framework more developed; AMF has not imposed additional Article 25 limits but uses ex ante limits in authorizations and Article R214-36-1 for certain AIFs. - Directive (EU) 2024/927 introduces EU reporting framework for UCITS (not expected to take effect until 2027). - AMF national reporting: Annual Control Report (RAC), Annual Disclosure Sheet (FRA), quarterly reporting on ratio breaches and compensation paid to unitholders. - Supervisory escalation and crisis tools: - France can require daily reporting of ratio breaches and subscriptions/redemptions from depositaries and centralizing agents; AMF has formal legal power to suspend subscriptions and redemptions under Articles L. 621-13-2 and L. 621-13-3 of the French Monetary and Financial Code. - AMF favors early intervention ahead of suspension/suspension-of-redemptions backstop. - Recommendations on liquidity supervision and EU changes: - AMF should continue to proactively monitor and supervise implementation of LMTs, in particular in MMFs, and ensure international principles are embedded. - AMF should ensure liquidity management tools remain appropriate despite no prescriptive EU approach mandating particular tools and continue to develop monitoring/intervention tools permitted by law. - AMF should remain engaged at EU and international policy level. ### Amendments to UCITS and AIFMD (agreed in 2023) — implications - New AIF liquidity management features: - Open-ended AIFs required to self-select two LMTs from a set including redemption gates, notice periods, swing pricing, anti-dilution levies, redemption in kind, redemption fees, and dual pricing. - Introduction permitted of side pockets or suspension of subscriptions/redemptions in exceptional circumstances. - New AIF lending limits where AIFs originate loans: - 175 percent for open ended funds - 300 percent for closed ended funds - Additional requirements: credit risk management and monitoring policies, diversification requirements, and 5 percent retention requirements where an AIF distributes an originated loan to third parties. - Supervisory implications: - AMF supervisory and authorization approach will need to shift for adherence to new requirements; limited room for national discretion. - Effectiveness of some tools requires changes in the wider ecosystem (for example, depositories’ processing abilities for anti-dilution levies). ### Oversight of trading systems and market resilience - Market structure and activity changes: - Between 2019/2020 and 2021/2022 MTF volumes multiplied by 121, from €11.6 billion to €1.4 trillion. - France has over double the number of OTFs as any other EU Member State and the second highest number of Systematic Internalizers. - France accounts for 30-40 percent of EMIR reporting. - Fixed income electronic platform trading rose to around 30 percent (up from around 20 percent in 2015). - OTC trading increased from 25 percent in 2020 to 35 percent in 2021; trend continued thereafter. - Asset managers represented 24 percent of the total balance of net “sellers” of CAC40 stocks in 2023. - Systemic and operational vulnerabilities: - Movement away from continuous intra-day liquidity toward point-in-time liquidity concentration (for example, trading auctions) increases fragility if auctions are disrupted. - Expected consolidation could increase dependence on particular firms and infrastructure, heightening need for resilience testing and mapping of key dependencies and interconnectedness. - Examples of market events: increased activation of circuit breakers; August 2024 unwinding of leveraged trades; default of a family office on margin calls in 2021. - Supervisory tools, data systems, and limitations: - AMF upgraded market oversight systems (ICy platform) for market abuse and pattern detection; ICY reduced alerts to around 8,000 a year (from around 20,000 under prior tool). - ICY integrates trade data, transaction reporting, direct transaction reporting by investment firms, EMIR reporting and uses algorithmic learning to minimize false positives. - ICY limitations: effectiveness depends on quality/coverage of inputs; less effective where data is fragmented or incomplete (e.g., derivative reports with non-EU counterparties); some ICY developments postponed due to budgetary pressures. - Authorization, settlement, clearing and cross-border considerations: - Authorization responsibilities: market operators of regulated markets are licensed by the Ministry of Economics and Finance on recommendation of the AMF; investment firms operating trading venues are authorized by the ACPR with AMF assessment expected prior to authorization. - Clearing concentration: material derivative clearing occurs in third country CCPs (including the UK); temporary equivalence recognition due to expire June 30, 2025 intended to give time to develop EU clearing capacity. - EMIR 3 (Regulation (EU) 2024/2987 and Directive (EU) 2024/2994) introduces active account requirement for certain firms to trade at least five trades per subcategory of class of derivatives on EU CCPs during reference periods; detailed requirements to be developed by ESMA. - Authorities should engage with counterparts to ensure continuity of clearing services and monitor compliance/impact of reforms. - Supervisory priorities and recommendations for trading systems: - Prioritize resilience testing, understanding critical dependencies and continuity mechanisms for trading (including auction resilience and market data dependencies). - SPOT inspections should be prioritized for the trading sector to set common understanding of best practice and enhance AMF’s understanding of newer markets; where matters interact with ACPR remit actions could be coordinated. - Authorities should put in place ongoing mapping of interdependencies and fragilities in markets, including analysis of intra-day liquidity concentration and market data dependencies; ensure division of responsibilities between ACPR and AMF does not create oversight gaps. (MT AMF, ACPR) (¶ 88, 89) ### Enforcement, data-driven supervision, and crisis arrangements - Enforcement and sanctions: - Financial penalty caps: firms up to €100 million or ten-times profits; individuals up to €15 million or ten times profit (Article L. 621-15). - Over previous five years: around ten sanction decisions per year; roughly two thirds resulting in financial penalties under €1 million. - One significant financial penalty: €93 million; remainder below €40 million. - AMF imposed the highest aggregate amount of financial penalties in the EU in 2023 (based on ESMA review). - Data-driven supervision: - ICData program, extranet for asset managers and issuers, prospectus analysis tools, market dashboards (e.g., blacklists, short selling data). - Significant staff in Asset Management Directorate and Data and Markets Directorate devoted to data analysis. - Crisis management: - AMF crisis management unit can be activated; chaired by Chair and/or Secretary General with standing senior members and invitees as needed. - Some crisis reporting systems established (daily transmission of fund subscription/redemption data when activated, reporting of breaches by collective investment schemes). - Crisis cooperation arrangements function operationally but lack formal documentation; recommended documentation of key contacts, action plans, and authorities. ### Key recommendations (select, with timing definitions) - Timing definitions: I Immediate (within 1 year); ST Short Term (within 1–2 years); MT Medium Term (within 3–5 years). - Immediate and Short-Term priorities (I/ST): - Ensure appropriate supervision of the financial and operational resilience of firms on an ongoing basis, prioritizing significant institutions in line with a risk-based approach. (ST AMF) (¶ 33, 34) - The AMF and ACPR should more formally document their cooperation arrangements. (ST AMF, ACPR) (¶ 46, 47) - The AMF and ACPR should work together to ensure holistic supervisory oversight of jointly supervised firms, such as through joint-inspections, and ensure information silos do not limit supervision. (ST AMF, ACPR) (¶ 44, 45) - Medium-Term priorities (MT): - Authorities should put in place ongoing mapping of interdependencies and fragilities in markets to minimize spillover effects where a critical firm or market operator cannot operate, including analysis of intra-day liquidity concentration and market data dependencies; ensure division of responsibilities between the ACPR and AMF does not give rise to oversight gaps. (MT AMF, ACPR) (¶ 88, 89) - Government should recuse itself from all supervisory decision-making committees at the ACPR and the AMF to avoid perception of conflicts of interest and facilitate operational independence. (MT Ministry of Economics and Finance) (¶ 12, 13) - Ensure AMF funding provides adequate resourcing by conducting a bottom-up review of resources and needs, and developing a multiyear strategic workforce plan (both in terms of numbers and skills). (MT AMF, Ministry of Economics and Finance) (¶ 21, 22, 23, 85) ### Appendix II — Regulatory framework for investment funds (concise points) - EU Regulations apply directly; Directives require transposition into national law. - UCITS: - Retail open-ended funds; UCITS funds cited as having €1 3.1tn net assets at end 2023. - Derivative leverage set at 100% of NAV under Commission Recommendation 2004/383/EC. - Borrowing limited to 10% with term restrictions. - AIFMD: - AIFs accounted for €7.5tn net assets at end 2023. - Liquidity management requirements are more prescriptive than UCITS; includes alignment of strategy and redemption policy, limits for liquidity, and remediation plans. - MMFR (Regulation 2017/1131): - Standard NAV MMF buffers reiterated: 7.5 percent (one day), 15 percent (one week), weighted average maturity 6 months. - As of December 2024 the EU had not amended the MMF Regulation despite ESRB/ESMA recommendations after 2020 stresses. - Macroprudential work: - EU consultation on NBFI macroprudential policies concluded November 2024; continued French involvement recommended. *Source: EXECUTIVE SUMMARY and Technical Note prepared by Mr. James Roberts, Monetary and Capital Markets Department, IMF; on-site work conducted in Paris during December 2024.* ### EXECUTIVE SUMMARY __________________________________________________________________________ 4 ### EXECUTIVE SUMMARY ### Market evolution and supervisory context - Financial markets in France have evolved since the previous FSAP, particularly in respect of wholesale markets, with: - attraction of new types of trading activities and movement towards consolidation in the wholesale trading and asset management sectors; - increased complexity of markets and supervision, alongside trends toward simplification and standardization in offerings such as Exchange Traded Funds (ETFs) and neo-brokers. - Regulatory scope and supervisory responsibilities have grown to include digital asset markets, sustainable finance, and digital operational resilience. - The Technical Note focuses on institutional and supervisory arrangements and two areas with material change and potential financial stability relevance: the supervision of fund liquidity risk and the oversight of trading systems. ### AMF governance, resources, and conflicts of interest - The Autorité des Marchés Financiers (AMF) is a focused markets regulator employing high quality supervisory methods and has invested in data-driven supervision and market data integration. - The AMF deploys horizontal thematic supervision and firm-specific inspections, producing a material number of enforcement actions relative to EU peers. - Constraints: - The AMF is increasingly constrained by limitations on resources; resources are allocated in line with a risk-based approach but should be reviewed forward-looking to assess supervisory capacity and needs. - Resources are needed to further develop systems supporting the AMF’s data-driven approach. - Governance and conflict of interest considerations: - The AMF is an independent agency with an independent Board; membership is drawn from public bodies and industry experts, and a government representative attends in a non-voting capacity. - The mission did not identify undue interference in operational independence, but the arrangements can give rise to the risk of interference, real or perceived. - Recommendation: continue to mitigate risks and conflicts of interest arising from governance arrangements. ### Supervision of firm resilience and inter-agency cooperation - Scope of supervision: - The AMF rightly focuses on markets and investor issues but should ensure significant firms are subject to proactive supervision regarding financial and operational resilience. - Except for certain portfolio management companies, firms for which the AMF is the sole financial regulator do not carry out investment services and activities as defined in EU law; nonetheless some of these firms have significant market presence and dependence on other entities. - Inter-agency cooperation: - Where firms are dual regulated by AMF and Autorité de Contrôle Prudentiel et de Résolution (ACPR), the split of regulatory obligations is clear in law and practice and understood by industry. - Information sharing and coordination between regulators have increased since the previous FSAP but can be further formalized to ensure holistic supervisory oversight of dual regulated firms. - Practical arrangements would benefit from documentation and disclosure, in line with international practice, to avoid information silos and facilitate timely response to market disruptions. ### Supervision of fund liquidity and MMFs - International work on liquidity management of open-ended funds has been significant since the previous FSAP. - France’s MMF market is in the top three jurisdictions within the EU by assets under management (AUM). - MMF experience and AMF analysis: - MMFs are generally low risk but can transmit investors’ liquidity shocks, as observed in the global “dash for cash” episode in March 2020. - The AMF produced public analysis of March 2020 impacts on French MMFs, highlighting the weighing of bank-issued securities sold to meet redemptions. - Outflows in France were lower during March 2020 than other significant EU MMF jurisdictions, in part reflecting French MMFs being only Variable NAV. - The AMF has conducted studies on MMF volatility (published October 2018) and detailed analysis of portfolios during the Covid-19 crisis (published May 2021). - AMF supervisory approach: - Supervisory mechanisms to improve management of leverage, liquidity, and redemption risks in open-ended funds have driven early adoption while EU level requirements were under development. - The AMF’s policy on liquidity management in open-ended funds has evolved and will change as a result of incoming EU level changes; the AMF should continue to exercise supervisory discretion to minimize market-wide impacts of liquidity shocks. ### Oversight of trading systems and market resilience - Changes since the previous FSAP: - Material increase in over the counter (OTC) trading. - In some markets, movement away from continuous intra-day liquidity towards point-in-time liquidity concentration (for example in trading auctions). - Recent changes to trading and clearing rules that are complex and data intensive; these changes were not yet embedded at the time of the mission. - Expected consolidation could increase dependence on particular firms and infrastructure, heightening the need for resilience testing and understanding of key dependencies and interconnectedness. - AMF actions and needs: - The AMF has upgraded market oversight systems, particularly from a market abuse perspective, and is using these outputs to monitor changing trading patterns and emerging risks. - There is heightened need for resilience testing in markets, understanding critical dependencies, and ensuring mechanisms for continuity of trading in the case of disruptions or outages. - Interdependence with asset management: - Asset managers represented 24 percent of the total balance of net “sellers” of CAC40 stocks in 2023, illustrating sector interconnections. ### Key recommendations (summarized from Table 1) - Immediate and Short-Term priorities (I/ST): - Ensure appropriate supervision of the financial and operational resilience of firms on an ongoing basis, prioritizing significant institutions in line with a risk-based approach. (ST AMF) (¶ 33, 34) - The AMF and ACPR should more formally document their cooperation arrangements. (ST AMF, ACPR) (¶ 46, 47) - The AMF and ACPR should work together to ensure holistic supervisory oversight of jointly supervised firms, such as through joint-inspections, and ensure information silos do not limit supervision. (ST AMF, ACPR) (¶ 44, 45) - Medium-Term priorities (MT): - Authorities should put in place ongoing mapping of interdependencies and fragilities in markets to minimize spillover effects where a critical firm or market operator cannot operate, including analysis of intra-day liquidity concentration and market data dependencies; ensure the division of responsibilities between the ACPR and AMF does not give rise to oversight gaps. (MT AMF, ACPR) (¶ 88, 89) - To avoid perception of potential conflicts of interest and facilitate operational independence, the government should recuse itself from all supervisory decision-making committees at the ACPR and the AMF. (MT Ministry of Economics and Finance) (¶12, 13) - Ensure AMF funding provides adequate resourcing by conducting a bottom-up review of resources and needs, and developing a multiyear strategic workforce plan (both in terms of numbers and skills). (MT AMF, Ministry of Economics and Finance) (¶ 21, 22, 23, 85) - Timing definitions used: - I Immediate (within 1 year); ST Short Term (within 1-2 years); MT Medium Term (within 3−5 years). *Source: EXECUTIVE SUMMARY, Technical Note prepared by Mr. James Roberts, Monetary and Capital Markets Department, IMF; on-site work conducted in Paris during December 2024.* ### 7. The note assesses i) the institutional level supervisory arrangements for the oversight ### 1fraea2025006 - 7. The note assesses i) the institutional level supervisory arrangements for the oversight ### Institutional and supervisory overview - The note assesses: - i) the institutional level supervisory arrangements for the oversight of the funds and trading sectors, including in systemic risk monitoring; - ii) the approach to the supervision of liquidity and redemption risks in open-ended funds; and - iii) the oversight of trading systems. - Appendix 1 assesses progress against the relevant recommendations in the 2019 Technical Note on Select Topics in Financial Supervision and Oversight. - Appendix II provides background on the EU framework for regulating funds. - French authorities, in particular the AMF, provided extensive input before and during the on-site visit in December 2024. Industry representatives and stakeholders also provided material valuable to the mission. ### A. The AMF’s Governance Arrangements - Establishment and scope: - The AMF was established in 2003 to regulate securities market participants and products within France, including market infrastructure, investment firms, trading venues, asset managers and listed companies. - Authorization of regulated firms can vary between the AMF, ACPR and the Ministry of Economics and Finance: ACPR authorizes investment firms and trading venues operated by investment firms; the Ministry authorizes operators of regulated markets. - The AMF does not regulate banking and insurance activities, but has responsibilities and oversight when banks and insurers carry out activities regulated by the AMF. - Objectives and functions: - Objectives: safeguarding investments in financial products; ensure that investors receive appropriate information; maintain orderly financial markets. - Required to take account of financial stability objectives in the EU; hosts the AMF Ombudsman; has supervisory obligations in anti-money laundering, combatting the financing of terrorism, and financing of the proliferation of weapons of mass destruction. - Has legal gateways for exchange of information domestically and internationally and powers to enter into agreements with other bodies. - Board composition and appointment terms (Article L. 621-2 of the Monetary and Financial Code): - The Board acts as the preeminent decision-making body; consists of sixteen members; a representative of the Minister of Economics and Finance attends in a non-voting capacity. - Board consists of: - a) A Chairperson, appointed by decree of the President of the France; - b) A Member of the Conseil d’Etat, appointed by the Vice-President of the Conseil d’Etat; - c) A Member of the Cour de cassation, appointed by the First President of the Cour de cassation; - d) A Magistrate from the Cour des Comptes, appointed by the first president of the Cour des Comptes; - e) A Deputy Governor of the Banque de France, appointed by the Governor of the Banque de France; - f) The Chairman of the Autorité des Normes Comptables; - g) Three members appointed by the President of the Senate, the President of the National Assembly, and the President of the Economic, Social and Environmental Council; - h) Six members appointed by the Minister for the Economy, Finance and Industrial and Digital Sovereignty; - i) A Representative of employee shareholders, appointed by the Minister after consultation with trade unions. - The Chairperson is appointed for a non-renewable five-year term; legal requirements prescribe gender parity in appointments. - Sanctions Committee composition (Articles L. 621-15 and L. 621-17): - Twelve persons consisting of: - a) Two members of the Conseil d’Etat; - b) Two members of the Cour de cassation; - c) Six members with financial and legal expertise; and - d) Two representatives of employees of investment service providers. - Members appointed for five-year terms, renewable once; legal requirements prescribe gender parity in appointments. - Governance risks and mitigants: - Broad representation brings expertise but can give rise to risks of conflicts of interest and relies on integrity of appointments and independence of other bodies. - Ex officio members can have prior involvement in the AMF (examples noted). - Attendance of industry practitioners and a representative of the Minister heightens need for measures to mitigate real or perceived undue interference with operational independence. - Conflicts are mitigated to some extent by term limits and legal/operational conflict of interest requirements. - The representative of the Minister can ask for second deliberation of Board decisions (Article L. 621-3), except in sanctions; this has never happened in practice but creates risk of perceived interference. - Governance recommendation: - "To avoid any perception of a potential conflict of interest and facilitate operationally independent functioning, the government should recuse itself from all supervisory decision-making committees at the ACPR and the AMF." ### B. The AMF’s Financial Resources - Budget setting and legal constraints: - The AMF has its own resources and ability to set its budget, but the level of the budget is proposed by the Ministry of Economics and Finance for consideration and approval by the legislature. - Each year the AMF assesses resource need and discusses with the Ministry; the legislature considers the proposal accompanied by a public report explaining reasons for any proposed budget increase. - Regulatory fees are paid by regulated firms and are also considered as taxation in terms of legal basis, introducing additional political considerations in budget planning. - As an independent public authority, the number of employees is subject to a cap reviewed annually. - Financial figures and flows: - In 2023 the AMF’s revenue was €115.9 million with 515 employees. - Any revenues and fees in excess of the ceiling set by the legislature, including monies from financial penalties, are transmitted to the general government budget. In recent years this has amounted to around €15.5 million per year. - Recent and proposed budgetary changes: - A proposal had been put to the legislature to consider an increase of the AMF’s budget by 4-5 percent for the financial year commencing January 1, 2025, designated to address new responsibilities relating to digital assets and digital operational resilience; at the time of the mission in December 2024 the proposal remained subject to legislative approval. - Footnote: "After the first mission the Finance Bill 2025 has been adopted, allowing the AMF an additional 25 FTE and budget increase around €5m." - Audit Court findings (Cour des comptes, L’Autorité des marchés financiers, March 2024): - The 2024 report was critical of AMF financial administration and internal governance, including initiation of investments and projects without funding and prior assurances from government. - Findings: - AMF cash reserves reduced from €54.4 million at end 2016 to €35 million end 2021, and €22 million end 2022. - Nearly €20 million of investments had been committed for 2023 on technology and real estate expenditure. - The financial position was deemed unsustainable; AMF could have become insolvent absent government increases of resources (by €2.5 million in 2023 and €6.5 million in 2024). - Examples of emergency recruitment freezes imposed as headcount exceeded statutory ceiling; AMF unable to meet financial obligations related to multiple IT projects. - The report considered information accompanying budget requests to be insufficient and lacking dialogue with government. - AMF accepted the recommendations and was in the process of implementation at the time of the mission. - The report made eight recommendations including establishing a multiyear staffing path, increasing use of specialized committees, clarifying roles of president and secretary general, authorizing delegations of authority, reviewing organizational chart of support functions, making multiyear financial trajectory more reliable, performing annual joint review of budgetary position, and reprioritizing information systems projects. - Comparative resourcing and trends: - The report noted a growing number of mandates and complexity while headcount and budget increases remained moderate. - Benchmarking across Germany, Italy, Luxembourg, Spain, and the Netherlands found: - In the three years leading to December 31, 2021, the AMF’s rate of headcount increase was 0.2 percent (the lowest rate in the sample). - The AMF’s rate of budget increase was 11 percent (third out of six). - In absolute terms the AMF’s headcount and budget were both the second lowest in the sample. - AMF historical reserves significantly depleted since 2017, reducing year-on-year; lack of available reserves could lead to real term reduction in annual expenditure, subject to approval of budget increases. - Growing responsibilities and resource implications: - Increasing EU-level obligations (sustainable and digital finance) create complex data and systems obligations and drive resources into technical development and reporting, often through ESMA. - Contributions to EU work are important though not always mandatory. - Scope and complexity of supervised firms changed materially; new firms and markets in trading of complex products and derivatives have grown significantly requiring new expertise. - New systems for market oversight require maintenance, refinement, and appropriately qualified staff. - In the three years leading to December 31, 2021, when firms were relocating from the UK, the AMF’s headcount grew by only two full time employees. - Resourcing, staffing, and retention issues: - Staff turnover rate is around 11 percent. - Increasing reliance on more junior staff with turnover at mid-levels. - Benchmarking highlights employee salaries can be materially below market rates. - The AMF applies supervisory resources in line with a risk-based approach, yet resourcing constraints risk gaps emerging in oversight. - Financial governance recommendation: - "Ensure that the funding of the AMF provides adequate resourcing by conducting a bottom-up review of resources and needs and developing a multiyear strategic workforce plan (both in terms of numbers and skills)." ### C. The Supervision of Firms by the AMF - Supervisory framework and approach: - The AMF applies a risk-based supervisory framework, using supervisory alerts and risk assessments to inform allocation of supervisory resources. - Supervisory activities are divided between: - individual actions relating to a specific firm or event; and - thematic actions assessing historical behavior/events and implementation of new regulations. - Thematic actions are conducted by the Market Intermediaries and Infrastructure Supervision Directorate, the Asset Management Directorate, and the Inspections Directorate. - Inspection and investigation modalities: - The approach relies on Supervision des Pratiques Opérationnelle et Thématique (SPOT) Inspections, which are shorter than conventional inspections and are fed back to the market to highlight good and bad practice. - Separate teams carry out investigations, typically relating to investigating suspicion of market abuse. *Source: 1fraea2025006 - 7. The note assesses i) the institutional level supervisory arrangements for the oversight (PDF chapter).* ### 25. The AMF incorporates industry and outside expertise through its Scientific Advisory ### 1fraea2025006 - 25. The AMF incorporates industry and outside expertise through its Scientific Advisory ### External expertise and industry engagement - The AMF incorporates industry and outside expertise through its Scientific Advisory Board and Consultative Commissions, chaired by members of the Board. - The Scientific Advisory Board includes academics and provides input into risk and strategic matters. - The consultative commissions are more commonly used for industry input in the AMF’s rule making. - Industry stakeholders advised the mission that these are valuable touch points between the regulator and regulated sector, particularly in the development of regulatory requirements, and industry feedback is valued by the AMF. - Both mechanisms are advantageous as French markets become more diversified and trading activity becomes more complex. ### Risk Outlook, internal risk tools, and key risks (AMF’s 2024 Risk Outlook) - The supervisory approach is partly driven by the AMF’s Risk Outlook and ESMA risk mapping, published annually, and supported by an internal risk dashboard which informs supervisory priorities. - Key risks identified in the AMF’s 2024 Risk Outlook (summarized by IMF staff): - Financial Stability - Risk of stock market repricing: Very high and upward - Risk related to the adaptation to the new interest rate environment: High and upward - Credit risk, refinancing risk, sustainability of the debt service burden: Very high and upward - Market organization and functioning - Risk of volatility increases, of sudden fluctuation in liquidity conditions, of large scale moves by investors from one asset class to another: High and upward - Risks to the functioning of markets and post-trade infrastructures: High and flat - Financing of the economy - Risks to the profitability of financial institutions facing a contrasting environment: High and flat - Risk of difficult access to financing for businesses, especially SMEs: High and upward - Risk of difficult mobilization of funding for the energy transition: High and upward - Risks to investor protection associated with inappropriate information on the risks of specific investments or distribution channels: Significant and flat - Source noted: AMF 2024 risk outlook, summarized by IMF staff. AMF, 2024 Markets and Risk Outlook, June 2024. ### Supervisory priorities, research, and planned activities - The AMF publishes a summary of its planned supervisory activities annually. The 2024 Action Plan and Supervisory Priorities sets out key priorities: - Asset management: investment restrictions, qualifications and training, sustainable finance, governance, and valuations of non-publicly listed assets. - Intermediaries and market infrastructure: quality of reporting data, algorithmic trading, involvement of compliance functions in employee conduct, market abuse and outsourcing governance. - Fund liquidity mismatch, particularly in MMFs, remained a key priority for the AMF even if not explicitly listed in the 2024 supervisory priorities. - The AMF publishes economic research designed to directly impact supervisory and policy priorities, including: - Uptake of liquidity management tools by funds. - Approaches to measure liquidity in, and set transparency requirements for, corporate bonds. - Publications are also made available in English to influence domestic and international audiences. - Internal risk mapping uses research and data to identify thematic and individual risks which shape supervisory priorities. ### Supervisory tiering, resource allocation, and interaction frequency - Regulated firms are subject to supervisory tiering and categorization, informed by quantitative risk scoring, regulatory licenses and activities, and supervisory judgment. - Tiering informs intensity of supervision; higher-tier firms have more regular meetings. - Different approaches to tiering and categorization are taken in different sectors. - Some lowest-tiered firms interact with the AMF only reactively (e.g., after a specific event or to amend a regulatory license). - The approach relies significantly on: - Quality of regulatory data. - Integrity of the authorization process. - Approval process of the program of operations of investment firms. - The AMF has invested significantly in data and information systems to monitor issues in smaller firms (e.g., leverage and liquidity issues). - Given supervisory resource limitations, risk profiling must be dynamic and accurate on an ongoing basis. - The mission observed that the largest trading banks in France can have only one or two full time AMF supervisors (those banks also supervised by the ACPR and the ECB). - Some smaller firms could go many years, potentially decades, without in-person supervisory interaction. ### Inspections approach (SPOT and classic inspections) - The AMF relies heavily on SPOT inspections, combining on-site visits with desk-based review for a sample of around five firms, to assess compliance with a particular regulation. - SPOT inspections are typically carried out over four to five months. - Recent SPOT themes: cybersecurity, portfolio management delegations, short-term funding markets regulation application, regulatory reporting, and ESG-related benchmarks. - Classic inspections: focus on an individual firm in more depth and could lead to sanctions if sufficient evidence of non-compliance is identified. - SPOT inspection focus is informed by internal risk monitoring and supervisors’ insight and decided by the Secretary General. - A thematic inspection synthesis was published on the AMF website in May 2021 regarding liquidity risk management on UCITS within the context of a Common Supervisory Action coordinated by ESMA. ### Dual regulation, sole AMF supervision, and prudential scope - Investment firms are dual regulated by the AMF and ACPR; other firms are solely regulated by the AMF, including for prudential purposes. - As a securities regulator the AMF’s approach is driven by market conduct supervision; the ACPR focuses on prudential supervision and business continuity. - Firms solely supervised by the AMF are also subject to regulatory requirements related to own funds, but supervisory priority by AMF staff generally focuses on risk management in relation to the firm’s business activities (e.g., asset management on behalf of third parties). - Firms solely under the AMF are not authorized to trade on own account nor to hold client funds. - Supervisory responsibility for these firms follows the prudential framework set forth by the AIFM and UCITS Directives. - Note on Investment Firm Regulation applicability and Article 13: portfolio management companies carrying out UCITS or AIFMD activities are authorized and solely supervised by the AMF and are only subject to Article 13 of the Investment Firm Regulation (fixed overheads capital requirement). ### Recommendation on prudential supervision of non-investment firms - Recommendation: For non-investment firms the AMF should ensure that there is appropriate supervision of the financial and operational resilience of firms on an ongoing basis, with a prioritization of significant institutions in line with a risk-based approach. - Rationale and observations: - Some firms within the AMF’s sole supervision manage tens of billions of Euros and have complex delegation and outsourcing arrangements. - Financial distress at such firms could give rise to risks of disorderly exits from the market, or interconnectedness. - Supervision is currently more reactive; the most recent SPOT inspection on regulatory capital was in 2018, reporting that 4.8 percent of asset management companies had own funds deficiencies based on 2016 returns, which led to supervisory action. - The AMF acknowledges that the vast majority of asset management companies, including larger ones, have own funds materially in excess of AIFM and UCITS Directive minimums. - The AMF noted the incoming Digital and Operational Resilience Act will increase oversight of firms’ activities in this respect. - The mission met with fund managers solely supervised by the AMF who manage over €50bn. ### Enforcement framework, penalties, and remediation focus - The AMF has a public Inspection Guide and actively pursues enforcement under the Financial and Monetary Code. - Firms can be sanctioned with financial penalties up to €100 million or ten-times profits, and individuals can be subject to financial penalties up to €15 million or ten times the profit made, under Article L. 621-15 of the Financial and Monetary Code. - These caps impose limitations on financial penalties compared to some large market regulators. - The AMF actively uses enforcement powers; a significant volume of published enforcement actions relates to market abuse (misuse of information and market manipulation). - Over the previous five years there have been around ten sanction decisions per year, with roughly two thirds resulting in financial penalties under €1 million. - There was one significant financial penalty of €93 million, with the remainder below €40 million. - Compared to EU peers the AMF imposes relatively high sanctions in number and financial penalties; the AMF imposed the highest aggregate amount of financial penalties in the EU in 2023 (based on ESMA review). - Effectiveness of the levels of financial penalties imposed should be kept under review. - The AMF’s enforcement approach has developed to give greater focus to remedial action: enforcement now incorporates remediation plans with later supervisory follow-up to validate remediation. The AMF should continue to validate that follow-up supervisory action ensures remediation when non-compliance is identified. ### Data-driven supervision and systems development - The AMF has significantly invested in becoming a data-led regulator and grown staff expertise in data analysis and systems. - The ICData program includes internal systems to analyze and present regulatory data for analysts and supervisors, and publication of market data and dashboards (e.g., blacklists and short selling data). - Systems developed to improve connections with industry include: - An extranet where asset managers can drop files for regulatory approval. - A similar system for issuers. - Systems to analyze prospectuses. - Investment has also been made in systems to enhance market oversight. - A significant number of staff roles within the Asset Management Directorate and Data and Markets Directorate relate specifically to data analysis to identify emerging issues and inform supervisory approach. - Given limitations on regulatory resources and increasing market complexity, data-driven supervision is essential. ### AMF’s role in systemic risk monitoring and crisis arrangements - The AMF does not have a primary objective for systemic risk mitigation but has a mandate to take account of EU financial stability objectives and proactively invests resources in this area. - The Analysis, Strategy and Risk Division analyzes emerging and persistent systemic risks within the AMF’s oversight and maintains an internal risk heatmap which informs supervisory actions; this spans conduct, investor protection, and systemic risk monitoring. - Operational directorates meet three times a year with a Bank of France representative to share potential risk information. - The Chair of the AMF is a member of the Haut Conseil de stabilité financière (HCSF), the macroprudential coordination body in France, chaired by the Minister with three external advisor members. - The AMF assesses more leveraged alternative investment funds and coordinates with EU authorities to assess leverage risk at an EU level. - The AMF carried out thematic studies with authorities such as the Bank of France; example: assessed potential spillover risks within real estate funds in 2023, leading to supervisory actions requiring revaluations and liquidity management interventions and resulting in a lowering of valuations within the sector. - Real estate funds are generally closed-ended; French authorities considered spillover risks from real-estate funds to be limited at the time of the mission. - The AMF contributes to regional and international risk monitoring through ESMA, the ESRB, and IOSCO; at the time of the mission in December 2024 the AMF had around 70-80 of its employees involved in working groups of various organizations. - Crisis management unit: - Developed by the AMF and can be activated when needed. - Chaired by the Chair and/or Secretary General of the AMF with standing senior members and the ability to invite others as needed. - Some systems established for crisis reporting: daily transmission to the AMF of fund subscription and redemption data by depositaries and centralizing agents, and reporting of breaches of investment rules by collective investment schemes. - Crisis management arrangements requiring cooperation with other agencies function operationally, but are not formally documented; these arrangements could benefit from documentation of key contacts, action plans, and authorities. *Source: IMF staff summary of AMF materials and mission findings as presented in the provided content.* ### 41. For investment firms the division of regulatory responsibilities is split between the ### For investment firms the division of regulatory responsibilities is split between the AMF and ACPR. ### Regulatory framework and division of responsibilities - Firms carrying out activities under Directive 2014/65/EU (Markets in Financial Instruments Directive, known as MiFID II) and Regulation 600/2014 (Markets in Financial Instruments Regulation, known as MiFIR), collectively referred to as the MiFID II package, are authorized by the ACPR. - These firms are subject to Regulation 2019/2033 (Investment Firm Regulation, known as IFR), which sets out prudential requirements applicable to investment firms subject to MiFID II, known as MiFID investment firms. - For MiFID investment firms: - The ACPR is the lead regulator, with the sole power to authorize and withdraw licenses from firms. - For other firms within the AMF’s oversight (including managers of UCITS and AIFs): - The AMF is the lead regulator. - Powers to grant and withdraw licenses are reserved to the AMF Board, with no supervisory involvement from the ACPR. - The dual supervision model is historical and predates the IFR; the mission did not identify inherent deficiencies in the model but emphasized ongoing scrutiny of regulatory classifications to ensure the population of firms supervised by the ACPR remains commensurate with the ACPR’s objectives. ### Coordination, information sharing, and supervisory practice - Legal and operational cooperation: - Regular exchange of information between the ACPR and AMF is permitted through Article L. 631-1 of the Monetary and Financial Code. - Coordination mechanisms include regular meetings known as the "RAF" (Réunion des Autorités Financières). - Information, including regulatory reporting, is shared on a non-automated, case-by-case basis (specific alerts, issues, or matters of shared interest). - Recent changes and practices: - Coordination has increased since the last FSAP; prudential SREP reports have recently started to be shared with the AMF by the ACPR. - For higher rated investment firms under the AMF’s approach, AMF supervisory teams participate in the annual meeting organized by the ACPR. - For French Securities Based Swaps Dealers (SBSD), prudential aspects under ECB oversight and conduct issues are jointly discussed during quarterly calls with U.S. supervisory counterparts involving AMF and ECB representatives; the AMF is informed about main results of the annual SREP conducted by the ECB for these SBSDs. - Limitations and opportunities: - Information sharing is not automated and joint inspections are uncommon. - Overlap exists in supervisory interest areas (risk management, governance, exit processes); joint inspections and greater common understanding (for example on operational resilience and business continuity) would improve supervisory insight. - IOSCO work on operational resilience of trading venues is noted as relevant to both regulators. ### Recommendations on supervisory cooperation - The AMF and ACPR should work together to ensure holistic supervisory oversight of jointly supervised firms, such as through joint-inspections, and that information silos do not limit supervision. - The AMF and ACPR should more formally document their cooperation arrangements, building on existing arrangements (RAF, sharing SREP outputs, AMF attending ACPR annual supervisory meetings) without becoming overly prescriptive; documentation should clarify expectations, arrangements and how to handle resolution mechanisms. ### Supervision of liquidity risk in investment funds — A. Market Overview - Market structure and scale: - The AMF supervises around 700 management companies, with AUM around €4.6 trillion in 2022, up from €3.8 trillion in 2018. - An increasing trend towards ETFs and passive investing is observed; retail investor activity increased with an 89 percent rise in retail investors buying and selling ETFs in Q2 2024 vs. the previous year. - At end-2022 French MMFs: NAV of €384 billion split across 183 MMFs. - France, Luxembourg and Ireland are major EU domiciles for MMFs. - French managers managed around €900 million on behalf of foreign clients in 2023. - MMF structure and risk profile: - France does not have CNAV or LVNAV MMFs; French MMFs are standard NAV. - Standard NAV MMFs are required to hold 7.5 percent of assets with residual maturity of one day, and 15 percent of assets with residual maturity of one week, with a weighted average maturity of 6 months. - Approximately half of MMF managers in France actively manage MMFs; the other half are feeders or linked to employee savings plans. - Concentration: - The global MMF market is predominately concentrated in the United States; the EU and China are significant players. ### Supervision of liquidity and redemption risks — B. Supervisory approach and tools - Supervisory lessons and orientation: - French authorities have been proactive, learning from Covid-19 liquidity pressures and 2022–2023 real-estate fund pressures. - The AMF has strongly incentivized adoption of Liquidity Management Tools (LMTs). - Integration and monitoring: - Liquidity management is integrated into authorizations and ongoing supervision under UCITS (Directive 2009/65) and AIFMD (Directive 2011/61). - The AMF integrates regulatory reporting, including daily NAV reporting, into a system that creates automated alerts for analysis and supervisory follow-up (SPOT or classic inspections, or market intervention). - AMF research found that 56 percent of UCITS funds have had daily redemption exceeding 5 percent at least once over a four-year time period. - Policies and uptake of LMTs: - AMF Instruction DOC-2017-05 (2017) outlined calculation methodologies and expectations for gates. - AMF consulted on strengthening LMTs in February 2022; policy amended three times between 2022 and 2023 to align anti-dilution mechanisms with swing pricing, require explanations where funds do not implement gates/anti-dilution tools, introduce stress testing requirements, and prospectus disclosure requirements. - A transitional period was introduced until December 31, 2023, to increase uptake. - AMF estimates: - 66 percent of retail opened-ended collective investment scheme AUM are equipped with gates. - 45 percent of retail opened-ended collective investment scheme AUM are equipped with swing pricing. - Adoption in MMFs is understood to be significantly lower. - Adoption of gates in AIFs is understood to be significantly higher, approaching 100 percent for the most commonly marketed funds. - The AMF and Bank of France developed a tool to automatically read fund prospectuses to identify LMT disclosure and incorporation. - The AMF uses a tool to detect abnormal NAV variations and unusual subscription/redemption patterns. - Leverage and reporting: - UCITS are limited to 100% leverage of NAV. - Managers are required to manage and monitor positions and potential impact on portfolio risk. - Leverage requirements in AIFMD are more developed; NCAs can apply additional limits under Article 25 of AIFMD. The AMF has not imposed additional leverage limits under Article 25 but applies ex ante limits in fund authorizations and prescribes limits for certain AIFs through Article R214-36-1 of the Monetary and Financial Code. - Core reporting for AIFs and MMFs is prescribed at EU level. Directive (EU) 2024/927 introduces an EU reporting framework for UCITS (not expected to take effect until 2027). - AMF national reporting requirements include Annual Control Report (RAC) and Annual Disclosure Sheet (FRA) returns annually, plus quarterly reporting on ratio breaches and compensation paid to unitholders by French management companies and funds managed by foreign managers. - The AMF’s reporting quality has been the subject of two completed SPOT inspections; an additional inspection was anticipated during 2025. - Targeted monitoring and escalation tools: - France has a system to require daily reporting of ratio breaches and subscription and redemption from depositaries and centralizing agents, activatable by the AMF during market stress. - These arrangements enable proactive monitoring and early intervention and have supported thematic and firm-specific SPOT inspections. - Supervisory expectations and guidance: - In November 2024 the AMF published "Monitoring of the Adoption of Liquidity Management Tools by French Funds", reiterating supervisory expectations such as gate thresholds relative to NAV frequency, with potential calculation methodologies ranging from five percent gate threshold for daily NAV calculation to 20percent for monthly NAV calculation. - The report emphasizes clear justification and disclosure of a fund’s chosen approach, building on a comply-or-explain approach in advance of EU-level regulatory changes. *Source: IMF mission text (sections 41–59) from the provided content unit.* ### 60. Amendments to UCITS and AIFMD agreed in 2023 amended the EU regulatory ### 1fraea2025006 - 60. Amendments to UCITS and AIFMD agreed in 2023 amended the EU regulatory ### Amendments to UCITS and AIFMD: liquidity management and lending limits - Open ended AIFs are required to self-select two LMTs from a set including: redemption gates, notice periods, swing pricing, anti-dilution levies, redemption in kind, redemption fees, and dual pricing. - Introduction permitted of side pockets or suspension of subscription or redemption orders by the manager in exceptional circumstances. - ESMA published a consultation paper on these measures in July 2024, considering detailed technical implementation and taking account of ongoing IOSCO work. - New AIFMD requirements on lending by AIFs: - Where AIFs originate loans, taking account of the exposure of the AIF and its NAV, limits are: - 175 percent for open ended funds - 300 percent for closed ended funds - Introduced credit risk management and monitoring policies, diversification requirements, and 5 percent retention requirements where the AIF distributes a loan which it has originated to third parties. - Changes further limit strategies to originate loans for the sole purpose of distributing to third parties. ### AMF supervisory implications and recommended actions - The AMF should continue to proactively monitor and supervise the implementation of LMTs, in particular in MMFs, and ensure that the principles of international standards are embedded in their supervisory approach. - The AMF’s supervisory and authorization approach will need to shift to ensure adherence to these new requirements; the EU framework leaves limited room for national discretion. - The AMF should: - Ensure liquidity management tools remain appropriate despite no prescriptive EU approach mandating particular tools. - Continue to develop tools to monitor and intervene to the extent allowed by the legal framework. - Remain engaged at EU and international policy level, leveraging its material expertise. - The AMF has formal legal power to suspend subscriptions and redemptions for financial stability purposes under Articles L. 621-13-2 and L. 621-13-3 of the French Monetary and Financial Code; current approach favors intervention ahead of this more severe backstop. - Effectiveness of some tools requires changes in the wider eco-system (for example, depositories must be able to process and calculate valuations and fees in the necessary time and manner for anti-dilution levies). ### Oversight of trading systems — developments since 2019 - France is a financial hub for European markets; the majority of non-EEA shares traded in the EU trade on French markets. - Trading venues may be established in France with members and clients across the EU; regulated under Article L. 420-1 and subsequent of the Financial and Monetary Code in accordance with MiFID II. - Trading growth since the UK’s withdrawal from the EU: - Between 2019/2020 and 2021/2022 Multilateral Trading Facility (MTF) volumes multiplied by 121, from €11.6 billion to €1.4 trillion. - Market structure and activity: - France has over double the number of Organized Trading Facilities (OTF) as any other EU Member State, and the second highest number of Systematic Internalizers. - France accounts for 30-40 percent of European Market Infrastructure Regulation (EMIR) reporting. - Fixed income electronic platform trading rose to around 30 percent, up from around 20 percent in 2015. - Increase in OTC activity: - AMF research showed OTC trading increasing from 25 percent in 2020 to 35 percent in 2021, and the trend has continued. - Concerns: increased intermediation chains and intra-group risk transfers not relevant for price discovery; venues are central to price discovery, reference prices, indices, and benchmarks. - International market events highlighting vulnerabilities: - Examples include increased activation of circuit breakers; in August 2024 the unwinding of leveraged trades impacted Yen carry trades; the default of a family office on margin calls led to large losses by counterparties in 2021. - Importance of overseeing resilience and using regulatory data sets to identify critical dependencies and exposures early. ### Regulatory and supervisory environment — roles and recent changes - Licensing and authorization: - Market operators of regulated markets are licensed by the Ministry of Economics and Finance on the recommendation of the AMF. - Investment firms operating trading venues and Systematic Internalizers are authorized by the ACPR; AMF assessment is expected before ACPR authorization. - Firm relocations and local substance: - Since end-2018 five new OTFs and four new MTFs operate in France. - French authorities have emphasized local substance for relocated firms; AMF effort focused on ensuring relocation of personnel and resources to France. - Supervision capacity considerations: - The ACPR and AMF should ensure oversight remains robust and holistic to avoid gaps under the dual-supervision model. - Note: during the key period when firms were relocating the AMF’s headcount cap increased by only two full time employees. - Post-trade transparency and consolidated tape: - In 2023 only 32 French corporate bonds and 61 sovereign bonds were defined as liquid and therefore subject to immediate post-trade transparency provisions. - Consolidated Tape Providers have not emerged despite MiFID II; AMF has limited powers over transparency calculation methodology at EU level but is engaged through SPOT inspections and ESMA work. - Trading obligations and cross-border impacts: - MiFID II obligations for certain liquid equity instruments and swaps to be traded on trading venues were impacted by the UK’s withdrawal from the EU, creating conflicting obligations for EU firms with UK branches. - Resulted in migration of derivative trading to Swap Execution Facilities in the United States; at the time of the mission in December 2024 this conflict of rules remained in place. - The AMF entered into a Memorandum of Understanding with the Commodity Futures Trading Commission in October 2023. ### MiFIR Review, clearing, and CCP activity - MiFIR Review (March 2024) changes: - Removal of the double volume cap; replaced by a single seven percent volume cap concerning Reference Price exemptions. - Changes to incentivize development of an EU Consolidated Tape Provider including an opt-in for venues with less than one percent of EU trading. - Distributed Ledger Technology Pilot Regime underway at an early stage. - Clearing and equivalence: - Material derivative clearing continues to take place in third country CCPs, including in the UK; temporary equivalence recognitions have been relied on. - A decision from February 2022 relied on and due to expire on June 30, 2025, intended to give time to “improve the attractiveness of clearing, to encourage infrastructure development, and to reform supervisory arrangements [which] were needed to build strong and attractive central clearing capacity in the EU in the years to come.” - Potential market dislocation if equivalence arrangement is not extended or alternative relief provided; repapering, novation, and porting of clearing arrangements would be material. - French authorities should engage with counterparts to ensure continuity of clearing services is prioritized. - EMIR 3 (published December 4, 2024: Regulation (EU) 2024/2987 and Directive (EU) 2024/2994): - Introduces an active account requirement for certain firms to trade at least five trades per subcategory of class of derivatives on EU CCPs during defined reference periods, with detailed requirements to be developed by ESMA. - The approach requires less activity to be transferred to EU CCPs than previous proposals; impact on liquidity fragmentation may be more limited. - Authorities should monitor compliance with and impact of these changes given presence of clearing members operating in France. _Italic: Source: Content from 1fraea2025006 - 60. Amendments to UCITS and AIFMD agreed in 2023 amended the EU regulatory (PDF chapter/section)._ ### 75. The authorization of investment firms, including those operating trading venues, is ### 1fraea2025006 - 75. The authorization of investment firms, including those operating trading venues, is ### Authorization framework and division of responsibilities - Authorization of investment firms, including those operating trading venues, is carried out by the ACPR in coordination with the AMF. - ACPR primarily assesses financial and operational resilience (including IT resilience), and internal control. - AMF assesses markets matters as well as organizational and conduct rules; AMF’s focus on resilience tends to be limited to aspects such as the use of circuit breakers and algorithmic trading. - Trading venue rules are assessed at authorization, and any subsequent rule changes are subject to regulatory approval. - Authorities presented authorization files; working practices between the ACPR and AMF during the authorization process were found effective, driven by demonstrating ongoing ability for compliance with detailed EU rules. - The number of investment firm authorizations was elevated around the time of the UK’s exit from the EU, but new authorization requests are now smaller in number. - Authorization procedures are clearly documented, applied, and grounded in legislation. - In addition to EU requirements, authorization considers compliance with the Decree of 3 November 2014 concerning internal control, which defines four key functions in investment firms: - i) the heads of supervision - ii) periodic control - iii) compliance - iv) risk management - Substance challenges remain for firms relocating from the UK, complicated by cross-border trading groups with centralized functions generally located outside of France. ### Supervisory approach, tiering, and coordination - AMF has adapted its supervisory approach in response to market and regulatory changes, with a high level of coordination across the EU. - AMF takes targeted actions to improve standards and remediate non-compliance; supervisory actions are often coordinated with other key regulators and with ESMA for cross-border matters. - Trading venues and Systematic Internalizers are supervised under a tiered supervision approach by the AMF and in accordance with the IFR by the ACPR. - AMF internally categorizes firms using an internal rating system and IFR inbuilt metrics to bucket firms into different classes based on likely prudential risk, recovery planning, and interconnectedness. - The tiering system informs intensity and frequency of supervisory activity: - Tier 1 firms receive a minimum of 2 supervisory meetings a year - Tier 2 firms receive a minimum of one supervisory meeting a year - Tier 3 firms have meetings where relevant - Tier 4 firms are supervised reactively - These categorizations are internal to the AMF and not shared with firms; lower rated firms may not receive proactive supervisory meetings. - Supervisory priorities, inspections and findings were well correlated with a risk-based approach. ### Algorithmic trading, pre-trade controls, and market conduct priorities - AMF has given particular attention to supervision of algorithmic trading, in conjunction with EU counterparts, particularly regarding pre-trade controls. - Notifications of algorithmic trading are required under Article 17 of MiFID II. - Delegated Regulation 2017/584 sets out governance, organizational and continuity requirements for trading venues where algorithmic trading takes place. - Articles 18 and 48 of MiFID II require written agreements for market making and systems to limit the ratio of orders to transactions. - AMF reviews trading venues’ self-assessments of compliance, significant/unforeseen events and remedial actions. - Current supervisory priorities include: - assessment of the use of discretion by OTFs - matching and execution systems - complex product offerings - for Systematic Internalizers: data quality, market abuse, and algorithmic trading controls - AMF issues investor warnings based on market intelligence of poor firm behavior. ### Settlement efficiency and pandemic response - AMF focuses on settlement efficiency; settlement fails rose significantly during the Covid-19 pandemic and AMF held daily meetings with firms to resolve issues. - Daily margin data was required from CCPs, working with EU counterparts. - Strategic drive towards T+1 settlement in the EU is noted; in 2021 the European Commission launched a review of settlement finality. - At the time of the mission policy work was underway to improve timescales for allocations and confirmations and to identify opportunities for improved automation of settlement process. ### Data-driven supervision and ICY platform - Supervision is significantly data-driven, relying on AMF systems and alerts, supplemented by thematic actions and SPOT and firm-specific inspections. - Since the previous FSAP the AMF launched the ICY market supervision platform that integrates data from: - Approved Publication Arrangements (trade data) - Approved Reporting Mechanisms (transaction reporting) - direct transaction reporting by investment firms - transaction reporting made to other European NCAs - EMIR reporting from Trade Repositories - ICY enables structuring and analysis of large volumes of order and transaction data, including order books and EMIR reporting data, and utilizes algorithmic learning and artificial intelligence to minimize false positives and produce targeted alerts. - ICY reduced alerts to around 8,000 a year compared to around 20,000 under the previous tool. - ICY equips the AMF to monitor trends such as negative swap spreads and actively monitor division of trading activities in France, including dark vs. lit and trends towards OTC trading. - Limitations of ICY: - effectiveness depends on quality of inputs; less effective where data is fragmented or incomplete, e.g., certain derivative regulatory reports and trades involving non-EU counterparties - alerts triggered for derivative transactions are understood to be a very low percentage of total alerts received - some developments of ICY have been postponed due to budgetary pressures ### Market resilience, liquidity concentration, and fragilities - AMF has conducted supervisory activities and economic research into stock price volatility and corrections; a 2023 study identified two daily variations over 20 percent in the CAC40 resulting from publication of profit and growth warnings in quarterly results. - AMF identified increasing concentration of liquidity in auctions in equity markets; research published in 2019. - Concentration of trading activity in end-of-day auctions gives rise to price discovery issues if there is an outage, with amplification when auctions are used for benchmarks, reference prices, valuations, portfolio rebalancing, and embedded pricing in derivatives. - Feedback from market participants indicates potential new auctions and dark pools being launched, potentially further concentrating liquidity. - Assessment of wider interdependencies as markets have changed has not been established. ### Resource constraints and supervisory coverage - It is critical that AMF has sufficient resources to maintain, develop, and enhance surveillance activities, both in technological systems development and appropriately skilled employees. - AMF’s funding and headcount has been constrained in recent years; changes are expected to address new obligations placed on the AMF. - Given relative concentration of significant firms in the trading sector, supervision tends to be more intensive for individual firms; relatively few SPOT inspections focused on the wholesale trading sector had been finalized compared to other sectors such as asset management at the time of the mission. - Key inspections included post-trade transparency for bonds, EMIR, record keeping, and market data; a further inspection was underway at the time of the mission. - Recommendation: SPOT inspections should be prioritized for the trading sector to set common understanding of best practice and enhance AMF’s understanding of newer markets; where matters interact with ACPR remit, actions could be taken in conjunction with the ACPR. ### Key recommendations and actions - Recommendation (paragraph 89): Authorities should ensure ongoing mapping of interdependencies and fragilities in markets to ensure that spillover effects of market events and disruptions are minimized where a critical firm or market operator cannot operate, including analysis of intra-day liquidity concentration and market data dependencies. Authorities should ensure that the division of responsibilities between the ACPR and AMF does not give rise to any gaps in oversight. - Appendix I — Actions Taken Since 2019 (select recommendations and implementation status): - The AMF should approach the ECB to agree an MoU on exchange of information and supervisory cooperation: Implemented. The AMF entered into an MOU with the ECB in August 2021. - The supervisory authorities should continue to work closely with the Ministry of Finance to address Brexit risks: Implemented. - Both AMF and ACPR should be given more freedom to determine their resource levels: Not implemented. - The Ministry of Finance should no longer sit on the Sanctions Committee of the ACPR; AMF should bring in technical expertise to its Sanctions Committee: Partially implemented. Conflict of interest provisions are in place; CVs of members will be available on the website; constitution of the body has not changed. - The AMF and the ACPR should consider carrying out joint inspections of investment firms for a holistic view: Partially implemented. Authorities work closely at authorization and have open communication, but supervisory work remains quite separate and could be deepened. - The ACPR should consider allocating additional resources to on-site inspection of investment firms operating on a solo basis: Not implemented. Number of on-site inspections has not notably increased since the previous FSAP; some increase since 2022 noted; implementation of IFR has required some larger firms to license as credit institutions. *Source: 1fraea2025006 - 75. The authorization of investment firms, including those operating trading venues, is (IMF PDF content provided).* ### Appendix II. The Regulatory Framework for Investment Funds ### Appendix II. The Regulatory Framework for Investment Funds ### EU and domestic policy environment - EU Regulations apply directly across the EU, whereas EU Directives are required to be transposed into each Member State’s laws before having effect in the relevant Member State. - National Competent Authorities (NCAs) implement and supervise in line with their national frameworks, leaving elements of discretion in implementation and day-to-day application reserved for domestic authorities. - Areas of discretion commonly relate to retail and investor conduct measures, or regulatory reporting. - Passporting rights allow services authorized and supervised in one Member State to be provided in all other Member States without separate authorization, increasing integration and the need for harmonization to avoid regulatory arbitrage. ### UCITS Directive (retail open-ended funds) - Regulates open ended collective investment schemes marketed to retail investors, with minimum disclosure requirements and the ability to operate across the EU when authorized in one Member State. - UCITS funds have been cited as having €1 3.1tn net assets at end 2023. - Restrictions exist on the types of assets UCITS funds can invest in, which limits (but does not eliminate) the liquidity risk compared to funds investing in a wider range of illiquid assets. - Derivative leverage is set at 100% of NAV under Commission Recommendation 2004/383/EC. - Leverage based on borrowing is limited to 10% with term restrictions. ### AIFMD (alternative investment funds) - AIFMD regulates alternative investment fund managers and the distribution of alternative investment funds. - Alternative Investment Funds authorized under AIFMD accounted for €7.5tn net assets at end 2023, around a third of the EU fund industry. - ESMA reports disclosed that NAV in AIF markets deploying liability driven investment strategies reduced in 2022 following the stress in these markets in 2022, which led to regulatory intervention by Irish and Luxembourgish regulators to bolster yield resilience before NAV turns negative in GBP denominated liability driven investment funds. - Liquidity management requirements for AIFs are more prescriptive than UCITS given the greater diversity in eligible investments and the risk of more challenging liquidity profiles. - Includes alignment of the investment strategy and redemption policy with the liquidity profile. - Includes limits for liquidity of the AIF with plans for remediation should those limits be exceeded. - ESMA supervisory powers: ESMA can issue opinions in respect of NCAs’ supervisory actions regarding leverage, and where disagreement between a host and home Member State NCA on the suspension of redemption under the amended UCITS Directive and AIFMD exists, ESMA can issue an opinion which can be made public. ### MMFR (Regulation 2017/1131 — Money Market Fund regulation) - Introduced after the 2007-8 financial crisis to limit contagion risk associated with MMFs, which are generally authorized as UCITS funds. - Introduced resilience requirements including eligible asset class and diversified holding requirements by different types of MMFs, and minimum liquidity requirements. - Requires daily Mark to Market valuations and publication of NAV; amortized cost is permitted in certain circumstances for CNAV and LVNAV MMFs. - Standard NAV MMFs (the most prevalent MMFs in France) are required to hold: - 7.5 percent of assets with residual maturity of one day, and - 15 percent of assets with residual maturity of one week, - with a weighted average maturity of 6 months. - The European Systemic Risk Board (ESRB) and ESMA made recommendations to amend the MMF Regulation after liquidity issues in MMF markets in 2020, and FSB proposals to enhance resilience of MMFs were finalized in 2021. - As of the mission in December 2024 the EU had not amended the MMF Regulation. - Proposed amendments raised complications around: - the ability to define liquid assets eligible to be included in buffers, - concentration of sovereign debt, and - the viability of imposing floating NAV to LVNAV funds. ### Macroprudential policy on Non-Bank Financial Intermediation (NBFI) - An EU consultation paper on Addressing the Adequacy of Macroprudential Policies for Non-Bank Financial Intermediation (NBFI) concluded in November 2024. - The consultation considers the risks of liquidity and leverage within the investment funds sectors and highlights existing requirements in regulation of non-banks that can limit and mitigate vulnerabilities and systemic risks. - The development of this work will be key to the stability of French markets; French authorities should remain closely involved in its development. - The consultation identifies a number of macroprudential tools embedded in existing funds regulations. *Appendix II. The Regulatory Framework for Investment Funds* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1fraea2025006.pdf_