## The detailed assessments in this volume of the Offshore Financial Center Assessment of Monaco

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### Mission, team, and methodology
- Mission dates: April 22 to May 3, 2002; assessments updated May 2003.
- Mission team: Ms. Mary G. Zephirin (Mission Chief), Ms. Jennifer Elliott (MFD), Messrs Louis Forget (Consulting Counsel, LEG), Marcel Maes (Banking Consultant), Ronald Ranochak (Consultant on companies and trusts service providers).
- Assessment frameworks applied:
  - AML/CFT-related principles of the Basel Core Principles for Effective Bank Supervision.
  - AML/CFT regime based on the April 2002 Bank/Fund Draft Methodology.
  - Securities regulation on the basis of the IOSCO Objectives and Principles of Securities Regulation.
- Information sources used: authorities’ submissions including the OFC questionnaire; review of laws, regulations, supervisory provisions, and onsite inspection reports; interviews with SICCFIN, the Attorney-General, the Director of Judicial Services, the gaming supervisor, government SBM representative, Monegasque and French supervisory staff, Monegasque Bar Association President, private lawyers, and private financial institutions.

### Basel Core Principles — BCP 1(6) and BCP 15: assessments and key comments
- Context and jurisdictional arrangements:
  - Monegasque banking system subject to French banking law and supervision by the French Commission Bancaire (FCB).
  - France completed an IMF-led Basel Core Principles assessment; conclusions broadly applicable to Monegasque banking supervision.
  - Monegasque authorities retain specific AML/CFT responsibilities; assessment focused on BCP 1.6 and BCP 15.
- Principle 1(6) — information sharing and confidentiality:
  - Assessment: Largely compliant.
  - Key facts and issues:
    - Progress in international supervisory cooperation and consolidated supervision information flows.
    - Dual-jurisdiction supervision issues and need for waivers of confidentiality (professional secrecy, supervisor confidentiality, laws limiting use of computerized personal data).
    - SO No. 15.530 of September 27, 2002, created a Coordination Committee for supervisory coordination (representatives from Department of Finance and Economy, Director of Budget and Treasury [member of the CCGP], Director of DEE, Director of SICCFIN).
  - Recommendation:
    - Enhance framework by providing direct formal channels of information exchange between supervisors of Monegasque banks.
- Principle 15 — Money laundering supervision and KYC:
  - Assessment: Largely compliant.
  - Key facts and issues:
    - FCB reviews banking activities including internal controls and customer identification; SICCFIN assumes full responsibility for supervision of compliance by credit institutions with legal AML requirements.
    - SO 15.454 of August 8, 2002, authorizes SICCFIN to exchange information with foreign supervisory authorities concerning internal procedures, subject to reciprocity and professional secrecy obligations.
    - Limitation: SO 15.454 is limited to internal procedures and does not permit SICCFIN to share information related to suspected or actual criminal activities with domestic and foreign financial supervisors (BCP 15 criterion).
    - A pending FCB-SICCFIN agreement is expected to address the gap.
    - SICCFIN actions: issued bank questionnaires, prioritized onsite examinations based on responses, held seminars with financial institutions.
  - Recommendation:
    - SICCFIN should adopt a more formalized approach and issue policy guidelines; organize a comprehensive review of SICCFIN’s ongoing work preferably no later than in the second half of 2003 to assess adequacy of CFT measures.

### AML/CFT legal and institutional framework — overall findings
- Overall assessment:
  - The AML/CFT legal and institutional framework and supervisory system provide a sound basis for prevention, detection, and prosecution of money laundering and financing of terrorism.
- Legal framework highlights:
  - Penal Code criminalizes money laundering and provides a list of predicate offenses (FT not yet included).
  - Law No. 1.162 of July 7, 1993 (AML Law) requires suspicious transaction reporting, customer identification, record keeping, internal controls, and provides sanctions.
  - Amendment of July 12, 2002: added requirement to report transactions related to terrorism financing and made company service providers (CSPs) subject to full AML Law requirements.
- Supervisory mechanisms:
  - SICCFIN actively monitors compliance.
  - Freezing of suspect transactions: possible initially on FIU initiative for up to 12 hours; longer freeze by court order.
  - Confiscation: possible by court order.
- Sectoral considerations:
  - CSPs and gaming (SBM ~70 percent government-owned) are key sectors requiring effective AML/CFT measures.
- Franco-Monegasque arrangements:
  - French banking legislation and Comité de la Réglementation Bancaire regulations apply in Monaco within limits; CECEI licenses banks to operate in Monaco; FCB supervises credit institutions established in Monaco, subject to Monaco law where French law cannot apply.
  - Insurance: Franco-Monegasque convention (May 18, 1963) and Decree No. 4.118 (December 12, 1968); about 150 firms operate through some 50 brokers and agents subject to French authorization and French Commission de Contrôle des Assurances oversight.
  - Securities: mutual funds regulated by Law No. 1.130 of January 8, 1990 (as amended); portfolio management regulated by Law No. 1.194 of July 9, 1997 (as amended).
  - CSP oversight: Minister of State competent authority; operational responsibility with Counselor for Finance and the Economy; DEE General Administration Division performs oversight.

### Customer due diligence (selected detailed finding)
- Legal requirements (CDD):
  - AML Law Article 10, first paragraph: verify customer identity before opening an account using an official identity document or other reliable written document defined by Sovereign Order.
  - SO No. 11.160 (January 24, 1994):
    - Individuals: official documents bearing a photograph.
    - Legal entities: original/duplicate/certified copy of deed or extract from official registers stating name, legal form, registered office, and powers of persons acting on behalf.
  - Occasional customers: identity required for transactions > €15,000 or safe deposit box rental (Article 10 second paragraph; Article 2 SO No. 11.160).
  - Beneficial owners/third-party accounts: identity required when service requester not acting on own behalf, except if requester is also a financial undertaking subject to AML Law (Article 10 third and fourth paragraphs).
  - All fund transfers must include information to be determined by a Sovereign Order (AML Law Article 10bis).
- Assessment: Compliant.
- Comments:
  - Bank supervision applies additional FCB standards based on Basel Core Principles.
  - AML Law does not require special attention to politically-exposed persons (PEP).
  - AML Law does not require periodic review of customer accounts (not required by April 2002 Methodology).

### Record keeping, reporting, internal controls, and sanctions (FSP requirements)
- Record keeping:
  - Requirement: retain customer identity and transaction records for at least five years after account termination or transaction completion; records available for inspection by authorized officials.
  - Legal basis: AML Law Article 14; French 1984 Law on banking applies to Monaco banks.
  - Securities: customer account contracts required; portfolio management must conduct KYC and require client bank accounts for portfolio management activity.
  - Assessment: Compliant.
- Suspicious transaction reporting (STR):
  - Scope and obligations:
    - Obligation to report suspicious transactions to SICCFIN set out in AML Law.
    - Entities subject to reporting (as amended July 2002): (1) banks and persons carrying out bank intermediation on a regular basis; (2) financial services of the Post Office; (3) insurance companies; (4) portfolio management companies; (5) bureaux de change; (6) company service providers.
    - Reporting content: report “all sums recorded in their books and all transactions relating to amounts that could come from drug trafficking or organized criminal activities and the facts and indices...” and similarly for funds that could derive from terrorism or finance it (Article 3 as amended).
    - Refusal reporting: must report cases where they refused to undertake a suspected transaction (Article 5).
    - Threshold attention: special attention to transactions above €150,000 which are unusual or complex and lack economic justification (Article 13 and Article 3 SO No. 15.453).
    - Protections: managers and employees reporting in good faith immune from civil liability; those who knowingly disclose an STR can be fined up to € 27,000 (Article 7 and Article 8).
  - Assessment: Compliant.
  - Comment: No Monegasque insurance company; French insurers selling in Monaco subject to French AML requirements and report to French FIU.
- Internal controls:
  - Requirement: institutions must establish internal procedures, controls, and staff training (AML Law Article 16; SO No. 11.160 Article 5 specifies written internal organizational measures).
  - Assessment: Compliant.
- Sanctions:
  - Administrative sanctions (Article 18): warning, reprimand, ban on certain transactions, withdrawal of authorization.
  - Criminal penalties:
    - Failure to report or refusal of suspicious transaction: fines € 9,000–18,000 (Article 32).
    - Breach of other provisions including record keeping: € 2,250–-9,000 (Article 33).
  - Banks: subject to FCB disciplinary powers including warning, reprimand, withdrawal of authorization, temporary suspension or removal of managers (Article 45 of French Law No. 84–46 of January 1984).
  - Portfolio managers: Law No. 1.194 provisions include imprisonment for senior managers and loss of license (Articles 19–29).
  - CSPs: regulated under Law No. 1.144; AML supervision by SICCFIN; sanctions available.
  - Assessment: Compliant.

### Criminalization of ML and FT; confiscation
- ML and FT criminalization:
  - Money laundering: Articles 218 to 218–3 of the Penal Code; separate drug laundering offense under Article 4–3 of Law No. 890 of July 1, 1970.
  - Predicate offenses: listed in Article 218–3; FT not yet included as ML predicate.
  - FT criminalized under SO No. 15.320 of April 8, 2002 (implementing the Convention for the Suppression of the Financing of Terrorism); FT sanctions: five to ten years imprisonment; legal persons: fines € 18,000–90,000 or amount furnished/collected and withdrawal of administrative authorization (Article 9).
  - Sanctions for ML:
    - ML: five to ten years imprisonment and basic fines of € 18,000–90,000.
    - Aggravated (criminal organization/organized criminal activities): imprisonment 10–20 years and fines up to twenty times the basic amounts.
    - Possible loss of authority to do business under Law No. 1.144 of July 26, 1991.
  - International instruments: Monaco party to the Vienna Convention; signed and ratified Convention on Suppression of Financing of Terrorism; party to the Palermo Convention.
  - Assessment: Largely compliant.
  - Recommendations:
    - Add FT to ML predicate offenses; review overall list of predicate offenses; consider revised FATF recommendations expected June 2003.
    - Concern: current predicate list’s requirement that the offense be committed “within the framework of organized criminal activity” may unduly limit ML scope and international cooperation.
- Confiscation and freezing:
  - Penal Code Article 219: court may order confiscation of assets and funds (“biens et capitaux”) of illicit origin; mingled assets may be confiscated up to the estimated value of illegitimate assets; confiscation without prejudice to third-party rights.
  - Limitations: except in drug-related laundering, confiscation does not extend to assets used to commit the predicate offense; no provision for confiscation of assets of equivalent value.
  - Freezing/seizure: SICCFIN initiative allows freezing up to 12 hours; longer sequestration by Tribunal of First Instance; tracing of proceeds with court order.
  - FT-specific freezing: SO 15.321 of April 8, 2002 requires entities to freeze assets of persons/entities named in Ministerial Orders; ministerial orders issued July, October, December 2002 and February and March 2003.
  - Assessment: Largely compliant.
  - Recommendation:
    - Broaden confiscation scope to include instrumentalities of crime and assets of equivalent value to align with the Strasbourg Convention and draft Methodology.

### SICCFIN (FIU) — mandate, powers, operations, and cooperation
- Mandate and setup:
  - SICCFIN established by SO No. 11.246 of April 12, 1994; amended by SO No. 15.454 of August 8, 2002.
  - Purpose: gather, seek, process, and circulate information on financial circuits used to launder money (Article 2 SO No. 11.246).
  - SICCFIN charged with monitoring compliance of financial institutions to the AML Law (Article 26 AML Law).
- Powers and operational authorities:
  - Can obtain contracts, accounting books, minutes, audit and control reports, information from third parties, and hear executives and staff (Article 26 AML Law; Article 3 SO No. 11.246 as amended).
  - SICCFIN staff may enter premises and inspect documents of reporting institutions.
  - May determine remedial measures after hearing institution representatives and set compliance deadlines.
  - May freeze a transaction up to 12 hours on its own initiative; longer freeze by Tribunal President (Article 4 AML Law).
  - Criminal court confiscation under Article 219 Penal Code.
  - Direct access to Monaco business registry (including non-public data on partnerships); other government data obtainable on request.
- Confidentiality, disclosure, and international cooperation:
  - SICCFIN staff confidentiality obligation; exception: may communicate facts giving rise to criminal prosecution to Principal State Prosecutor (Article 28).
  - Article 27: when evidence of drug trafficking, organized crime, terrorism, or terrorist organizations found, SICCFIN forwards report to Minister of State (in practice reports sent to Principal State Prosecutor with copy to Minister of State).
  - SICCFIN is an Egmont Group member; as of May 2003 had entered into ten MOUs with other FIUs and had four more under discussion.
  - In absence of MOU, Minister of State may provide foreign FIUs information related to transactions linked to drug trafficking or organized criminal activity, subject to reciprocity and confidentiality (Article 31 AML Law).
  - SO 11.246 as amended permits SICCFIN to provide other FIUs information on internal AML measures taken by Monaco’s financial institutions, subject to reciprocity and confidentiality (Article 5 SO 11.246).
- Enforcement, sanctions, and staff:
  - Penalties: failure to report or refusal of suspicious transaction: fines € 9,000–18,000 (Article 32); record-keeping breaches: € 2,250–9,000 (Article 33).
  - Additional sanctions: warnings, blames, prohibition to undertake certain operations, loss of license.
  - SICCFIN established as unit of Department of Finance and Economic Affairs; staff are civil servants; staff do not have special immunity but State obligated to defend and compensate civil servants under Law No. 975 of July 12, 1975 (Article 14).
- Assessment and outcomes:
  - Assessment: Compliant.
  - Observed operational outcome: files transmitted to Principal State Prosecutor increased from average of two per year (1994–1999) to 12 in 2000 and 21 in 2001.
- Comments and recommendations:
  - Consider amending AML Law to require direct communication of reports to Principal State Prosecutor to enhance FIU independence.
  - Consider issuing internal rules for SICCFIN clarifying staff responsibilities and organization chart.
  - Consider reinstating attorneys in reporting obligations under conditions respecting defense lawyers’ special situation.
  - Consider adding insurance brokers and agents to reporting obligations.
  - Conduct thorough review of SICCFIN’s activities, resources, and plans once cooperation agreement with Commission Bancaire is formalized and SICCFIN gains implementation experience; second half of 2003 suggested for review.

### Record keeping, cooperation, mutual legal assistance, and supervision cooperation
- Record keeping and retention:
  - Regulated entities must maintain records for five years for customer identity and transactions.
  - SICCFIN urges banks to implement computerized record systems; assessment: Compliant.
- Mutual legal assistance (Principal Prosecutor’s office, 1998–2001):
  - ILRs received: 211
  - ILRs executed: 189
  - ILRs still processing (in 2002): 19
  - ILRs denied: 3
  - ILRs related to money laundering: received 63, executed 55, 8 still being executed, none denied
- Monaco’s outgoing ILRs (1998–2001):
  - ILRs issued by Monaco: 189
  - ILRs executed: 125
  - ILRs being processed: 60
  - ILRs denied: 2 (Monaco decided to withdraw two)
  - Of these related to money laundering: 32, of which 11 executed, 21 being processed, none denied
- Supervisor cooperation:
  - SICCFIN member of Egmont Group; as of source had signed some eight MOUs and had four more under discussion (source sections vary between eight and ten MOUs references).
  - July 2001 and subsequent amendments permit supervisory commissions to share information with foreign supervisors provided formal arrangements exist.
  - SO 14.892 of May 2000 and Law No. 1.241 of July 3, 2001, create frameworks for consolidated supervision and information exchange; SO 14.892 (May 2000) allows FCB to execute onsite exams in Monegasque banks on behalf of foreign supervisors.
- Assessment: Largely compliant for mutual legal assistance and FIU cooperation; additional formalized measures for supervisory information exchange are appropriate to enhance cross-border banking cooperation.

### Company and Trust Service Providers (CSPs) — supervision and sector specifics
- Legal and supervisory framework:
  - Relevant instruments: SO 11.986; SO March 5, 1895; Law No. 214 February 27, 1936 as modified; Ordinance No. 14.346 of March 2000; Law No. 1.144 of July 26, 1991; Law No. 1.162 of July 7, 1993 as amended; SO No. 14.446 of April 22, 2000; Code of Conduct Recommendations.
  - Competent authority: Minister of State; operational responsibility: Counselor for Finance and the Economy; oversight: DEE General Administration Division with staff of ten (two line supervisors and eight support staff); three staff with enhanced training for onsite review program.
- Supervision and implementation:
  - July 2002 amendment to Law No. 1.162 brought 40 licensed CSPs under same regulatory requirements as banks.
  - DEE launched onsite review program for CSPs commencing September 1, 2002.
  - DEE requires designated compliance officer in all CSPs.
  - AML training available via SICCFIN video; Deloitte and Touche trained DEE staff for September compliance reviews.
  - Many CSPs are branches/subsidiaries/affiliates of international organizations with parent AML/CFT policies.
  - Assessment: Compliant.
- CSP counts and forms (as of April 30, 2002):
  - Total CSPs: 40
    - Individual Business: 5
    - General Partnerships (S.N.C.): 8
    - Limited Partnerships (S.C.S.): 2
    - Monegasque Limited Company (S.A.M.): 25
- CSP client base and scope:
  - Regulators estimate approximately 3,950 offshore companies and 725 trusts under CSP management as of April 30, 2002.
- CSP CDD, monitoring, record keeping and reporting:
  - Law No. 1.162 Article 10 applies to CSPs (July 2002 amendment).
  - Code of Conduct addresses internal control requirements and expanded KYC for foreign companies and trusts administered by CSPs.
  - Onsite visits and supervisory activity commencing September/October 2002 expected to close remaining gaps; recommendation to adhere strictly to performance deadlines.
  - Assessment for CSP monitoring and reporting: Compliant.
  - Record keeping: five-year retention requirement; assessment: Compliant.

### Gaming establishments
- Legal and supervisory requirements:
  - Gaming establishments (notably SBM ~70 percent government-owned) required to report suspicious transactions to SICCFIN; SICCFIN monitors casino AML compliance.
  - July 2002 amendments aligned gaming reporting definition with financial intermediaries and included FT-related reporting.
  - Assessment: Compliant.

### Securities regulation — IOSCO assessment, market structure, and regulatory recommendations
- Assessment context:
  - Detailed IOSCO Principles assessment carried out during IMF OFC mission April 22–May 3, 2002; assessment completed by Jennifer Elliott using IOSCO 1998 Principles categories.
- Market structure and permitted activities:
  - Monaco permits only mutual funds and portfolio management/investment advice/transmission of orders; “transmission of orders” excludes execution or exchange membership.
- Market participants and assets:
  - 67 companies licensed for portfolio management:
    - 43 are banks managing €20 billion in assets.
    - 24 are portfolio management firms managing €5 billion.
  - Mutual fund industry total: €5.2 billion (public and “dedicated” funds).
  - Of funds under management: 66.8 percent in money-market funds; 28.6 percent in diversified funds.
- Regulatory framework and institutions:
  - Mutual fund law: Law 1.130 of January 8 (amended by Law No. 1.230 of July 6, 2000) and related orders.
  - Portfolio management law: Law No. 1.194 of July 9, 1997 (amended by Law No. 1.241) plus Sovereign Orders.
  - Regulatory responsibility vested in Minister of State; two supervisory commissions advise the minister (mutual fund supervisory commission five members plus president; portfolio management supervisory commission six members plus president); presidents of both commissions currently the same individual.
  - Commissions advise but lack binding licensing, sanctioning, or independent rule-making power; secretaries are COB and Budget and Treasury staff respectively.
  - Inspections of mutual fund companies undertaken by COB staff pursuant to 1992 agreement.
  - No self-regulatory organizations; Monegasque Bankers Association produces voluntary codes.
- IOSCO assessment summary (Table 3.2):
  - Implemented: 15
  - Partly implemented: 5
  - Not implemented: 0
  - Not applicable: 10
- Key numeric and factual highlights (preserved exactly):
  - Commission member appointment term: five years.
  - Commissions began publishing annual report in: 2000.
  - Letter of agreement with COB signed: March 2002 (MOU).
  - Legislative amendments referenced: July 2001.
  - Mutual fund minimum raised at subscription: FF2.5 million.
  - Mutual fund floor: one million FF.
  - Funds may lend up to: 15 percent of their assets.
  - Exemptions to risk ratios granted to: one third of all mutual funds in Monaco.
  - NAV publication threshold: €150 million.
  - Small-fund NAV frequency: at least twice a month.
  - Portfolio management minimum capital: €150,000.
  - Increased capital levels: €300,000 or €450,000 if 50 percent of capital is not held by a large financial institution with a capitalization of €2 million.
  - Proportion of accounts discretionary: 30 percent; nondiscretionary: 70 percent.
  - Mutual fund inspections per year: three or four inspections are carried out annually.
  - Portfolio management inspections began in: 1999.
  - Portfolio management law effective for prosecutions since: 1997.
  - Mutual fund legislation inception: 1987.
  - Two portfolio management licenses withdrawn in: 2001.
  - Table 3.2 assessment counts: Implemented 15; Partly Implemented 5; Not Implemented 0; Not applicable 10.
- Principal regulatory findings and recommendations:
  - Regulator independence and powers:
    - No independent, separately funded regulator; consider merger of two supervisory commissions or confer licensing/sanctioning powers to commissions to increase independence.
    - Increase transparency and accountability: publish reasons for withdrawal of licenses; adopt conflicts-of-interest policies; set legal terms for member removal and liability protection.
  - Information sharing and cooperation:
    - July 2001 and March 2002 changes expanded information sharing (MOU with COB); recommend extending formal MOUs to mutual funds commission and other foreign supervisors (CONSOB, CSSF).
    - Amend Article 17 to clarify information sharing regarding portfolio management activities of banks.
  - Collective investment schemes and valuation:
    - Rules broadly aligned with European framework; consider rules on valuation of illiquid securities and related party transactions; consider daily NAV calculation for all funds and clearer authority to intervene against harmful suspension of redemptions.
  - Market intermediaries and failure planning:
    - Consider contingency plans for failure of portfolio management firms, more frequent capital reporting (e.g., quarterly), and insider trading monitoring systems.
  - Enforcement:
    - Consider granting sanctioning powers short of license withdrawal (fines) and administrative due process if commissions are to receive sanctioning authority.

### Recommended actions to improve legal and institutional framework (summarized)
- Criminalization and confiscation:
  - Add financing of terrorism as ML predicate offense; review predicate offense list to ensure all serious offenses included.
  - Add confiscation of instrumentalities of crime and assets of equivalent value.
- Organizational/administrative:
  - Conclude cooperation agreement between SICCFIN and the FCB.
  - Organize a comprehensive review of SICCFIN’s ongoing work preferably no later than in the second half of 2003.
- Banking sector:
  - Add requirement to give special attention to high-risk customers such as politically protected persons (PEP).
  - Address professional secrecy and privacy legal limits via agreements to ensure effective monitoring and reporting.
  - Authorize the CCGP to provide information to the FCB and other foreign banking supervisors.
- Capital markets:
  - Continue entering into information sharing arrangements and consider merger or improved coordination of supervisory commissions.
- CSPs and supervision:
  - Strictly adhere to performance deadlines for CSP onsite reviews; implement DEE and SICCFIN onsite programs and ensure CSP compliance officers and training.
- Securities regulation — IOSCO-related:
  - Consider merger of supervisory commissions or grant them licensing/sanctioning powers; increase transparency; adopt conflicts-of-interest and accountability measures; develop contingency and valuation rules; expand MOUs and formal international cooperation.

*Source: Offshore Financial Center Assessment of Monaco (IMF mission April 22 to May 3, 2002; assessment updated May 2003).*

### 1.      The detailed assessments in this volume of the Offshore Financial Center Assessment

### The detailed assessments in this volume of the Offshore Financial Center Assessment of Monaco

### Mission, team, and methodology
- The assessments were carried out during the mission of April 22 to May 3, 2002, by a team consisting of Ms. Mary G. Zephirin (Mission Chief), Ms. Jennifer Elliott (both MFD), Messrs Louis Forget (Consulting Counsel, LEG), Marcel Maes (Banking Consultant), and Ronald Ranochak (Consultant on companies and trusts service providers).
- The assessments were updated in May 2003 to take account of legislative changes made, and regulatory measures undertaken, since the mission.
- The assessments include:
  - AML/CFT-related principles of the Basel Core Principles for Effective Bank Supervision.
  - The AML/CFT regime based on the April 2002 Bank/Fund Draft Methodology.
  - Securities regulation on the basis of the IOSCO Objectives and Principles of Securities Regulation.
- The AML/CFT assessment used:
  - Information furnished by the authorities, including the completed OFC questionnaire.
  - Review of laws, regulations, supervisory provisions, and onsite inspection reports.
  - Interviews with SICCFIN (the FIU and AML/CFT supervisory authority), the Attorney-General, the Director of Judicial Services, the gaming supervisor, the government representative in the Société des Bains de Mer (SBM), Monegasque and French supervisory staff, the President of the Monegasque Bar Association, lawyers in private practice, and private financial institutions.

### Basel Core Principles: BCP 1(6) and BCP 15 — assessments and key comments
- Context:
  - The Monegasque banking system is subject to French banking law and regulation and supervision by the French Commission Bancaire (FCB).
  - France completed a self-assessment and received an IMF-led assessment of compliance with the Basel Core Principles; conclusions are broadly applicable to supervision of the Monegasque banking system.
  - Given Monegasque authorities’ specific responsibility for AML/CFT, the supervisory regime was assessed specifically against BCP 1.6 and BCP 15.
- Principle 1(6) — Arrangements for sharing information between supervisors and protecting confidentiality:
  - Description: Considerable progress has been made to improve international cooperation among banking supervisors and the ability of Monegasque banks to provide information to parent banks for consolidated supervision. Main issues relate to dual-jurisdiction supervision and the need for waivers of confidentiality (professional secrecy in banking, confidentiality of supervisors, laws limiting use of computerized personal data).
  - Assessment: Largely compliant.
  - Comments:
    - Absence of a direct formalized gateway between the primary supervisor of asset management activities (CCGP) and the FCB is illustrated in Volume I.
    - The Director of Budget and Treasury is a member of the FCB’s committee on Monegasque banks and receives information about supervision of portfolio management and mutual fund activities.
    - SO No. 15.530 of September 27, 2002, created a Coordination Committee to organize information sharing and supervisory coordination among local supervisory authorities (representatives from the Department of Finance and Economy, the Director of Budget and Treasury [who is a member of the CCGP], the Director of DEE, and the Director of SICCFIN).
    - Recommendation: The framework should be enhanced by providing for direct formal channels of information exchange between these supervisors of Monegasque banks.
- Principle 15 — Money Laundering (supervisory responsibilities and KYC):
  - Description: The AML/CFT assessment provides detailed description and assessment of AML/CFT sector-specific criteria for the Monegasque banking industry. FCB reviews banking activities including internal controls and customer identification requirements; SICCFIN assumes full responsibility for supervision of compliance by credit institutions with legal anti-money laundering requirements. SICCFIN has taken numerous initiatives to transform into a supervisory authority for AML/CFT and to comply with BCP 15. Most banks in Monaco are part of large international financial groups and comply with stricter internal AML requirements.
  - Assessment: Largely compliant.
  - Comments:
    - SO 15.454 of August 8, 2002, amending SO 11.246, authorizes SICCFIN to “receive from and provide to a foreign supervisory authority information collected from financial undertakings installed in the Principality concerning internal procedures to counter money laundering”, subject to reciprocity and equivalent professional secrecy obligations.
    - The Coordination Committee created by SO 15.530 of September 27, 2002, facilitates information exchange among Monegasque authorities.
    - Limitation: Information sharing with foreign financial sector supervisors under SO 15.454 is limited to internal procedures and does not enable SICCFIN “directly or indirectly, to share with domestic and foreign financial sector supervisory authorities information related to suspected or actual criminal activities” (BCP 15 criterion). A pending FCB-SICCFIN agreement is expected to address this gap.
    - Full compliance with BCP 15 will require SICCFIN to adopt a more formalized approach and issue policy guidelines.
    - SICCFIN has issued bank questionnaires, used responses to prioritize onsite examinations, and held seminars with financial institutions to ensure familiarity with the new law.
    - Recommendation: Given the present AML workload and challenges of a new supervisory activity, organize a comprehensive review of SICCFIN’s ongoing work preferably no later than in the second half of 2003, and take stock of the adequacy of CFT measures.

### AML/CFT general findings and institutional overview
- Overall assessment:
  - The AML/CFT legal and institutional framework and supervisory system provides a sound basis for the prevention, detection, and prosecution of money laundering and the financing of terrorism.
- Legal framework highlights:
  - The penal code criminalizes money laundering and provides a list of predicate offenses (which does not yet include financing of terrorism offenses).
  - Law No. 1.162 of July 7, 1993 (the AML Law) requires reporting of suspicious transactions by financial institutions and a number of professionals; requires customer identification, record keeping, and internal controls; and provides for effective sanctions for failure to apply the AML Law.
  - An amendment to the AML Law, enacted on July 12, 2002, added a requirement to report transactions related to terrorism financing and made company service providers (CSPs) subject to the full requirements of the AML Law.
- Supervisory responsibilities and mechanisms:
  - SICCFIN is actively engaged in monitoring compliance.
  - Freezing of suspect transactions is possible, initially on the initiative of the FIU and, after a period of 12 hours, by court order.
  - Confiscation of laundered funds is possible by court order.
- Sectoral considerations:
  - Company and trust service providers are key features of Monaco’s wealth management services; AML coverage of these entities limits reputational risk.
  - Gaming (notably the Société des Bains de Mer, SBM, about 70 percent owned by the Monegasque government) is a single licensed operator and an important employer; ensuring effective AML/CFT measures for the casino protects the jurisdiction’s reputation and growth strategy.
- Information sources and cooperation:
  - Under Franco-Monegasque arrangements, French banking legislation and Comité de la Réglementation Bancaire regulations apply in Monaco within limits; the French Comité des Établissements de Crédit et des Entreprises d’Investissement (CECEI) licenses banks to operate in Monaco and the FCB supervises credit institutions established in Monaco, subject to Monaco law where French law cannot apply.
  - For insurance, the Franco-Monegasque convention of May 18, 1963, and Decree No. 4.118 of December 12, 1968 apply; about 150 firms operate through some 50 brokers and agents whose represented companies must be authorized by French authorities and fall under the French Commission de Contrôle des Assurances.
  - Securities regulation: mutual funds are regulated by Monaco Law No. 1.130 of January 8, 1990 (as amended); portfolio management regulated by Law No. 1.194 of July 9, 1997 (as amended) and implemented by Sovereign Orders.
  - Company and trust service providers: the Minister of State is the competent authority; operational responsibility resides with the Counselor for Finance and the Economy; oversight carried out by the General Administration Division of the Direction de l’Expansion Économique (DEE).

### Detailed assessment — Legal and institutional AML/CFT elements (selected finding: customer due diligence)
- 1a. Customer due diligence requirement (excerpt)
  - Description:
    - Article 10, first paragraph, of the AML Law requires that before opening an account, financial institutions verify the identity of their customer on the basis of an official identity document, or failing that, any reliable written document defined by Sovereign Order (SO).
    - SO No. 11.160 of January 24, 1994, specifies that for individuals these documents must be official documents bearing a photograph, and for legal entities the original, duplicate or a certified copy of a deed or extract from official registers stating the name, legal form and registered office of the legal entity and the powers of persons acting on its behalf.
    - Financial institutions must ascertain the identity of occasional customers who carry out a transaction involving an amount of more than €15,000 or who rent a safe deposit box (Article 10, second paragraph, of the AML Law, and Article 2 of SO No. 11.160).
    - Financial institutions must ascertain the identity of persons on whose behalf an account is opened, a safe deposit box is rented, or a transaction is carried out, if the person requesting the service appears not to be acting on their own behalf, except if the requesting entity is also a financial undertaking subject to the AML Law (Article 10, third and fourth paragraphs).
    - All fund transfer operations must include information to be determined by a Sovereign Order to be issued (AML Law, Article 10bis).
  - Assessment: Compliant.
  - Comments:
    - For banks, AML Law requirements are in addition to standards applied by the FCB in supervision of Monegasque banks with regard to customer due diligence, based on the Basel Core Principles.
    - The AML Law does not require special attention be given to politically-exposed persons.
    - The AML Law does not require the periodic review of customer accounts (these were not requirements of the April 2002 Methodology).

*Source: Offshore Financial Center Assessment of Monaco (mission April 22 to May 3, 2002; updated May 2003).*

### 1. Legal Requirements for Financial Service Providers (FSP)

### 1. Legal Requirements for Financial Service Providers (FSP)

### 1b. Record keeping
- Requirement: FSPs must maintain records on customer identity and customer transactions for at least five years following the termination of an account or business relationship, and following the completion of the transaction, respectively; records must be available for inspection by authorized government officials.  
- Cross-border: Customer due diligence criteria must also be applied to branches and majority-owned subsidiaries located abroad, subject to local laws and regulations.  
- Description (legal basis and sector specifics):
  - The AML Law: financial institutions must keep for five years documentary evidence of the identity of regular and occasional customers, for five years after account closure or cessation of relations; and documents related to transactions carried out with all customers (Article 14 of the AML Law).  
  - Banks: French legal requirements regarding record keeping adopted in application of the 1984 Law on banking apply to Monaco banks; banks are subject to inspection by the Commission Bancaire.  
  - Securities: Customer account contracts are required for all accounts and approved at licensing; law contains detailed requirements for contracts and requires investment advice to be suitable to client objectives, expectations and risk profile. Portfolio management firms must seek sufficient know-your-client information; clients must open a bank account through which all portfolio management activity is conducted (portfolio management firms are prohibited from accepting funds or securities).  
- Assessment: Compliant.

### 1c. Suspicious transactions reporting
- Scope: FSPs should scrutinize: (i) complex or unusual transactions and patterns with no apparent economic or lawful purpose and document findings in writing for authorized government officials; (ii) transactions with persons in jurisdictions without adequate AML/CFT systems; and (iii) funds transfers lacking originator information. If assets appear to stem from criminal activity or be intended for terrorism, an STR to the FIU is required.  
- Description (legal basis and reporting obligations):
  - Obligation to report suspicious transactions to SICCFIN is set out in the AML Law.  
  - Entities subject to reporting (as amended July 2002): (1) banks and persons carrying out bank intermediation on a regular basis; (2) financial services of the Post Office; (3) insurance companies; (4) portfolio management companies; (5) bureaux de change; and (6) company service providers.  
  - Reporting content: financial institutions must report “all sums recorded in their books and all transactions relating to amounts that could come from drug trafficking or organized criminal activities and the facts and indices on which the reporting entity has based its report”, and similarly for funds that could derive from terrorism or be intended to finance it (Article 3 of the AML Law as amended).  
  - Refusal reporting: institutions must report cases where they have refused to undertake a transaction suspected of involving funds from drug trafficking or organized criminal activity (Article 5).  
  - Threshold attention: special attention to transactions above €150,000 which are unusual or complex and appear not to have an economic justification (Article 13 of the AML Law and Article 3 of SO No. 15.453).  
  - Other reporting subjects: persons under Article 2 of the AML Law and professionals listed in SO No. 14.446 of April 22, 2000, are subject to similar reporting requirements (Article 19). Representatives of the law and notaries report to the Principal State Prosecutor (Article 19). Gaming establishments report to SICCFIN (Article 25).  
  - Protections and penalties: managers and employees who report in good faith are immune from civil liability, and entities themselves are immune (Article 7). Managers and employees who knowingly inform the account owner or divulge information concerning action taken on an STR can be fined up to € 27,000 (Article 8).  
- Assessment: Compliant.  
- Comments: There is no Monegasque insurance company; French insurance companies sell in Monaco via brokers/agents and are subject to French AML requirements and reporting to the French FIU. French insurers require brokers/agents to implement AML procedures, including CDD and STR requirements.

### 1d. AML/CFT internal controls
- Requirement: Regulated financial institutions should establish and maintain internal procedures to prevent use for ML or FT.  
- Description (legal basis):
  - AML Law: financial institutions “have a duty to be vigilant, to introduce internal control procedures, and to provide all appropriate training to the staff concerned” (Article 16).  
  - SO No. 11.160 of January 24, 1994: financial institutions must state in writing the internal organizational measures taken to ensure compliance, including (i) measures taken given the nature of activities; (ii) procedures for suspicious transaction reports; (iii) arrangements for keeping information and documents related to suspicious transactions; and (iv) the monitoring system to verify compliance (Article 5 of SO No. 11.160).  
- Assessment: Compliant.

### 1e. Sanctions
- Principle: Adequate sanctions should exist for failure to comply; authorized government officials should have jurisdiction to enforce compliance.  
- Description (legal basis and sanctions):
  - AML Law provides administrative and criminal penalties.  
  - Administrative penalties for failure to comply with parts II and III (reporting and other obligations) include: a warning, a reprimand, a ban on carrying out certain transactions, and withdrawal of authorization (Article 18).  
  - Criminal penalties:
    - Failure to report suspicious transactions or refusal to undertake a transaction because it appeared suspicious: fines of € 9,000–18,000 (Article 32).  
    - Penalties for breach of other provisions, including record keeping: € 2,250–-9,000 (Article 33).  
  - Banks: subject to disciplinary powers of the FCB; sanctions include warning, reprimand, withdrawal of authorization to carry out certain operations, temporary suspension or removal of managers, and withdrawal of authorization (Article 45 of French Law No. 84–46 of January 1984).  
  - Portfolio managers: Law No. 1.194 of July 9, 1997, as amended, provides penalties including imprisonment for senior managers and loss of license (Articles 19–29).  
  - Company and Trust Service Providers: CSPs regulated under Law No. 1.144 and AML supervision by SICCFIN; sanctions are available.  
- Assessment: Compliant.

### 2. Integrity standard
- Principle: Laws should prevent criminals and criminal organizations from controlling regulated financial institutions and ensure entities (shell corporations, trust and company service providers, foundations) are not used for criminal purposes.  
- Description (legal basis and sector specifics):
  - General: Licensing under Law No. 1.144 requires those undertaking certain economic and legal activities to demonstrate competence and integrity. Establishment of partnerships including non-Monegasques subject to prior authorization under Law No. 1.072 of July 27, 1984.  
  - Banks: Article 13 of French Law No. 84–46 of January 1984 disallows persons convicted of specified offenses from being board members or exercising management functions in financial institutions.  
  - Securities—Portfolio Management: Licensing under Law No. 1.194 of July 9, 1997, as amended, is delivered by the Minister of State after a substantiated opinion from the Supervisory Commission, which considers integrity and professional experience of senior managers (Article 3).  
  - Company and Trust Service Providers: CSPs subject to licensing under Law No. 1.144.  
  - Bureaux de change: AML Law lists exclusions for operators, including persons who have committed felony, theft, breach of trust, misappropriation, extortion, or breaches of foreign exchange legislation (Article 22).  
- Assessment: Compliant.

### 3. Criminalization of ML and FT
- Principle: ML and FT should be criminalized as serious offenses; ML should extend to proceeds of all serious offenses, including FT, with proportionate and dissuasive sanctions and possible loss of authority to do business.  
- Description (legal basis and scope):
  - ML: criminalized under Articles 218 to 218–3 of the Penal Code. Separate ML offense for drug offenses under Article 4–3 of Law No. 890 of July 1, 1970. Predicate offenses listed in Article 218–3 include forgery, misappropriation by persons exercising public authority, extortion, bribery, murder, procuring, kidnapping, and proceeds from breaches governing war equipment, provided the offence occurred within organized criminal activity (Article 219). FT has not yet been added to the list of predicate offenses.  
  - Jurisdictional and evidentiary points:
    - A person may be indicted for a predicate offense even if also indicted for ML; the predicate may have been committed outside Monaco if it is also a predicate in Monaco (Article 218-1).  
    - Conviction for ML does not require conviction for the predicate offense.  
    - “Proceeds of crime” include all “assets and funds” (“biens et capitaux”), not only monetary instruments and securities (Article 218).  
    - The law does not specify that knowledge can be inferred from objective factual circumstances; understood that no court decision exists, but likely standard applied would be that knowledge can be inferred when factual circumstances lead to the conclusion that the person “could not have ignored” the illicit origin.  
  - Sanctions:
    - ML: five to ten years imprisonment and basic fines of € 18,000–90,000. Aggravated circumstances (criminal organization or organized criminal activities): imprisonment between 10 and 20 years, and fines up to twenty times the basic amounts. Loss of authority to do business could follow under Law No. 1.144 of July 26, 1991.  
    - FT: criminalized under SO No. 15.320 of April 8, 2002, implementing the Convention for the Suppression of the Financing of Terrorism; offenses include the general financing of terrorism and offenses based on eight of the nine treaties in the Convention Annex to which Monaco is party. Sanctions for FT: five to ten years imprisonment. FT sanctions for legal persons: fines of € 18,000–90,000 or the amount effectively furnished or collected, and withdrawal of any administrative authorization previously given (Article 9 of SO No. 15.320).  
  - International instruments: Monaco is party to the Vienna Convention, has signed and ratified the Convention on the Suppression of Financing of Terrorism, and the Palermo Convention.  
- Assessment: Largely compliant.  
- Comments and recommended considerations:
  - Need to add FT to the list of ML predicate offenses and to review the overall list of predicate offenses.  
  - The current list requires that a predicate offense be committed “within the framework of organized criminal activity,” which may unduly limit ML scope and international cooperation.  
  - Assessors had not reviewed the entire Penal Code to ensure all “serious offenses” are included.  
  - Authorities may consider the revised FATF recommendations expected in June 2003 (anticipated to contain a minimum list of predicate offenses) when reviewing the list.  
  - Additional initiatives of interest:
    - On May 10, 2002, Monaco deposited an instrument of accession to the Strasbourg Convention (in force with respect to Monaco in September 2002).  
    - Monaco established an offense for professionals who, by ignoring obligations, assist in transfer, placement, hiding, or conversion of goods or funds of illicit origin — sanction of one to five years imprisonment (Article 218–2).  
    - A proposal to broaden criminal liability of legal persons for certain offenses is in advanced government discussion.

### 4. Confiscation of proceeds of crime or assets used to finance terrorism
- Principle: Laws should permit confiscation in criminal cases of assets laundered or intended to be laundered, proceeds of predicate offenses, assets used for FT, or instrumentalities of such offenses, while protecting bona fide third parties.  
- Description (legal basis and current scope):
  - Penal Code: court orders confiscation of assets and funds (“biens et capitaux”) of illicit origin (Article 219, first paragraph). If mingled with legitimate assets, mingled assets may be confiscated up to the estimated value of the illegitimate assets (Article 219, second paragraph). Confiscation is without prejudice to rights of third parties (Article 219, third paragraph).  
  - Limitations:
    - Except in drug-related laundering, confiscation does not extend to assets used in the commission of the predicate offense or which facilitated it.  
    - Confiscation of assets of equivalent value is not provided for in the law.  
    - Freezing and seizing of assets before confiscation is possible: initiative by SICCFIN and, after a 12-hour period, by court order. Tracing of suspected proceeds is possible with a court order.  
    - Civil law remedies: under Articles 986 and 988 of the Monaco Civil Code, contracts entered into for an immoral or illicit purpose may be voided by court decision.  
  - FT-specific measures: Sovereign Order 15.321 of April 8, 2002 requires entities which hold assets of persons and entities named in Ministerial Orders to freeze them; further ministerial orders were issued in July, October, and December 2002, and in February and March 2003.  
- Assessment: Largely compliant.  
- Comments and recommended changes:
  - Need to broaden the definition of assets subject to confiscation to include “instrumentalities” of crime and to provide for confiscation of assets of equivalent value.  
  - The Strasbourg Convention requires States to adopt measures to confiscate instrumentalities and proceeds or property the value of which corresponds to such proceeds; instrumentalities are defined as “any property used or intended to be used, in any manner, wholly or in part, to commit a criminal offence or criminal offences.” Modifying legislation as indicated would align Monaco with the draft Methodology and the Strasbourg Convention.

*Source: IMF assessment text for Monaco on legal requirements for Financial Service Providers (FSP).*

### 5.  Processes for receiving, analyzing, and disseminating disclosures of financial information and

### 5. Processes for receiving, analyzing, and disseminating disclosures of financial information and intelligence

### Mandate and institutional setup
- The Service d’Information et de Contrôle sur les Circuits Financiers (SICCFIN) was established by SO No. 11.246 of April 12, 1994, implementing the AML Law; SO No. 11.246 was amended by SO No. 15.454 of August 8, 2002.
- SICCFIN’s purpose: to gather, seek, process, and circulate information on financial circuits used to launder money (Article 2 of SO No. 11.246).
- SICCFIN is explicitly charged with monitoring compliance of financial institutions to the AML Law (Article 26 of the AML Law).
- Reported core activities (Rapport d’Activités of January 8, 2002):  
  - AML supervision of reporting institutions, including onsite inspections;  
  - awareness-raising activities with industry associations of reporting entities, such as the Association Monégasque des Banques;  
  - staff training;  
  - participation in local and international meetings;  
  - receiving and analyzing reports of suspicious transactions;  
  - cooperation with other FIUs.

### Powers and operational authorities
- SICCFIN powers to obtain documents and information: contracts, accounting books and documents, minutes, audit and control reports; obtain information from third parties that have undertaken controls for financial institutions; ensure financial institutions comply with record keeping obligations; hear executives, staff of financial institutions, and other persons with relevant information (Article 26 of the AML Law and Article 3 of SO No. 11.246 as amended).
- SICCFIN staff may enter premises and inspect documents of reporting institutions.
- After hearing representatives of a financial institution, SICCFIN may determine measures the institution needs to adopt and give it a specified time for this purpose (Article 26 of the AML Law and Article 3 of SO No. 11.246 as amended).
- SICCFIN has the power to freeze a transaction for up to 12 hours on its own initiative; a longer freeze or sequestration of accounts may be ordered by the President of the Tribunal of First Instance (Article 4 of the AML Law).
- Criminal court confiscation power: under Article 219 of the Penal Code, the criminal court may order the confiscation of the assets and funds of illicit origin.
- SICCFIN has the power to obtain information from all State agencies and has direct access to the Monaco business registry (including its non-public data on partnerships); other government agency data obtainable on request.

### Confidentiality, disclosure, and cooperation
- Confidentiality obligation for SICCFIN staff, with exception: when facts may give rise to criminal prosecution, SICCFIN may communicate them to the Principal State Prosecutor (Article 28).
- Under Article 27, when SICCFIN finds evidence of drug trafficking or organized criminal activity, or of terrorism, terrorist acts, or of terrorist organizations, it forwards a report to the Minister of State.
- In practice, information is sent to the Principal State Prosecutor, with a copy to the Minister of State.
- International cooperation: SICCFIN is a member of the Egmont Group; as of May 2003 SICCFIN had entered into ten MOUs on information exchange with other FIUs and had four more under discussion.
- In absence of an MOU, the Minister of State may provide other FIUs with information relating to transactions that appear linked to drug trafficking or organized criminal activity, subject to reciprocity and confidentiality guarantees (Article 31 of the AML Law).
- SICCFIN may provide other FIUs information on internal AML measures taken by Monaco’s financial institutions, subject to reciprocity and confidentiality guarantees (Article 5 of SO 11.246 as amended).
- Informal information exchange also occurs within the Egmont Group.

### Enforcement, sanctions, and staff status
- Penalties for failure to report suspicious transactions or refusal to undertake a transaction because it appeared suspicious: fines of € 9,000–18,000 (Article 32 of the AML Law).
- Penalties for breach of certain other provisions of the Law, including record keeping: € 2,250–9,000 (Article 33 of the AML Law).
- Additional sanctions available to financial institutions: warnings, blames; prohibition to undertake certain operations; loss of license to operate.
- SICCFIN is established as a unit of the Department of Finance and Economic Affairs; staff are civil servants appointed in the name of the State Minister.
- SICCFIN staff do not enjoy special immunity; under Law No. 975 of July 12, 1975 on the status of civil servants, the State is obligated to defend civil servants against attacks in the course of their work and to compensate them for any loss (Article 14).

### Assessment
- Assessment: Compliant.
- Observed operational outcomes: the number of files transmitted to the Principal State Prosecutor increased from an average of two files per year (1994–1999) to 12 in 2000 and 21 in 2001.

### Comments and recommended considerations
- Legal routing of reports: the requirement to forward reports also to the Minister of State could be read as potentially undermining SICCFIN’s independence; in practice the transmission to the Principal State Prosecutor with a copy to the Minister of State is treated as a formality. Authorities may wish to consider amending the AML law to require direct communication of reports to the Principal State Prosecutor.
- Institutional development: authorities may consider issuing a set of internal rules for SICCFIN to clarify staff responsibilities and to provide a clear organization chart as SICCFIN develops.
- Reporting scope: a 2001 court decision struck down the provision in the Sovereign Ordinance that included attorneys in the list of persons subject to reporting requirements on grounds of vagueness; authorities may consider reinstating attorneys in the list under conditions that take into account the special situation of defense lawyers.
- Potential expansion of reporting obligations: authorities may consider adding insurance brokers and agents to the list of professionals subject to AML reporting requirements.
- Review and cooperation with prudential supervisor: once cooperation arrangements with the Commission Bancaire are formalized and SICCFIN gains implementation experience under the amended AML Law, a thorough review of SICCFIN’s activities, resources, and plans is suggested; the second half of 2003 is identified as an appropriate time to complete such a review, assuming the cooperation agreement will be finalized shortly.

*Source: Assessment and description of SICCFIN and related AML legal framework as set out in the IMF Financial Sector Assessment content unit.*

### 4. Record keeping, compliance, and audit

### 4. Record keeping, compliance, and audit

### Record keeping systems and retention
- Requirement: Regulated entities must have formal record keeping systems for customer due diligence and individual transactions including a defined retention period of five years.
- Procedures: Record keeping procedures should be regularly reviewed for compliance with applicable laws, regulations, guidance notes, and the internal policies of the regulated entity.
- Description: SICCFIN requires that financial institutions have adequate record keeping systems for customers and transactions and has urged banks without fully computerized systems to implement such systems as quickly as possible.
- Assessment: Compliant.
- Comments: While the systematic monitoring of financial institutions’ record keeping systems is relatively recent, SICCFIN’s actions in this respect are compliant.

### Cooperation between supervisors/regulators and competent authorities
- Principle: Competent authorities should be able to exchange information (typically through the FIU) related to suspected or actual offenses.
- International cooperation: Includes mutual legal assistance in criminal matters and extradition, and exchange of information between FIUs and other competent authorities.
- Mutual legal assistance activity (Principal Prosecutor’s office, 1998–2001):
  - ILRs received: 211
  - ILRs executed: 189
  - ILRs still processing (in 2002): 19
  - ILRs denied: 3
  - Of ILRs related to money laundering: 63 received, 55 executed, 8 still being executed, none denied
- Monaco’s outgoing ILRs (1998–2001):
  - ILRs issued by Monaco: 189
  - ILRs executed: 125
  - ILRs being processed: 60
  - ILRs denied: 2 (Monaco decided to withdraw two)
  - Of these related to money laundering: 32, of which 11 executed, 21 being processed, none denied
- SICCFIN and FIU cooperation:
  - SICCFIN is a member of the Egmont Group and exchanges information of a general nature with other Egmont members.
  - SICCFIN has signed some eight information exchange MOUs with foreign FIUs and has a further four MOUs under discussion.
- Assessment: Largely Compliant.
- Comments: Compliant with respect to mutual legal assistance and extradition, and with respect to SICCFIN’s cooperation with other FIUs. Largely compliant with respect to cross-border cooperation in the banking sector. Additional, formalized measures for exchange of information with supervisory authorities may be appropriate to enhance cross-border cooperation in the banking sector.

### Licensing and authorizations
- Principle: Licensing authority should ensure only qualified persons control financial institutions and prevent control/acquisition of material participation by criminals or their confederates.
- Description:
  - In Monaco, all business activity is subject to authorization by the DEE, whose procedures include a fit-and-proper test for applicants and managers.
  - Certain activities, such as banking, are subject to specific authorizations.
  - The administrative decision authorizing or denying activity must be substantiated with regard to professional competence, financial guarantees, and guarantees of good character.
  - Licensing of banks in Monaco is the responsibility of the French CECEI; French law requires a fit-and-proper test for members of boards of banks and bank managers.
  - Monaco law requires managers and owners of portfolio managers to pass a fit-and-proper test, which includes a police check; the same applies to insurance brokers and agents.
- Assessment: Compliant.
- Comments: (None provided in source.)

### AML/CFT sector-specific criteria for the banking sector — Customer identification and due diligence
- Supervisory requirements (summary of expectations):
  - More extensive due diligence for high-risk customers.
  - Systematic identification of new customers before establishing a banking relationship.
  - Appropriate due-diligence for introduced business and client accounts opened by professional intermediaries.
  - Documented and enforced policies regarding customer identification and those who act on their behalf.
  - Appropriate procedures for non-face-to-face customers.
  - Refuse correspondent bank relationships with banks with no physical presence and unaffiliated with a regulated financial group.
  - Pay particular attention to respondent banks in jurisdictions that do not apply sufficient AML/CFT measures.
  - Pay particular attention to correspondent banking services.
  - Require banks to include accurate and meaningful originator information on funds transfers and related messages.
- Description of Monaco’s framework:
  - By agreement of April 14, 1945 (supplemented by exchanges of letters), the Monegasque banking system is subject to French banking law and supervision by France’s Commission Bancaire (FCB).
  - Since 1994, responsibility for deterring money laundering is vested in SICCFIN (SO 11.246 of April 12, 1994).
  - Specific “know-your-customer” rules are defined in Law No. 1.162 (Article 10) as amended by Law No. 1.253 of July 12, 2002 (Article 6).
  - FCB continues to review banking activities including internal controls and customer identification; SICCFIN assumes full responsibility for supervision of compliance with legal AML requirements.
  - SICCFIN substantially increased monitoring of AML compliance during the last two years and requested banks to update files in June 2000.
  - SICCFIN issued two questionnaires: July 19, 2001 (organizational measures and reporting) and December 11, 2001 (compliance, due-diligence procedures, conservation of information, staff training, monitoring adequacy of AML measures, written rules, reporting process).
  - No mention in questionnaires of specific due diligence for higher risk customers, especially politically exposed persons (PEP).
  - SICCFIN staff increased from three to eight (soon to be nine) and supervisory approach strengthened (increase of onsite examinations).
  - External training and a training manual were provided; third party experts were contracted to accompany onsite examinations in the first week of May 2002.
  - Amendments to Law No. 1.162 require reporting of transactions suspected to be linked with the financing of terrorism; SICCFIN is the administrative authority ensuring compliance.
  - Many banks in Monaco are part of large international financial groups; group standards often exceed local legal requirements.
  - Monegasque Bankers Association (MBA) issued AML recommendations in August 2000 and distributed a CD-ROM for training; compliance officers are grouped in an association under the MBA.
  - Regulatory changes in July 2001 brought securities-related activities under Commission de Contrôle de la Gestion de Portefeuille et des Activités Boursières Assimilées (CCGP); 28 nonbank portfolio-management companies managing €3 billion as of end of December 2000 were under this authority, compared with 43 banks managing assets totaling €20 billion.
  - CCGP supervisory powers and onsite examinations were reinforced; examination manuals prepared.
  - Legislative changes reduced bank secrecy restrictions in matters of consolidated supervision and allowed exchange of information with other supervisors.
- Assessment: Largely compliant.
- Comments:
  - Major shortcoming: Absence of a more extensive due diligence requirement for higher-risk customers, especially politically exposed persons (PEP), their families, and associates.
  - Reporting of suspicious operations increased: 1999: 58; 2000: 210; 2001: 307 (suspicious operation reports generally). SICCFIN transmitted suspicious declarations (mainly from banks) to the Office of the Prosecutor: 1999: 4; 2000: 12; 2001: 21.
  - SICCFIN inquiries to foreign FIUs: 1999: 40; 2000: 157; 2001: 249.
  - The May 2001 changes authorized the FCB to execute onsite examinations on behalf of foreign supervisors; in one case the PEP requirements have been addressed.
  - Recommendation: A comprehensive review process of SICCFIN’s ongoing work should be organized preferably no later than in the second half of 2003, with stock taken of the adequacy of CFT measures.

### Monitoring and reporting of suspicious transactions
- Supervisory expectation: Banks should monitor customers’ accounts on a fully consolidated basis worldwide.
- Description:
  - Most Monegasque banks are specialized entities of international bank groups and do not have foreign branches or subsidiaries (only one Monegasque bank has a subsidiary in France).
  - Clients may hold multiple accounts within a group; the supervisor of the consolidating parent bank should require aggregated monitoring of significant balances and activities.
  - Potential legal impediments: professional secrecy requirements and privacy protection rules may prevent communication of individual information.
  - Periodical audits by parent institutions are standard practice and provide full access to client accounts.
  - SO 14.892 of May 2001 recognized the need for consolidated supervision by amending the April 14, 1945 Franco-Monegasque Convention and confirms exchange of letters dated April 6, 2001, authorizing Monegasque banks to transmit to parent institutions all information required by the foreign supervisor for consolidated supervision.
  - SO 14.892 provides for the FCB to execute onsite examinations in Monegasque banks on behalf of foreign supervisory authorities and allows the supervisor of a parent bank to acquire information on individual accounts of a client if the client has multiple accounts in the bank group.
- Assessment: Compliant.
- Comments: Monegasque banks are part of international banking groups and are subject to regular audit procedures from their parent institutions.

*Assessment by IMF staff.*

### 4. Record keeping, compliance and audit

### 4. Record keeping, compliance and audit

### Banking sector — record keeping and group KYC
- The supervisor/regulator should require that banking groups apply Know Your Customer standards on a global basis, including requirements for documentation, and compliance testing by the parent.
- Description: Banks present in Monaco are mostly specialized institutions of international banking groups that have to comply with the standards and requirements of each and every country in which they exercise financial activities. Monegasque banks, as such, are not to be considered as the parent of a group.
- Assessment: Not applicable.

### Cooperation between supervisors and competent authorities (banking)
- Principle: The host jurisdiction supervisor/regulator should ensure that home jurisdiction supervisors have no impediments in accessing information, including from onsite examinations, needed to verify foreign operations' compliance with Know Your Customer policies and procedures of the home jurisdiction.
- Legal and procedural framework:
  - SO 14.892 of May 2000 provides for the general possibility that the FCB execute onsite examinations in Monegasque banks on behalf of foreign supervisory authorities. These examinations can address all information related to the prudential standards of the foreign supervisory authority, including capital adequacy, liquidity, solvency, deposit guaranty, large exposures, and administrative and accountancy organization.
  - Law No. 1.241 of July 3, 2001, confers supervisory responsibility for asset management that banks perform on behalf of their clients (private banking activities) to the CCGP and introduced three new offences in Monegasque criminal law (insider trading, communication of privileged information and deliberately providing false information).
  - Article 17 of the amended Law No. 1.194 allows the CCGP to inform foreign supervisory authorities and to make necessary enquiries provided a formal information sharing arrangement is in place; Article 17 does not address information/enquiry needs that could be raised as to banks.
  - Foreign security authorities may request the CCGP to exercise supervisory duties provided an agreement on cooperation and exchange of information is in place.
  - A formal memorandum of understanding was signed with the COB in March 2002, permitting supervisory commissions to share any information obtained from regulated entities provided it will be used for specified regulatory purposes; confidentiality is protected under the MOU.
  - Law No. 1.162 of July 7, 1993 (money laundering), Article 31 gives the Minister of State the right to provide foreign authorities with information related to transactions that appear to have a link with drug trafficking or organized criminal activity, subject to reciprocity and the absence of criminal proceeding in the Principality on the basis of the same facts; amendments prepared to include organized criminal activities linked to terrorist acts or organizations.
  - SO No. 15.454 of August 8, 2002, permits SICCFIN to share information on internal procedures to counter money laundering subject to reciprocity and professional secrecy obligations of the receiving authority.
- Assessment: Compliant.
- Comments: The general system has been assessed against Basel Core Principle 1.6. Efforts should be undertaken in the future to entrust the CCGP with the necessary powers to inform the FCB and other banking supervisors.

### Securities sector — record keeping, compliance and audit
- Regulatory expectations: The competent authority should require that market intermediaries (i) comply with standards for internal organization and operational conduct that aim to protect the interests of clients and ensure proper management of risk, with management accepting primary responsibility; (ii) maintain records necessary as confirmation that regulatory rules and procedures have been complied with; and (iii) maintain records of all CIS transactions.
- Portfolio management firms:
  - Firms are required to keep books and records as part of internal control procedures and are required to fully document all transactions.
  - There is a general requirement for Monegasque companies to keep all books and records for a period of ten years.
  - The depositary bank holds client accounts, operates separately from portfolio management operations, supplies client and portfolio management firm with statements, has a duty to report any noncompliance to the supervisory commission, and its controls are reviewed by the commission inspection and by the external auditor.
  - Each firm must have an independent internal control or compliance function (which can be outsourced or located in the parent company).
- Mutual funds:
  - Rules must include a stated investment strategy, asset allocation plan, risk management details, net asset value calculation, commission and fee structure, and fund governance.
  - Mutual fund operators must show competence and expertise; senior management bears direct responsibility for compliance and maintenance of internal controls; funds must have adequate systems including technology and internal controls.
  - Mutual funds are required to maintain full records of transactions including client account statements, recording of investments, redemptions, and distributions of income.
  - Custodians must perform internal control reviews of the fund, including compliance with investment strategy, asset allocation and risk ratio rules, net asset valuation calculation, and reconciliation of subscriptions, redemptions, and distributions.
- Assessment: Compliant.

### Securities sector — cooperation with regulators
- Expectation: Information sharing and assistance arrangements should consider assistance in obtaining public/non-public information, banking/brokerage records, voluntary cooperation, information under compulsion, and information on regulatory processes or court orders.
- Description:
  - July 2001 amendments to investment firm legislation allow supervisory commissions to share information with foreign supervisors provided a formal information sharing arrangement is in place.
  - A formal memorandum of understanding was signed with the COB in March 2002 allowing supervisory commissions to share any information obtained from regulated entities for specified regulatory purposes; confidentiality protected.
  - No formal arrangements in place with other supervisors, but negotiations had begun with CONSOB (Italy) and CSSF (Luxembourg).
- Assessment: Largely compliant.
- Comments: The 2001 amendments have improved information sharing; Monegasque authorities are encouraged to continue entering into information sharing arrangements.

### Company and Trust Service Providers (CSPs) — organizational and administrative arrangements
- Legal framework and authorities:
  - Relevant instruments include Sovereign Order 11.986; Sovereign Order of March 5, 1895; Law No. 214 February 27, 1936 modified by Law No. 1,216 July 7, 1999; Ordinance No. 14.346 of March 2000; Law No. 1.144 of July 26, 1991; Law No. 1.162 of July 7, 1993, as amended; Sovereign Order No. 14.446 of April 22, 2000; and Recommendations Concerning the Management and Administration of Foreign Entities (Code of Conduct).
  - The Minister of State is the competent authority; operational responsibility resides with the government Counselor for Finance and the Economy; operational oversight carried out by the General Administration Division of the Direction de l’Expansion Economique (DEE) with a staff of ten (two line supervisors and eight support staff); three staff have enhanced training for the onsite review program.
- Supervision and training:
  - The July 2002 amendment to Law No. 1.162 brought supervision of the 40 licensed CSPs under the same regulatory requirements as banks.
  - The DEE launched an onsite review program for CSPs commencing September 1, 2002.
  - The DEE requires all CSPs to have a designated compliance officer.
  - AML training is made available to all CSPs by SICCFIN via a video prepared by the Bankers Association.
  - Deloitte and Touche trained DEE staff who will conduct compliance reviews of CSPs in September.
  - Many CSPs are branches, subsidiaries, or affiliates of larger international organizations and benefit from parent entities' AML/CFT policies and training.
- Assessment: Compliant.

### CSPs — customer identification and due diligence
- Legal requirements:
  - Law No. 1.162, Article 10 requires all Monegasque financial undertakings to verify customer identity on the basis of official identity documents; the July 2002 amendment extended these requirements to CSPs.
  - The August 2001 Recommendations Concerning the Management and Administration of Foreign Entities (Code of Conduct) addresses internal control requirements for CSPs and extends expanded KYC and AML requirements to foreign companies and trusts administered by CSPs.
- Implementation:
  - DEE met with all licensed CSPs between November 2001 and February 2002; all CSPs were required to provide written acknowledgement of receipt and commitment to adhere to all elements of the Code of Conduct, with compliance by September 1, 2002.
  - Following September 11, 2001, the Department of Finance and Economic Affairs required CSPs to check client names/activities against Security Council lists; results were negative.
  - Bearer shares: Article 42 of the commercial code and Article 8 of Sovereign Order 1895 require bearer shares of Monegasque companies be deposited with a bank in Monaco; bearer shares have not been issued for ten years; an amendment prohibiting bearer shares has been prepared for Parliament.
- Assessment: Largely compliant.
- Comments: Onsite visits starting September 1, 2002, and supervisory activity (SICCFIN started its supervisory program in November 2002 with two entities visited by end-2002; DEE began onsite examinations in October) are expected to close remaining gaps. It is recommended that performance deadlines for CSPs and regulators be strictly adhered to.

### CSPs — monitoring and reporting of suspicious transactions
- Legal and supervisory arrangements:
  - Under Law No. 1.162 and Sovereign Order 11.160, CSPs are obligated to report all suspect transactions involving monies derived from drug trafficking or from organized crime.
  - The Code of Conduct provides guidelines regarding third party dealings; a training video is available to CSP Compliance Officers.
  - The DEE has power under Law No. 1.144 of 1991 to conduct onsite reviews and, as practice, reviews suspicious reporting procedures and adherence by CSPs.
  - As of September 1, 2002, extensive onsite reviews will become an important part of DEE’s prevention protocols.
- Assessment: Compliant.
- Comments: Of the 40 licensed CSPs, 25 are S.A.M. for which appointment of two statutory auditors is required; auditors audit for suspicious transaction reporting violations that are promptly reported to the DEE. Although the DEE has authority to conduct onsite examinations, not all CSPs had been inspected prior to the September 1, 2002 implementation of onsite visits.

### CSPs — record keeping
- Requirement: The competent authority should determine that financial service providers maintain records regarding customer identification and individual transactions for a period of five years.
- Legal provisions:
  - Law No. 1.162 requires financial undertakings to retain all KYC documentation collected on regular and occasional customers for a period of five years after account closing or cessation of relations; they must retain all documents evidencing undertakings for all customers for a period of five years. The July 2002 amendment extended these requirements to CSPs.
  - Sovereign Order No. 11.160 requires financial undertakings to document in writing measures for safekeeping of information and documents relating to transactions as defined in Articles 3.5 and 13 of Law No. 1.162.
  - Many licensed CSPs are branches or affiliates of international providers and are required to comply with internal record retention protocols that generally reflect the maximum level of requirement within the group.
- Assessment: Compliant.
- Comments: The DEE, through onsite inspections, routinely enforces record keeping requirements.

*Source: IMF — Module 4, AML/CFT Sector-specific Criteria (excerpts).*

### 5. Cooperation among competent authorities

### 5. Cooperation among competent authorities

### Scope and institutional roles
- Suspicious transaction reports initiated by CSPs are currently forwarded directly to SICCFIN.
- The DEE and SICCFIN will continue to have oversight responsibilities for CSPs.
- The DEE will ensure compliance with Laws No. 1.144 and No. 767 and will continue as the principal supervisor with primary responsibility for confirming that appropriate policies and procedures are in place.
- SICCFIN retains its key AML role and responsibility for implementing Law No. 1.162 and is conducting onsite examinations with a focus on implementation of KYC, record keeping and retention requirements, internal guidance notes, and staff training in AML measures.
- Under the new procedures, both DEE and SICCFIN will have onsite examination authority. Each will produce independent reports of their findings that will be submitted to the Government Counselor for Finance and the Economy.

### Operational implementation and capacity
- DEE will implement its new supervisory authority by way of onsite examination of all CSPs.
- DEE has increased staff by two and is providing appropriate training to three supervisors who will conduct these examinations.
- Suspicious transaction reports filed to SICCFIN are treated as all such reports and, if warranted, may be transmitted to the State Prosecutor and to foreign FIU.

### Information exchange and coordination
- It was recommended that consideration be given to establishing gateways and methods for cooperation and exchange of information between DEE and SICCFIN.
- The creation by SO 15.530 of September 2002 of a Coordination Committee for organizing information exchange among supervisory authorities provides a formal gateway for the cooperation.
- The Service de Contrôle des Jeux cooperates with other similar entities through exchanges of information and visits.

### Assessment and comments
- Assessment: Compliant.
- Comments: The enhanced supervision of CSPs provided under the Code of Conduct and the amendment to Law No. 1.162 are important and welcomed steps that give supervisors direct access to additional and potentially important information.

### Related operational facts (CSPs and scope)
- A working group of Monegasque regulator/supervisors and members of the financial service industry produced written guidelines for the conduct of onsite review of all 40 CSPs.
- The onsite review will commence September 1, 2002, and upon completion will be periodically repeated.
- All 40 CSPs were required to acknowledge receipt of and have executed a written commitment to accept, apply, and enforce the Code of Conduct. The Code of Conduct was implemented as of February 2002.
- In July 2002, CSPs were brought under the same regulatory/supervisory requirements as banks by amendment to Law No. 1.162.
- As of April 30, 2002, Monegasque regulators estimate approximately 3,950 offshore companies and 725 trusts are under CSP management.
- Monaco licenses four organizational forms for CSPs; number as of April 30, 2002:
  - Individual Business: 5
  - General Partnerships (S.N.C.): 8
  - Limited Partnerships (S.C.S.): 2
  - Monegasque Limited Company (S.A.M.): 25
  - Total: 40

### Gaming establishments — cooperation and reporting
- The AML Law requires gaming establishments to report suspicious transactions to SICCFIN on the same basis as financial institutions and charges SICCFIN with monitoring casinos’ compliance to the AML Law.
- Under the July 2002 amendments to the AML Law, the definition of the transactions to be reported was brought in line with that which applies to financial intermediaries, and it includes transactions suspected of being related to the financing of terrorism.
- Assessment for gaming sector cooperation and reporting: Compliant.

*Source: IMF assessment text — 5. Cooperation among competent authorities.*

### 15.      The following actions are recommended to improve the legal and institutional

### 15. Recommended actions to improve the legal and institutional framework and strengthen AML/CFT and securities regulation

### AML/CFT — Recommended Action Plan (summarized)
- Criminalization of money laundering and terrorism financing
  - Add the financing of terrorism offenses as ML predicate offenses, review the list of predicate offenses to ensure that all serious offenses are included.
- Confiscation of proceeds of crime or assets
  - Add confiscation of instrumentalities of crime and assets of equivalent value.
- Organizational and administrative arrangements
  - Conclude an agreement between SICCFIN and the FCB on cooperation.
- Banking sector — Customer identification and due diligence
  - Add a requirement to give special attention to high-risk customers, such as politically protected persons.
- Banking sector — Monitoring and reporting suspicious transactions
  - Professional secrecy requirements and privacy protection rules require agreements to overcome potential legal limitation.
- Banking sector — Record keeping, compliance and audit
  - (Recommendation listed without additional detail in the source.)
- Banking sector — Cooperation between supervisors/regulators and competent authorities
  - Authorize the CCGP to provide information to the FCB and other foreign banking supervisors.
- Capital markets regulation — Cooperation with regulators and competent authorities
  - The Monegasque authorities are encouraged to continue to enter into information sharing arrangements.

### Authorities’ response to the assessment — key points and developments
- Customer identification and due diligence
  - Swiss supervisor asked all Swiss banks present in the center to carry out a thorough review of the application of Swiss standards concerning PEP (politically exposed persons).
  - During 2001 and 2002, 11 Swiss subsidiaries/branches in Monaco were inspected by their group external auditors. The reports were made available to the local supervisor and resulted in the confirmation of the effectiveness of the procedures used.
- SICCFIN information sharing with foreign financial supervisors
  - Since 1992 Law 1.162, art.31 provides that: “Subject to reciprocity, and provided that no criminal proceedings have already been instituted in the Principality on the basis of the same facts, the Minister of State (in practice SICCFIN) may provide foreign competent authorities with information relating to transactions that appear to have a link with drug trafficking or organized criminal activity, with terrorism, terrorist acts or terrorist organizations, or with the financing thereof”.
  - SICCFIN supervises the anti-money laundering procedures of all financial institutions and thus has an active supervisory role beyond core FIU functions.
  - SO 15.454, Art. 1, broadens SICCFIN’s ability to communicate information to foreign supervisors, addressing a former major weakness and making SICCFIN compliant with BCP 15.
  - As a result, SICCFIN can now cooperate with other FIUs or financial supervisors in all the fields in its scope of competence.
  - The new legislation reduces the necessity of an agreement with the FCB specifically for information sharing with foreign supervisors, though signing an agreement with the FCB remains important to ensure cooperation and information sharing between SICCFIN and FCB.
- Judicial vs. administrative channels for international cooperation
  - Authorities stressed the need to distinguish the judicial channel from the administrative authority (SICCFIN) for international cooperation.
  - Extradition is possible on the basis of multilateral conventions such as the UN or EU conventions regarding narcotics.
  - Professional and banking secrecy cannot be opposed to the judicial authorities; judicial authorities report efficient and rapid cooperation with foreign counterparts.
- Cooperation between banking supervisors
  - Cooperation is provided for through SO 14.892 implementing the exchange of letters of April 2001.
  - It was not found necessary to entrust the CCGP with the powers to inform foreign banking supervisors, since prudential information for banks is collected directly by the FCB.
  - SICCFIN has been empowered by SO 15.454 to exchange information with foreign supervisors.

### IOSCO Objectives and Principles of Securities Regulation — assessment overview
- Assessment context and methodology
  - A detailed assessment of the IOSCO Principles was carried out as part of the IMF OFC mission, April 22–May 3, 2002. The assessment was completed by Jennifer Elliott.
  - The assessment was based on the authorities’ response to the OFC questionnaire, interviews with Department of Finance and Economics staff, the two supervisory Commissions, portfolio management firms, collective investment schemes, external auditors, and a review of relevant legislation. Information was also obtained from the Commission des Operations des Bourses (COB) and the Commission Bancaire.
  - The assessment used the IOSCO Objectives and Principles of Securities Regulation (1998) categories: implemented, partly implemented, non-implemented, and not applicable.
  - Because of Monaco’s unique market structure, a number of “not applicable” designations were given where activities are not permitted in Monaco.
- Market structure and activities permitted
  - Every company operating a business in the Principality must be registered and have its activities approved; the system does not permit what is not specifically provided for.
  - Securities legislation permits only two kinds of activity: the establishment, operation and distribution of mutual funds and operation of investment firms limited to portfolio management, investment advice and transmission of orders.
  - “Transmission of orders” is interpreted to mean the investment firm may pass an order to a brokerage firm for execution but may not itself execute an order or be a member of an exchange.
- Market participants and asset amounts
  - There are 67 companies in Monaco with a license to carry on portfolio management activities:
    - 43 of which are banks, managing €20 billion in assets.
    - 24 of which are portfolio management firms, managing €5 billion.
  - The mutual fund industry totals €5.2 billion, including publicly available and “dedicated” funds.
  - Of funds under management, 66.8 percent are in money-market funds and 28.6 percent are in diversified funds.
- Regulatory framework and institutions
  - Mutual fund law: Law 1.130 of January 8, as amended by Law No. 1.230 of 6 July 6, 2000, and related Sovereign and Ministerial Orders.
  - Portfolio management law: Law No. 1.194 of July 9, 1997, as amended by Law No. 1.241, and two additional Sovereign Orders.
  - Authority to regulate securities activity is vested in the Minister of State; the mutual fund supervisory commission (five members plus a president) and the portfolio management supervisory commission (six members plus a president) advise the minister.
  - The president of both supervisory commissions is currently the same individual.
  - Three of five members of the mutual fund supervisory commission are senior staff from the COB (acting in their personal capacity); the portfolio management supervisory commission includes the Director of Budget and Treasury, two staff of the Bank of France (acting in their personal capacity), a staff member of the COB (acting in his personal capacity), a representative of the Monegasque Bankers Association and a representative of the Monegasque Chartered Accountants Association.
  - The supervisory commissions act in an advisory capacity and do not have binding authority, licensing or sanctioning power, nor independent rule-making power.
  - Each supervisory commission has a staff secretary: the mutual fund commission’s secretary is a COB staff member located in Paris; the portfolio management commission’s secretary is a member of the Budget and Treasury division staff.
  - Inspections of mutual fund companies are undertaken by COB staff pursuant to a 1992 agreement between the Ministry of State and the COB. Enforcement activities are undertaken by the public prosecutor.
  - There are no self-regulatory organizations in Monaco. The Monegasque Bankers Association (AMB) represents banks and portfolio management firms and produces voluntary codes of good practice.
- Assessment findings and recommendations (principle-by-principle highlights)
  - Regulator
    - No independent regulator; responsibility vested in the Minister of State with two supervisory commissions advising.
    - Structure does not fully implement IOSCO Principles concerning regulator powers, though the structure is judged adequate in the current market context.
    - Consider merger of the two supervisory commissions to capture synergies and focus regulatory efforts.
    - Consider conferring licensing power on the commissions to increase independence.
    - Increase transparency and accountability: publish reasons for withdrawal of licenses, greater reporting on regulatory activity, develop conflicts of interest policies.
    - Set out terms of removal of commission members in law and explicitly protect commission members from liability while carrying out duties in good faith.
  - Information sharing
    - Recent legal changes have enabled an information sharing arrangement between the portfolio management supervisory commission and the COB, giving the commission full authority to obtain and share relevant information with the COB.
    - Encourage further formal agreements with other supervisors and extend to the mutual funds supervisory commission.
    - Provide for information sharing between the two supervisory commissions and clarify information sharing between the Commission Bancaire and the portfolio management commission in law.
  - Mutual funds
    - Regulation aligns with the European framework and includes licensing, internal control, and disclosure requirements; a full program of reporting and inspections is carried out.
    - Consider rules regarding valuation of illiquid securities and related party transactions.
    - Clarify the Minister of State’s authority to put an end to a halt on redemption.
    - More frequent calculation and publication of net asset valuations for small funds and clear disclosure to investors regarding accounting standards used by the fund.
  - Market intermediaries (portfolio management firms)
    - Subject to comprehensive laws and a full inspection system; significant improvement since the 1997 portfolio management law.
    - Consider more frequent reporting of capital and develop a contingency plan for the failure of a portfolio management firm.
    - Securities regulatory authorities do not have the power to appoint a liquidator in insolvency; this should be clarified.
    - For portfolio management carried on within banks or at bank subsidiaries, coordination with the Commission Bancaire is required.
    - Future inspections program should address compliance with new insider trading rules.
- Overall judgment
  - The Monegasque system of securities regulation is effective within Monaco’s unique, tightly controlled context: company registration with police and background checks, annual controls, separate licensing for securities business, and explicit limits on permitted securities activities.
  - Authorities have deliberately chosen to permit mutual funds and portfolio management to complement private banking and have chosen not to permit corporate finance, underwriting, or trading activities that would introduce greater risks and require expansion of the regulatory structure.

*Source: IMF Offshore Financial Centers (OFC) mission report (April 22–May 3, 2002).*

### 38.      The IOSCO Principles envision an independent separately funded regulator with

### 38.      The IOSCO Principles envision an independent separately funded regulator with

### Overview of Monegasque regulatory framework and overall findings
- The IOSCO Principles envision an independent separately funded regulator with enforcement and rule-making powers; in Monaco, regulation is carried out through the central government and two supervisory commissions, with day-to-day operations by staff of the Department of Finance and Economics and inspectors from the COB.
- Assessment of overall observance (Table 3.2):
  - Implemented: 15
  - Partly implemented: 5
  - Not implemented: 0
  - Not applicable: 10
- Strengths:
  - Adequate legal authority appears in place and authorities have practical ability to manage the regulatory process.
  - No binding resource or budgetary constraints identified; government has attracted expertise via supervisory commissions, hiring experienced staff, and outsourcing mutual fund inspections to COB staff.
  - Effective control of mutual fund operation and portfolio management in Monaco in the medium term, given careful planning and central control.
- Structural weaknesses:
  - Bifurcation of securities regulation across two supervisory commissions is less than optimal; commissions cannot share information between them by law.
  - Lack of a single independent securities regulator; supervisory commissions lack decision-making and sanctioning powers.

### Principles relating to the regulator (Principles 1–5): assessments and key facts
- Principle 1 — Responsibilities clear and objectively stated
  - Assessment: Partly implemented.
  - Facts and issues:
    - Authority vests in the Minister of State; duties of two supervisory commissions are clear in legislation.
    - Regulatory arrangements (Department of Finance and Economics, two supervisory commissions, COB inspectors) are not completely transparent to the public; letter of agreement with the COB regarding mutual fund company regulation is a public document but has not been published.
    - No regulatory “gaps”; all products and services of similar type are treated equally.
- Principle 2 — Operational independence and accountability
  - Assessment: Partly implemented.
  - Facts and issues:
    - No independent “regulator”; the Minister of State is generally responsible with advice from the two supervisory commissions.
    - All regulatory work funded under general revenue; fees are not charged and no revenue is collected from securities regulation.
    - Supervisory commission members appointed by Sovereign Order for a term of five years (renewable); legislation does not state criteria for removal.
    - Commissions began publishing annual reports in 2000.
    - Recommendations include granting greater independence to supervisory commissions (e.g., authority to grant or withdraw licenses), augmenting accountability (e.g., appeal rights), publishing reasons for withdrawal of licenses, publishing new rules for comment, extending disclosure obligations, adopting formal conflicts of interest policies, and setting criteria for removal in legislation.
- Principle 3 — Adequate powers, resources, capacity
  - Assessment: Partly implemented.
  - Facts and issues:
    - Minister of State has licensing and delicensing authority but no direct enforcement authority; commissions make recommendations only and do not levy sanctions or adopt rules.
    - Regulatory work staffed by Department of Finance and Economics and COB for mutual funds; staffing considered adequate given workload.
    - Ministerial Orders provide some limited and timely rule-making ability.
- Principle 4 — Clear and consistent regulatory processes
  - Assessment: Implemented.
  - Facts:
    - Regulatory framework governed by Acts, Sovereign Orders, Ministerial Orders; most publicly available and on the website.
    - Consultations occur (e.g., AMB, Conseil Economique); regulated entities have rights to appear before commissions when withdrawal considered.
    - Comment: Reasons for withdrawal decisions should be publicly available.
- Principle 5 — Professional standards and confidentiality
  - Assessment: Implemented.
  - Facts and issues:
    - Strict code of secrecy for civil servants; law imposes confidentiality on commission members and COB staff.
    - No formal policy on use of information beyond confidentiality obligation, no monitoring system, and no formal conflicts-of-interest policy.
    - Recommendation: adopt formal conflicts-of-interest policy (including reporting of trades) and a monitoring system.

### Enforcement, inspection and supervision (Principles 8–10)
- Principle 8 — Inspection, investigation and surveillance powers
  - Assessment: Implemented.
  - Facts:
    - Supervisory commissions can demand books and records; portfolio management law enables inspections of portfolio management licensees; mutual fund inspections carried out by COB under the 1992 agreement.
    - Minister of State retains full right to inspect or investigate regulated entities.
    - Authorities do not carry out market surveillance activity.
    - Recommendation: clarify mutual fund supervisory commission’s legal authority to order inspections.
- Principle 9 — Comprehensive enforcement powers
  - Assessment: Implemented.
  - Facts:
    - Supervisory commissions cannot levy sanctions; Minister of State can require correction, withdraw license, refer noncompliance to public prosecutor.
    - Prosecutor can ask court to levy daily fines under some circumstances and to enforce compliance.
    - Transgressions (failures to report, breach of client confidentiality, insider trading, misrepresentation, fraud) are criminal acts with fines and/or imprisonment.
    - Historical instances: one prosecution of an unlicensed portfolio management firm since 1997; two portfolio management licenses withdrawn in 2001.
    - Comment: consider sanctioning powers short of license withdrawal (fines) and administrative due process if commissions are granted sanctioning authority.
- Principle 10 — Effective implementation of inspection, investigation, surveillance and compliance
  - Assessment: Implemented.
  - Facts:
    - Mutual fund inspections by COB staff: three or four inspections annually.
    - Department of Finance and Economics staff use reporting to identify firms for inspection; portfolio management inspections began in 1999 and since then every licensed portfolio management firm has been inspected.
    - Current inspection staff for portfolio management: one inspector for portfolio management firms and one inspector for mutual funds (policy staff and inspectors).
    - No dedicated investigations department; inspectors may be used for investigations.
    - Annual statutory audits by approved auditors required.

### Collective investment schemes, valuation and disclosure (Principles 17–20)
- Principle 17 — Eligibility and regulation of those who market/operate collective investment schemes
  - Assessment: Partly implemented.
  - Facts:
    - All mutual funds require a license; detailed application must include rules (investment strategy, asset allocation, risk management, net asset value calculation, commissions and fees, governance), prospectus, model client contracts.
    - Background checks and fit-and-proper tests for owners, senior officers and directors.
    - Custodian must be located in Monaco (practically subdelegation to France or Luxembourg common).
    - Minimum capital at subscription: FF2.5 million; cannot go below one million FF.
    - Funds may lend up to 15 percent of assets.
    - Exemptions to risk ratios granted where investors are sophisticated; exemptions granted to one third of all mutual funds in Monaco.
    - Inspections by COB staff (3–4 annually); semi-annual reporting requirements; annual statutory audit and audited financial statements required.
    - Recommendations: formal conflicts-of-interest policy for mutual fund managers; rules on related party transactions.
- Principle 18 — Legal form, segregation and protection of client assets
  - Assessment: Implemented.
  - Facts:
    - Mutual funds defined as unincorporated pools; must be separate from management company.
    - Custody must be with a depositary bank separate from management company; depositary duties specified and depositary must report annually to Minister of State.
- Principle 19 — Disclosure necessary to evaluate suitability and value
  - Assessment: Implemented.
  - Facts:
    - Marketing campaigns and prospectus require Minister of State approval; prospectus and fund rules provided to investors.
    - Quarterly and semi-annual reports available upon request.
- Principle 20 — Asset valuation, pricing and redemption of units
  - Assessment: Implemented.
  - Facts and numeric rules:
    - Net asset value (NAV) publication rules:
      - For funds in excess of €150 million: NAV must be calculated and displayed on premises daily and published weekly in the Journal de Monaco.
      - Smaller funds: NAV calculated and displayed at least twice a month.
    - Funds may suspend redemptions under emergency conditions; suspension must be published in the Journal de Monaco.
    - For listed securities, assets must be marked to market daily on the most liquid market available.
    - Recommendation: consider daily NAV calculation for all funds; consider clearer authority to prohibit suspensions of redemptions when harmful to investors; clearer disclosure of accounting standard used.

### Market intermediaries (Principles 21–24): entry standards, prudential requirements, internal controls, failure procedures
- Principle 21 — Minimum entry standards
  - Assessment: Implemented.
  - Facts:
    - Only one kind of intermediary: portfolio management firm (organized as a registered company in Monaco) or a bank.
    - Permitted activities limited to: portfolio management of discretionary accounts, advisory services for non-discretionary accounts, and transmission of orders.
    - Approximately 30 percent of all accounts are discretionary and 70 percent nondiscretionary.
    - Branches of foreign companies must be licensed; branches exempt from capital requirements but must comply with other licensing requirements.
- Principle 22 — Capital and prudential requirements
  - Assessment: Implemented.
  - Facts:
    - Minimum capital for portfolio management firms: €150,000.
    - Increased to €300,000 or €450,000 if 50 percent of the capital is not held by a large financial institution with a capitalization of €2 million.
    - Minimum capital must be maintained continuously; capital monitored via annual reports, audits and inspections.
    - Recommendations: consider more frequent capital reporting (e.g., quarterly) and shorten the filing lag for audited annual statements (currently due 6 months following fiscal year-end).
- Principle 23 — Internal organization and conduct standards
  - Assessment: Implemented.
  - Facts:
    - Firms must have internal control procedures, designate two officers responsible for compliance, and may outsource compliance while senior management retains responsibility.
    - Two approved statutory auditors required, annual audit of financials and internal controls.
    - Client account contracts required; detailed KYC and suitability obligations (no specific identification requirements).
    - General requirement to keep books and records for 10 years; orders must be time stamped; best execution rule applies.
    - Recent legal change: insider trading established as a criminal offence; no specific insider trade reporting requirements yet.
    - Recommendation: assist firms in developing insider trading monitoring systems and follow up in inspections.
- Principle 24 — Procedures for dealing with intermediary failure
  - Assessment: Partly implemented.
  - Facts:
    - Government can appoint a receiver for an insolvent company; bank failures handled by Commission Bancaire contingency plans.
    - No separate contingency plan for portfolio management firm failure.
    - Client assets held at custodian banks; transfers of client accounts would be administrative matters.
    - Recommendation: develop administrative contingency plan for transfer of client accounts, notification procedures, and coordination with banking supervisors for custodian bank failure scenarios.

### Information sharing and international cooperation (Principles 11–13)
- Principle 11 — Authority to share public and non-public information
  - Assessment: Partly implemented.
  - Facts:
    - July 2001 amendments allow portfolio management supervisory commission to share information with foreign supervisors if formal information sharing arrangement exists.
    - Memorandum of understanding signed with the COB in March 2002 allowing supervisory commissions to share information obtained from regulated entities for specified regulatory purposes; MOU protects confidentiality.
    - The MOU has not been signed by the mutual funds supervisory commission.
    - Negotiations begun with securities regulators in Italy and Luxembourg.
    - SICCFIN (FIU) can share information regarding criminal investigations; insider trading now criminal, so related information requests would be honored.
    - Recommendation: extend information sharing authority to the mutual funds commission; amend Article 17 to clarify information sharing regarding portfolio management activities of banks; formalize agreements with Commission Bancaire and allow information sharing between supervisory commissions.
- Principle 12 — Information sharing mechanisms specifying when/how to share
  - Assessment: Partly implemented.
  - Facts:
    - MOU with French COB is in place and provides confidentiality protections; number of MOUs should be expanded and mutual funds supervisory commission should have ability to enter into such arrangements.
- Principle 13 — Assistance to foreign regulators for inquiries
  - Assessment: Implemented.
  - Facts:
    - Government can provide information to foreign regulators only if a MOU executed; portfolio management law allows provision of information for consolidated supervision of a bank.
    - Several foreign regulators have carried out inspections in Monaco.

### Numeric and factual highlights (preserved exactly)
- Commission member appointment term: five years.
- Commissions began publishing annual report in: 2000.
- Letter of agreement with COB signed: March 2002 (MOU).
- Legislative amendments referenced: July 2001.
- Mutual fund minimum raised at subscription: FF2.5 million.
- Mutual fund floor: one million FF.
- Funds may lend up to: 15 percent of their assets.
- Exemptions to risk ratios granted to: one third of all mutual funds in Monaco.
- NAV publication threshold: €150 million.
- Small-fund NAV frequency: at least twice a month.
- Portfolio management minimum capital: €150,000.
- Increased capital levels: €300,000 or €450,000 if 50 percent of capital is not held by a large financial institution with a capitalization of €2 million.
- Proportion of accounts discretionary: 30 percent; nondiscretionary: 70 percent.
- Mutual fund inspections per year: three or four inspections are carried out annually.
- Portfolio management inspections began in: 1999.
- Portfolio management law effective for prosecutions since: 1997.
- Mutual fund legislation inception: 1987.
- Two portfolio management licenses withdrawn in: 2001.
- Table 3.2 assessment counts: Implemented 15; Partly Implemented 5; Not Implemented 0; Not applicable 10.

### Recommended actions (summary drawn from Table 3.3 and text)
- Principles Relating to the Regulator (1–5)
  - Consider merger of the two supervisory commissions or improve flow of information between them.
  - Consider granting supervisory commissions authority to grant, refuse or withdraw licenses.
  - Increase transparency: publish reasons for license withdrawal; clarify regulatory practices; publish new rules for comment.
  - Extend disclosure obligations to mutual funds supervisory commission.
  - Adopt conflicts-of-interest policies for commissions and staff with monitoring of compliance.
  - Protect commission members from liability when acting in good faith; set statutory criteria for removal of members.
- Enforcement (8–10)
  - Consider granting authority to impose sanctions to commissions (in addition to Minister of State powers).
  - Clarify mutual fund commission’s power to order inspections.
- Cooperation in Regulation (11–13)
  - Amend Article 17 to permit sharing information regarding portfolio management activities of banks.
  - Allow mutual funds supervisory commission to enter into information sharing arrangements and establish MOUs (including with the COB and CONSOB).
  - Establish formal information sharing arrangements with Commission Bancaire and permit information sharing between supervisory commissions.
- Collective Investment Schemes (17–20)
  - Develop conflicts-of-interest rules for mutual fund managers and related party transaction rules.
  - Develop valuation rules for illiquid funds.
  - Consider more frequent NAV calculations and publication requirements for small funds.
  - Clarify authority to intervene in unreasonable suspension of redemptions; require clear disclosure of accounting standards used.
- Market Intermediaries (21–24)
  - Develop contingency plan for failure of portfolio management licensee (transfer of client accounts, client notification).
  - Introduce more frequent capital reporting for portfolio management firms.
  - Assist firms in developing insider trading monitoring and follow up in inspections.

*Source: International Monetary Fund assessment (cr03263).*

### 39.      With regard to IOSCO principles 11 and 12, the authorities do not find it necessary to

### 39.      With regard to IOSCO principles 11 and 12, the authorities do not find it necessary to

### Assessment regarding IOSCO principles 11 and 12
- The authorities do not find it necessary to include provisions on the information sharing of the mutual funds commission.

### Rationale
- The mutual funds commission deals with and controls CIS (collective investment schemes) that are not legal entities.
- All operations concerning these entities are proceeded through financial institutions that are submitted to controls by their own supervisors.
- These supervisors are able to enter into cooperation with foreign financial supervisors.

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_Source: https://www.imf.org/-/media/files/publications/ofca/english/cr03263.pdf_