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---

### Summary: implementation level and key supervisory findings
- France exhibits a high level of implementation of the International Organization of Securities Commissions (IOSCO) principles.
- Legal framework provides AMF and ACP with broad licensing, supervisory, investigative, and enforcement powers within their respective competences.
- Robust cooperation arrangements exist between the AMF and the ACP (monthly meetings; Pôle Commun created in 2010).
- AMF and ACP have developed offsite monitoring systems, including risk scoring frameworks for ISPs.
- AMF has robust automated market surveillance and has been active in enforcement of market abuse provisions.
- AMF has specific arrangements for identification and monitoring of emerging and systemic risks (AMF Risk Committee, COREFRIS), though best practices and IOSCO guidance in this area are limited.
- Areas requiring strengthening:
  - Increase AMF inspection tranche for ISPs and FIAs; enforcement activities expected to increase.
  - ACP to shift toward a more enforcement-oriented supervisory culture.
  - More frequent reporting of capital adequacy would enhance ACP supervision.
  - H3C effectiveness constrained by available resources; H3C lacks direct enforcement powers.
  - Governance concerns: MoF representative attendance with right to request second deliberation (except on sanctions); industry representatives may be active; limited retail investor representation; legislative headcount caps may constrain resources.
- Market fragmentation since MiFID poses challenges to pre-trade and post-trade transparency; MiFID review is an opportunity to address these.

### Assessment methodology and mission
- Assessment conducted January 10 to 27, 2011 as part of the FSAP.
- Assessment team: Ana Carvajal (Monetary and Capital Markets Department) and Theodor Kockelkoren (Netherlands Authority of the Financial Markets).
- France evaluated against IOSCO Principles and Objectives of Securities Regulation approved in 2010 and the Methodology adopted on September 30, 2011.
- Principle 38 not assessed (separate standard for securities settlement systems).
- Sources relied upon:
  - (i) self-assessment prepared by AMF with ACP contribution;
  - (ii) review of laws, reports, supervisory files;
  - (iii) meetings with AMF, ACP, H3C, MoF, Ministry of Justice and Judiciary, ESMA;
  - (iv) meetings with market participants (issuers, ISPs, PMCs, investors, associations, exchanges, external auditors, CRAs, law firms).
- Basel Core Principles Assessment findings used for ACP evaluation vis-à-vis IOSCO Principles 1–5.

### Institutional structure and supervisory arrangements
- Regulatory model: variation of the twin peaks model.
  - ACP: prudential supervision of ISPs and market infrastructure providers (RMs, MTFs, CCPs).
  - AMF: markets supervisor responsible for conduct supervision of all securities market participants, prudential supervision over PMCs and funds they administer.
  - H3C: oversight of external auditors (audits of public interest entities and nonpublic interest entities).
- Governance and enforcement:
  - AMF and ACP each governed by a Board and separate Enforcement Committees.
  - MoF representative attends Board and enforcement committee meetings without voting rights but with power to request a second deliberation in Board decisions (except on sanctions).
  - AMF can draft regulations subject to “homologation” by MoF; ACP does not have rulemaking powers.
- Accountability and transparency:
  - AMF and ACP prepare annual reports and budgets; Cour des Comptes audits budgets.
- Cooperation mechanisms:
  - Monthly AMF–ACP meetings; Pôle Commun (2010) to coordinate monitoring of investment vehicles and distributors.
  - Bilateral MoUs with H3C; COREFRIS introduced in 2010 (MoF, AMF, ACP, ANC, BdF) for systemic risks.

### Market structure — equity
- As of end 2011:
  - 586 companies listed in the Paris segment of Eurolist.
  - Market capitalization: €1,197 billion (compared to €1,425 billion at end-2010).
  - Top 10 companies concentrated 27 percent of total market capitalization.
  - Turnover for 2011: €1,027.9 billion, with a daily average of €4 billion.
- Comparators and trends:
  - 617 companies at end-2010.
  - Number of new companies listed: 7 in 2011 compared to 10 in 2010.
- Alternext Paris and Marché Libre:
  - Alternext Paris: 167 companies listed as of end 2011; Alternext market capitalization: €5 billion (end 2010); source table reports 169 companies as of October 2011 and market capitalization of €6 billion at end-2011 in MTF table.
  - Alternext reported deals for 2011 amounted to €1,879 million.
  - Marché Libre: roughly 250 companies with market capitalization of roughly €6.8 billion as of July 2010; reported deals for 2011 amounted to €106.5 million.

### Market structure — bond markets
- As of November 2011:
  - 233 issuers had at least one outstanding debt issue on Euronext-Paris.
  - Aggregate outstanding debt (CP excluded): €528 billion (27 percent of GDP) on 979 outstanding listed issues.
  - Corporate-only outstanding amount: €253 billion raised by 130 issuers.
  - Bulk of trading takes place OTC.
  - Issuance by small- and mid-sized companies increased from €950 million in 2009 to €2.5 billion in 2010.

### Market structure — collective investment schemes (CIS)
- As of end 2010:
  - 12,182 CIS registered (compared to 12,200 at end 2009).
  - AUM by CIS: €1,474 billion (represents more than one-half of AUM on discretionary accounts).
  - Discretionary mandates totaled €1,161 billion, a 10 percent increase compared to 2009.
- November 2011:
  - AUM totaled €1,188 billion.
- Money market funds:
  - MMFs represent roughly one-third of AUM by CIS.
  - In CIS excluding MMFs, financial institutions represent 54.6 percent of AUM (of which 37.2 percent are insurance companies), individual investors represent 21.5 percent of AUM.
  - In MMFs, financial institutions represent 50 percent, nonfinancial corporates around 30 percent, and retail investors less than 10 percent of total AUM.
- Exchange-traded funds:
  - Total listings as at end June 2011: 494 (of which, 270 were primary listings).
  - Total AUM: $64.3 billion.

### Market structure — structured products
- French structured products market small relative to total household investment flows.
- Gross subscriptions:
  - Increased in 2010 but did not exceed €13 billion.
  - Approximately €10 billion as of end-October 2011 (authorities’ estimate).

### Multilateral Trading Facilities (selected entries)
- Alternext Paris — Operator: Euronext; Status: OMTF;
  - 169 companies listed as of October 2011; market capitalization of €6 billion at end-2011 (table).
  - Reported deals for 2011: €1,879 million.
- NYSE BondMatch — Operator: Euronext; Status: OMTF; corporate bonds; recently authorized, no figures available.
- Marché Libre — Operator: Euronext; Status: MTF;
  - 250 companies; market capitalization €6.8 billion as of July 2010.
  - Reported deals for 2011: €106.5 million.
- Galaxy Trading screen — Status: OMTF; European fixed income; recently authorized, no figures available.
- MTS France — Operator: MTS France; Status: MTF; French sovereign bonds and some euro-denominated nonsovereign;
  - 23 institutions participate (20 of them primary dealers).
  - 45,000 transactions on French sovereign bonds between January and October 2011, with a total net volume close to €300 billion.
- Powernext Derivatives — Operator: Powernext SA; Status: MTF; gas derivatives market.
- Alternativa AM France SAS — Status: MTF; French microcaps (below €50 million); 30 companies.

### Investment service providers and asset management industry (statistics)
- ISPs:
  - As of end-2011: 368 ISPs.
  - As of end-2010: 361 ISPs.
  - As of end-2009: 390 ISPs.
  - Approximately 100 are investment firms (IFs); remaining are credit institutions authorized to provide investment services.
  - Roughly 50 percent of IFs are owned by financial institutions.
- PMCs:
  - As of end-2011: 590 PMCs.
  - 512 companies report managing CIS.
  - As of mid-November 2011: 35 new asset management companies authorized by the AMF.
  - Ownership/AUM distribution:
    - Roughly 60 percent of PMCs are independently owned and manage only 5 percent of total AUM.
    - Bank subsidiaries represent more than 60 percent of total AUM and a quarter of number of companies.
    - PMC subsidiaries of insurance companies represent 27 percent of total AUM.
- Market concentration:
  - Top 20 players represent 82 percent of total AUM (excluding discretionary mandates).
  - Concentration diminished slightly in 2011: top 10 and top 20 market share decreased by 3 percent and 4 percent, respectively.
- Other intermediaries:
  - Roughly 4,000 FIAs authorized to provide services.

### Preconditions, insolvency, and level playing field issues
- Preconditions largely in place: competition encouraged, foreign participation welcomed, legal and accounting systems support regulation.
- Insolvency framework updated in 2006 (Loi de Sauvegarde des Entreprises) with restructuring procedures.
- Level-playing-field concerns at European level noted (stricter French standards in asset management, differences in supervisory practices).
- Tax incentives on certain insurance products might distort distribution and IOSCO Principles of efficient markets.

### Main findings by Principles (selected grades and observations)
- Principle 1 — Responsibilities of the regulator: Broadly implemented (division of responsibilities clear; level-playing-field issues require attention).
- Principle 2 — Operational independence and accountability: Partly implemented (governance concerns: MoF representative role; industry participation; limited retail representation).
- Principle 3 — Adequate powers, resources, capacity: Broadly implemented (AMF limited inspection capacity; ACP sufficient capacity but enforcement mindset to evolve; H3C resource constraints).
- Principle 4 — Regulatory processes: Fully implemented (consultation, transparency, judicial review).
- Principle 12 — Inspection, investigation, surveillance, enforcement: Partly implemented (onsite inspections for ISPs and FIAs limited; criminal enforcement challenges).
- Principle 16 — Disclosure by issuers: Fully implemented (robust prospectus and ongoing disclosure regime for RMs; OMTFs aligned with IOSCO though lower than RMs).
- Principle 33–37 — Secondary markets, exchanges, transparency, market abuse, CCPs: mixed grades — FI/BI/FI; detailed strengths and weaknesses below.

### Key implementation strengths
- Robust automated market surveillance by AMF (SMART technology; alert system ~50,000 alerts per year).
- Daily monitoring of clearing member positions and comprehensive intraday margin regime at LCH Clearnet S.A.
- Clear authorization requirements for RMs and MTFs, including capital, fit-and-proper, and organizational requirements.
- Extensive reporting and disclosure regimes for issuers admitted to RMs.
- Effective domestic and international cooperation frameworks (AMF signatory of IOSCO MMOU; active assistance to foreign regulators).

### Principal weaknesses and capacity constraints
- AMF inspection capacity limited relative to supervised population; onsite inspections for ISPs and FIAs limited.
- Criminal enforcement of market abuse faces challenges; very few convictions (2008 "6", 2009 "3", 2010 "2").
- Governance concerns across AMF, ACP Boards, and H3C (MoF representative participation, active industry members).
- H3C lacks direct enforcement powers and sufficient resources; legislative limits on headcount constrain capacity.
- Market fragmentation since MiFID has reduced pre- and post-trade transparency in equities markets.

### Recommended action plan (selected recommendations)
- Governance:
  - Increase formal distance of MoF representative while maintaining informal channels.
  - Restrict Board and Sanctions Committee membership to former industry members without vested interests.
  - Increase representation of retail investors and consumers.
- Resources and enforcement:
  - AMF should increase inspection unit capacity to step up supervision and enforcement at ISPs and FIAs.
  - H3C should accelerate planned capacity increases and be granted more direct enforcement powers.
  - ACP should redefine supervisory philosophy to enhance enforcement orientation and consider more frequent capital adequacy reporting.
- Market integrity and transparency:
  - AMF should work with ESMA to limit negative impact of waivers on pre-trade transparency, pursue a single European consolidated tape, and develop consolidated audit trails on orders in the EU.
  - Market abuse provisions should be extended to all MTFs; pursue unique client identification number in MiFID2 implementation.
- Supervisory processes:
  - AMF and ACP could design a lighter sanctions procedure for smaller/objective infringements to reduce time and man-hours.
  - ACP should define threshold triggers for additional reporting and conduct crisis management exercises for systemically important institutions.
  - AMF should finalize crisis-management toolkit for PMCs.

### Supervisory activity and enforcement statistics (selected exact figures)
- AMF staff and distribution (end-2010):
  - Roughly 400 staff.
  - 2010 staff recruitments: 68.
  - Licensing: 129 employees (DGA and DE).
  - Supervision of intermediaries/market surveillance: 45 employees (Direction des marchés).
  - Enforcement: 88 employees (DEC and DICS).
- AMF inspections and surveillance counts (selected years):
  - Supervisory visits on PMCs: 2008 "56", 2009 "80", 2010 "84", 2011 "100".
  - Onsite inspections: 2008 "64", 2009 "77", 2010 "69".
  - ISPs (other than PMCs) onsite inspections:
    - 2008: Inspections "29", Reports "35"
    - 2009: Inspections "21", Reports "17"
    - 2010: Inspections "35", Reports "24"
    - 2011: Inspections "8", Reports "23"
  - PMCs inspections/reports:
    - 2008: Inspections "34", Reports "27"
    - 2009: Inspections "27", Reports "27"
    - 2010: Inspections "20", Reports "15"
    - 2011: Inspections "30", Reports "29"
  - FIAs inspections/reports:
    - 2008: Inspections "1", Reports "1"
    - 2009: Inspections "29", Reports "17"
    - 2010: Inspections "14", Reports "24"
    - 2011: Inspections "11", Reports "23"
- Market surveillance outputs:
  - Automated alert system generates ~50,000 alerts per year.
  - "150 suspicious transaction reports" leading to supplementary investigations regarding "around 215 cases" and about "40 proposals for opening an investigation."
- Investigations opened by AMF:
  - 2007 "92", 2008 "97", 2009 "76", 2010 "73"
  - Cases referred to AMF Enforcement Committee: 2007 "26", 2008 "22", 2009 "20", 2010 "14"
- AMF Enforcement Committee sanctions and fines:
  - Number of sanctions pronounced:
    - 2007 "65", 2008 "84", 2009 "45", 2010 "50"
  - Fines (aggregate euros):
    - 2007 "19, 894, 000"
    - 2008 "24, 715, 000"
    - 2009 "6, 345, 100"
    - 2010 "6, 936, 600"
- AMF referrals to Public Prosecutor:
  - 2008 "21", 2009 "21", 2010 "22", 2011 "15"
- H3C auditor inspections:
  - Roughly "600 PIE auditor firms in France"; "180 PIE auditor firms were inspected in 2010."
  - H3C conducted "60" of those inspections in 2010 (including "2 of the big 6 auditing firms").
  - H3C referred results of inspections to public prosecutor in "seven" cases.

### AMF Risk Committee, COREFRIS, and systemic risk arrangements
- AMF Risk Committee:
  - Meets "at least three times a year" and "has a written charter."
  - Focus on macro or generic market risks (examples: high frequency trading and ETFs; structural changes in commodities markets; regulation of money market funds and run risk).
  - Typical actions: policy initiatives, external communication, cooperation with other authorities, development of monitoring tools, inspections.
  - Limitations: link to operational priorities and budget process "is not yet explicit"; retail investor protection topics less prominent.
- COREFRIS:
  - Created by LRBF (2010); participants: MoF, AMF, ACP, BdF, ANC.
  - "Does not have formal decision power"; coordinates action agreed by participants.
  - Started early 2011; first annual report expected in 2012.
- ACP and BdF roles:
  - ACP macro prudential analysis team: "composed of 11 staff."
  - BdF financial stability analysis direction: "roughly 40 staff."

### Clearing, settlement, CCP and exchange oversight
- Clearing and settlement:
  - LCH Clearnet S.A. provides central counterparty and clearing services for derivatives; monitored daily by LCH with intraday margin regime in place since 2008.
  - Settlements made via Euroclear on a DVP T+3 basis.
- LCH.Clearnet S.A. risk management:
  - Daily mark-to-market, initial and variation margin, clearing fund sized to cover single largest member default; intraday margins and the ability to impose additional margins.
  - Clearing member accounts: two separate accounts (own positions and customers’ positions); possibility to segregate individual clients’ accounts.
- Colleges of supervisors:
  - Colleges for Euronext and LCH Clearnet established and functioning; crisis-management framework with periodic simulations; contact details tested every six months.
- Recommendations:
  - Implement a "commitments of traders" report including information on clients’ positions for derivatives markets.

### Secondary markets, transparency and pre-/post-trade issues
- Pre-trade transparency:
  - Market fragmentation since MiFID has affected pre-trade and post-trade transparency.
  - Pre-trade transparency waivers governed by Annex II of EC Regulation No 1287/2006; ESMA reviews and issues opinions on waivers; final decision by national regulators.
- Post-trade transparency:
  - Shares: RMs and MTFs required to disclose price, scope, and time of transactions as close as possible to real time.
  - Non-equity instruments: EU legislation does not impose public post-trade transparency; RG AMF imposes general obligation with particulars left to RM/MTF.
- Consolidated tape and audit trail:
  - Lack of a single and exhaustive European consolidated tape undermines post-trade transparency and oversight of best execution.
  - Recommend EU-level solution to ensure consolidated audit trail on orders in the EU.

### Market abuse detection, reporting and criminal cooperation
- Prohibitions: market/price manipulation, misleading information, insider trading, front running (RG AMF / COMOFI references).
- Detection mechanisms:
  - Daily reporting on orders/transactions from RMs/MTFs; reporting from French credit institutions and ISPs; TREM for cross-border data; suspicious transaction reports (~150/year).
  - Automated system with statistical and scenario-based alerts; Division surveillance des marchés (DSM) team of 20 (7 monitor listed securities).
  - When inquiries unsatisfactory, escalate to AMF Direction des enquêtes for formal investigations.
- Criminal enforcement:
  - AMF refers cases to Paris Public Prosecutor; referrals: 2008 "21", 2009 "21", 2010 "22", 2011 "15".
  - Criminal convictions limited: 2008 "6", 2009 "3", 2010 "2" (no imprisonment; suspended sentences).
  - Constraints: limited criminal resources and evidentiary complexity.

### Short-selling, reporting and settlement discipline
- Short-selling reporting regime (from February 1, 2010):
  - Investors holding net short position equal to or exceeding 0.2 percent, 0.3 percent or 0.4 percent must report to AMF within one trading day; net short position ≥ 0.5 percent must be reported and published.
  - AMF received 3,475 notifications of threshold crossing (concerning 51 issuers) as of November 23 (year in source truncated).
- European Regulation on Short Selling adopted November 15, 2011 to apply from November 1, 2012; includes reporting of net short positions and sovereign debt provisions.
- Settlement discipline:
  - Settlement on central depository: DVP T+3 (Article 570-2 RG AMF).
  - Buy-in arrangements in place at LCH.Clearnet S.A.
  - Euroclear France transmits daily files to AMF to identify settlement fails; AMF analyzes daily and may investigate.

### French Authorities' response to the assessment
- Authorities express appreciation to IMF for analysis and exchanges.
- Welcome IMF judgment that France exhibits a high level of compliance with IOSCO standards.
- Note that revised IOSCO standards are reinforced since 2005; some grades may be lower compared to 2005 assessment due to stronger standards, not a decrease in regulation.
- On AMF independence:
  - Emphasize AMF statutory independence as “autorité publique indépendante” with budgetary independence.
  - AMF Chairman has a nonrevocable and nonrenewable five-year mandate.
  - MoF representative role and right to request second deliberation described as legally framed and not conferring membership; view that no failures have been identified with current system.
- Highlight preference for clear and formal exchanges framed in law to ensure coordination and regulatory quality.

### Additional operational and supervisory details (selected)
- AMF training and IT:
  - Since 2007, roughly 6 percent of gross income dedicated to training.
  - Roughly 98 percent of staff trained in a year.
  - In 2010, 10,000 training hours — 24.8 hours per employee.
  - AMF invested in SMART technology for market surveillance and databases supporting CIS supervision (SMARTVL: ~100 alerts per month; 100,000 data points monthly).
- ACP resources and staffing:
  - Total employees resources of the ACP amounted to €163 million in 2010.
  - As of mid-2011, 974 staff up from 900 at creation; planned to increase to roughly 1,140 at end-2012.
  - Of staff, roughly 60 directly involved in prudential supervision of ISPs (25 onsite inspection, 23 offsite, 12 authorizations).
  - On average, an ACP staff member has 55 hours of training per year.
- PMCs authorization and oversight:
  - Management company share capital minimum €125,000; capital must at all times equal the higher of statutory formulas (Article references preserved).
  - Authorization process reviewed by DGA; review approximately two months.
  - Onsite inspections on PMCs: 2008 "34", 2009 "27", 2010 "20", 2011 "30".
  - Sums recouped for investors following offsite work and visits: 2011 "€5,073,650"; 2010 "€432,000".

*Source: IMF staff assessment (France IOSCO Principles detailed assessment, January 2011).*

### 1. Multilateral Trading Facilities Registered in France ...........................................................10

### 1. Multilateral Trading Facilities Registered in France

### Summary: level of implementation and key supervisory findings
- France exhibits a high level of implementation of the International Organization of Securities Commissions (IOSCO) principles.
- The legal framework is robust and provides the Autorité de Marchés Financiers (AMF) and the Autorité du Contrôle Prudentiel (ACP) with broad licensing, supervisory, investigative, and enforcement powers within their respective competences.
- Robust arrangements exist for cooperation between the AMF and the ACP.
- The AMF and ACP have developed offsite monitoring systems, including risk scoring frameworks, for investment service providers (ISPs).
- The AMF has robust market surveillance systems and has been active in enforcement of market abuse provisions.
- The AMF has developed specific arrangements for identification and monitoring of emerging and systemic risks, noting that best practices and IOSCO guidance in this area are limited.
- Areas requiring strengthening:
  - The AMF should strengthen the inspection tranche of its program of supervision of ISPs and financial investment advisors (FIAs); enforcement activities will increase as a result.
  - The ACP’s enforcement activities would benefit from a shift toward a more enforcement-oriented supervisory culture.
  - More frequent reporting of capital adequacy would enhance the ACP’s supervisory approach.
  - The effectiveness of the Haut Conseil du Commissariat aux Comptes (H3C) in supervising auditors’ oversight is restrained by available resources; increasing resources (as envisioned) is key.
  - The H3C’s lack of direct enforcement powers can negatively impact the effectiveness of auditor oversight.
- Governance concerns related to independence:
  - A representative of the Ministère de l’Economie et des Finances (MoF) attends AMF and ACP Board meetings and enforcement committees with no voting rights but with the power to request a second deliberation in Board decisions (except on sanctions); this raises independence concerns.
  - Participation of industry representatives on Boards raises concerns vis-à-vis independence from commercial interests; current framework does not prohibit participation by representatives who are still “active” in the industry.
  - Direct retail investor representation on the AMF and ACP Boards appears limited.
  - Legislative limits to headcount at both the AMF and the ACP could affect ability to keep sufficient resources for market supervision.
  - The ACP could be given a more formal role in developing prudential rules.
- Market fragmentation since MiFID implementation poses challenges to market transparency and oversight that should be addressed at the European level; the MiFID review is an opportunity to tackle these challenges.

### Introduction and assessment methodology
- Assessment conducted from January 10 to 27, 2011 as part of the Financial Sector Assessment Program (FSAP).
- Assessment team: Ana Carvajal (Monetary and Capital Markets Department) and Theodor Kockelkoren (Netherlands Authority of the Financial Markets).
- France was evaluated against the IOSCO Principles and Objectives of Securities Regulation approved in 2010 and the Methodology adopted on September 30, 2011.
- Principle 38 not assessed due to existence of separate standard for securities settlement systems; a technical note on oversight of systemically important financial market infrastructures will be delivered during the mission.
- Methodology emphasizes evaluation of implementation in practice, including inspection programs, cycle, scope and quality of inspections, prioritization, follow-up, and enforcement actions.
- Assessors relied on:
  - (i) a self-assessment prepared by the AMF with contribution of the ACP;
  - (ii) review of laws, reports, supervisory files;
  - (iii) meetings with staff from AMF, ACP, H3C, MoF, Ministry of Justice and the Judiciary, and ESMA;
  - (iv) meetings with market participants and stakeholders, including issuers, ISPs, PMCs, investors, associations, exchanges, external auditors, CRAs, and law firms.
- Assessors used findings of the Basel Core Principles Assessment for ACP evaluation vis-à-vis Principles 1–5 of the IOSCO Methodology.

### Institutional structure and supervisory arrangements
- Regulatory model: variation of the twin peaks model.
  - ACP: primarily responsible for prudential supervision of ISPs and market infrastructure providers, including regulated markets (RMs), multilateral trading facilities (MTFs), and central clearing counterparties (CCPs).
  - AMF: markets supervisor responsible for supervision of all participants in the securities market, including ISPs, PMCs, FIAs, and market infrastructure providers; exercises prudential supervision over PMCs and the funds they administer.
  - H3C: oversight of external auditors (audits of public interest entities and nonpublic interest entities).
- Governance and enforcement:
  - AMF and ACP each governed by a Board; separate enforcement committees impose sanctions.
  - Boards include representatives from specialized public entities, issuers, intermediaries, and (for AMF) investors.
  - Conflict-of-interest provisions exist to address industry representation drawbacks.
  - MoF representative attends Board and enforcement committee meetings without voting rights but with power to request second deliberation in Board decisions (not enforcement committees).
- Rulemaking and authorization:
  - AMF can draft regulations subject to “homologation” by MoF.
  - ACP does not have rulemaking powers.
  - Authorization of exchanges remains with MoF, based on AMF recommendation.
- Accountability and transparency:
  - Authorization requirements established by law and developed via regulations available on authorities’ websites.
  - AMF follows a consultation process to develop regulations.
  - Individual decisions must be motivated and are subject to judicial review.
  - AMF and ACP prepare annual reports with detailed account of activities and budgets; budgets overseen by Cour des Comptes audit.
- Cooperation mechanisms:
  - Monthly meetings between AMF and ACP; operational day-to-day cooperation.
  - Institutional cooperation mechanism (Pôle Commun) created in 2010 to coordinate monitoring of investment vehicles (e.g., unit-linked life insurance policies) and firms distributing banking and insurance products.
  - AMF and ACP signed bilateral MoUs with H3C.
  - Conseil de la régulation financière et du risque systémique (COREFRIS) introduced in 2010 (composition: MoF, AMF, ACP, Autorité des normes comptables (ANC), Banque de France (BdF)) to identify and address systemic risks.
- Self-regulatory organizations:
  - No SROs: mandatory membership to an association required for ISPs and FIAs, but associations do not have supervisory or enforcement powers and are not considered SROs.
  - AMF is the frontline supervisor for issuer disclosure and market surveillance for market abuse detection; RMs and OMTFs have a complementary role and are subject to AMF oversight.

### Market structure: equity markets
- As of end 2011:
  - 586 companies listed in the Paris segment of Eurolist (main RM in France).
  - Market capitalization: €1,197 billion (compared to €1,425 billion at end-2010).
  - Top 10 companies concentrated 27 percent of total market capitalization.
  - Turnover for 2011: €1,027.9 billion, with a daily average of €4 billion.
- Comparison to end-2010:
  - 617 companies at end-2010.
  - Decline in number of listed companies since 2008 driven mainly by slump in initial public offerings (IPOs), particularly affecting B and C Compartments (small and medium caps) on Euronext; Compartment A (blue chips) and Alternext show positive trend.
  - Number of new companies listed: 7 in 2011 compared to 10 in 2010.
- Alternext Paris and Marché Libre:
  - As of end 2011: 167 companies listed in Alternext Paris (an OMTF managed by Euronext), compared to 145 at end 2010.
  - Alternext market capitalization: €5 billion (same as end 2010).
  - 15 new companies listed in 2011, compared to 13 in 2010.
  - As of July 2010: roughly 250 companies listed in Marché Libre with market capitalization of roughly €6.8 billion.
  - Very few public offers on Marché Libre since late 2006: three IPOs and four other public transactions opened to shareholders in that period.

### Market structure: bond markets
- As of November 2011:
  - 233 issuers (including financial institutions and government agency) had at least one outstanding debt issue on Euronext-Paris.
  - Aggregate outstanding debt (CP excluded): €528 billion (27 percent of GDP) on 979 outstanding listed issues.
  - Corporate-only outstanding amount: €253 billion raised by 130 issuers.
  - Bulk of trading takes place OTC.
  - Increase in issuance by small- and mid-sized companies: from €950 million in 2009 to €2.5 billion in 2010.

### Market structure: collective investment schemes (CIS)
- As of end 2010:
  - 12,182 CIS registered (compared to 12,200 at end 2009).
  - Assets under management (AUM) by CIS: €1,474 billion (represents more than one-half of AUM on discretionary accounts).
  - Discretionary mandates totaled €1,161 billion, a 10 percent increase compared to 2009.
- November 2011:
  - AUM totaled €1,188 billion.
- Money market funds (MMFs):
  - MMFs represent roughly one-third of AUM by CIS.
  - In CIS excluding MMFs, financial institutions represent 54.6 percent of AUM (of which 37.2 percent are insurance companies), individual investors represent 21.5 percent of AUM.
  - In MMFs, financial institutions represent 50 percent, nonfinancial corporates around 30 percent, and retail investors less than 10 percent of total AUM.
- Exchange-traded funds:
  - Total number of listings as at end June 2011: 494 (of which, 270 were primary listings).
  - Total AUM: $64.3 billion.

### Market structure: structured products
- French structured products market small relative to total household investment flows.
- Gross subscriptions:
  - Increased in 2010 but did not exceed €13 billion.
  - Approximately €10 billion as of end-October 2011 (authorities’ estimate).

### Markets and trading venues
- Main RM in France: Euronext France (operated by Euronext France, fully owned subsidiary of Euronext NV and part of the NYSE-Euronext group).
- Eurolist:
  - Integrates markets of Brussels, Paris, the Netherlands, and Lisbon into a single market with the same access rules and listing requirements; starting in 2010 also integrated a cash market from London through the London gateway.
  - Eurolist: centralized, electronic order-driven market with priority based on price and time; quotes are anonymous.
- Liffe Connect:
  - Regulated market for derivatives.
  - Trading mechanisms: order-driven for futures and quote-driven for options.
- Clearing and settlement:
  - LCH Clearnet SA provides central counterparty and clearing services.
  - Settlements made via Euroclear on a DVP T+3 basis.
  - LCH Clearnet S.A. provides central counterparty and clearing services for derivatives, although entity structure remains in flux.

*Source: IMF staff assessment (France IOSCO Principles detailed assessment, January 2011).*

### 25.      In addition to Euronext Paris, the following RMs have been recognized in

### _cr13182 - 25.      In addition to Euronext Paris, the following RMs have been recognized in

### Recognized RMs and MTFs in France
- RMs recognized in France in addition to Euronext Paris:
  - Matif and Monep, both operated by Euronext, offer futures and options trading.
  - BlueNext (organizer of markets in CO2 emission allowances and credits) offers spot and derivatives products.
- MTFs registered in France: may be established as an organized MTF (OMTF) or non-organized MTF.

- Multilateral Trading Facilities Registered in France (selected entries from Table 1):
  - Alternext Paris — Operator: Euronext; Status: OMTF; Instruments traded: Instruments of French small and medium-sized economies (SMEs); Significance:
    - 169 companies listed as of October 2011, with a market capitalization of €6 billion at end-2011.
    - Reported deals for 2011 amounted to €1,879 million.
  - NYSE BondMatch — Operator: Euronext; Status: OMTF; Instruments traded: Corporate bonds; Significance: Recently authorized. No figures available.
  - Marché Libre — Operator: Euronext; Status: MTF; Instruments traded: Instruments of French and foreign small and medium sized economies (SMEs); Significance:
    - 250 companies; with a market capitalization of €6.8 billion as of July 2010.
    - Reported deals for 2011 amounted to €106.5 million.
  - Galaxy Trading screen — Status: OMTF; Instruments traded: European fixed income (sovereign and corporate); Significance: Recently authorized. No figures available.
  - MTS France — Operator: MTS France; Status: MTF; Instruments traded: French sovereign bonds and a few euro-denominated nonsovereign; Significance:
    - 23 institutions participate (20 of them primary dealers).
    - 45,000 transactions on French sovereign bonds between January and October 2011, with a total net volume close to €300 billion.
  - Powernext Derivatives — Operator: Powernext SA; Status: MTF; Instruments traded: Gas derivatives market.
  - Alternativa AM France SAS — Status: MTF; Instruments traded: French microcaps (below €50 million); Significance: 30 companies.

### Investment service providers and asset management industry (statistics and structure)
- ISPs (other than PMCs):
  - As of end-2011: 368 ISPs.
  - As of end-2010: 361 ISPs.
  - As of end-2009: 390 ISPs.
  - Out of the end-2011 figure, approximately 100 are investment firms (IFs); the remaining are credit institutions authorized to provide investment services.
  - Roughly 50 percent of the IFs are owned by financial institutions (either credit institutions or insurance companies).
  - ACP view: IFs have simple business models; some engage in proprietary trading; they are not highly leveraged.
  - Credit institutions dominate the retail market in France in practice.
- PMCs:
  - As of end-2011: 590 PMCs.
  - Comparators: 567 in 2009 and 571 in 2008.
  - 512 companies report managing CIS.
  - As of mid-November 2011: 35 new asset management companies had been authorized by the AMF.
  - Ownership and AUM distribution:
    - Roughly, 60 percent of PMCs are “independently” owned (i.e., not owned by a financial institution); they manage only 5 percent of the total AUM.
    - Bank subsidiaries represent more than 60 percent of the total AUM and a quarter of the number of companies.
    - PMC subsidiaries of insurance companies represent 27 percent of total AUM.
- Market concentration:
  - The asset management industry (excluding discretionary mandates) is concentrated: the top 20 players represent 82 percent of the total assets under management.
  - Concentration diminished slightly in 2011: total market share of the top 10 and top 20 players decreased by 3 percent and 4 percent, respectively.
- Other intermediaries:
  - There are roughly 4,000 FIAs authorized to provide services.

### General preconditions for effective securities regulation (observations)
- Preconditions largely in place:
  - No significant barriers to entry and exit for market participants.
  - Competition encouraged and foreign participation welcomed.
  - Legal and accounting system supports implementation of requirements and effective regulation.
  - Commercial law and corporate governance standards are up-to-date.
- Insolvency framework:
  - Framework updated in 2006 (Loi de Sauvegarde des Entreprises, effective in 2006) introduced restructuring procedures, including safeguard proceedings, mandat ad hoc, and conciliation proceedings.
  - The Insolvency Act provides incentives for debtors to anticipate difficulties and for creditors to assist and participate in financial recovery.
- Regulatory powers and concerns:
  - Regulators have legally enforceable powers of decision and action.
  - Tax incentives on certain insurance products might create distortions affecting IOSCO Principles of efficient markets; distribution and placement driven by tax incentives rather than product risk characteristics.
  - Level-playing-field issues at the European level may impact French companies, notably:
    - Stricter standards in France in the asset management industry (safeguard of assets, rules on diversification, approval of marketing material for highly complex products).
    - Facilitation and definition of investment advice vis-à-vis suitability requirements.
    - Differences in supervisory practices among regulators in Europe.
  - ESMA appeal procedure might mitigate some issues; suggestion that France and other EU countries promote harmonization of supervisory approaches across the European Union.

### Main findings (principles and supervisory observations)
- Principles for the regulator:
  - Mandates of the AMF and the ACP are clear and stem from the law.
  - Sufficient cooperation arrangements exist between AMF, ACP, and the H3C; cooperation also through the Pôle Commun (work at an early stage).
  - Current governance structure of Boards and enforcement committees poses threats to independence.
  - Legislative initiatives have imposed caps on resources of all independent agencies, including AMF and ACP.
  - Resources at the AMF appear limited given market development and number of entities under supervision, particularly in inspection.
  - AMF has processes to identify and monitor emerging and systemic risks and to review the perimeter of regulation; these processes are still evolving.
  - Through COREFRIS, AMF, ACP, and BdF exchange views and cooperate on financial stability issues.
  - Strong framework of accountability and transparency applies to all institutions.
- Principles for enforcement:
  - AMF and ACP have extensive supervisory, investigatory, and enforcement powers in their competency areas.
  - At the AMF, the number of onsite inspections and sanctions aimed at ISPs, especially FIAs, is relatively low—attributable to capacity constraints rather than lack of willingness.
  - ACP has used formal enforcement powers only in a very limited way.
  - Criminal enforcement faces challenges.
- Principles for cooperation:
  - Several arrangements foster domestic cooperation.
  - International cooperation mostly through the AMF.
  - AMF has responded in a timely manner to requests for information in its files and has proactively obtained information through opening investigations.
  - AMF has taken testimony and obtained court orders on behalf of foreign regulators.
- Principles for issuers:
  - Issuers of public offerings and/or those admitted to trading on an RM are subject to a prospectus requirement.
  - Extensive periodic and ongoing disclosure obligations apply to issuers admitted to trading on an RM.
  - Requirements for OMTF are in line with IOSCO Principles, although lower than for RMs per European legislation.
  - AMF has robust arrangements for supervising issuers’ compliance with obligations.
  - Mandatory tender offer provisions and rules for notification of substantial holdings and transactions by “insiders” apply to issuers admitted to trading in an RM and in an OMTF (thresholds differ).
  - Disclosure requirements and minority protection provisions do not apply to issuers admitted only to MTFs; such MTFs operate in practice for institutional and professional investors.
- Principles for auditors, CRAs, and information service providers:
  - Auditors are subject to oversight by the H3C; H3C supervisory approach is reasonable but resources are a challenge; H3C lacks enforcement powers.
  - CRAs underwent thorough registration by colleges of European supervisors and are subject to ongoing supervision by ESMA, which is defining its supervisory approach.
  - Sell-side research is subject to robust disclosure framework; this has been extended to “independent analysts.”
  - Other evaluative services have disclosure obligations.
- Principles for collective investment schemes (CIS):
  - Authorization requirements for PMCs are robust and include capital, fit-and-proper, and organizational requirements.
  - Disclosure requirements for CIS are robust and include a prospectus and periodic information.
  - AMF has an active supervisory approach and applies the law stringently.
  - Framework requires assets to be segregated and held by a depositary with strict liability framework.
  - Clear rules on valuation; AMF provided guidance on illiquid assets.
  - Suspensions of redemptions must be notified.
- Principles for securities intermediaries:
  - Authorization requirements are robust and include capital, fit-and-proper, and organizational requirements; fit-and-proper requirements apply only to the two senior managers in line with EU Directives.
  - Supervisory program includes offsite reporting and onsite inspections.
  - AMF has prioritized investor and consumer protection, including the highly complex products doctrine; scope of this approach could be increased.
  - Need to increase AMF capacity to supervise large groups of FIAs and ISPs appropriately.
  - ACP developed a risk-scoring system for supervision of prudential requirements by ISPs, supported by reporting obligations including on capital adequacy.
    - Frequency of capital adequacy reporting is limited.
    - No obligation for ISPs to notify when their capital falls below defined thresholds.
  - ACP conducts full-scale onsite inspections on ISPs.

*Source: _cr13182 - 25.      In addition to Euronext Paris, the following RMs have been recognized in*

### 41.      Principles for secondary markets: Requirements for the authorization of RMs and

### Principles for secondary markets: Requirements for the authorization of RMs and MTFs are robust

### Major supervisory findings
- Both the AMF and the ACP have established arrangements for ongoing supervision of operators of RMs and MTFs.
- The bulk of supervisory resources are dedicated to the supervision of Euronext.
- The AMF has established a robust automated system for market surveillance.
- The AMF conducts an important number of investigations every year; administrative sanctions have been imposed for market-abuse infractions, while criminal enforcement has been limited with very few convictions secured.
- LCH Clearnet monitors positions daily and a comprehensive system of intraday margin applies. Default procedures are in place.
- The college of LCH Clearnet has developed a framework for crisis management, which includes periodic simulations.
- A system of mandatory reporting of short-selling is in place.

### Detailed assessment (selected Principles and grades)
- Principle 1. The responsibilities of the Regulator should be clear and objectively stated. — BI
  - The responsibilities of the AMF and the ACP are clearly defined by law. Robust arrangements for cooperation exist. Pôle Commun work is delivering positive results but is at an early stage.
- Principle 2. The Regulator should be operationally independent and accountable in the exercise of its functions and powers. — PI
  - Governance concerns: (i) participation of a representative of the MoF who can ask for second deliberation except on sanctions; (ii) participation of industry representatives with limited retail investor representation; some industry members remain active in industry. AMF and ACP operate under strong accountability and transparency; recent legislative initiatives cap human resources. Governance issues related to H3C described in Principle 19.
- Principle 3. The Regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers. — BI
  - AMF: progress on investor protection and risk culture; hands-on culture willing to apply sanctions; limited inspection capacity relative to large supervised population.
  - ACP: sufficient capacity but mindset could benefit from greater enforcement orientation. H3C issues described in Principle 19.
- Principle 4. The Regulator should adopt clear and consistent regulatory processes. — FI
  - AMF has consultation process; authorization requirements are set by law and publicly available; administrative decisions must be motivated and afford due process; decisions affecting third parties are judicially reviewable.
- Principle 12. The regulatory system should ensure effective and credible use of inspection, investigation, surveillance, and enforcement powers. — PI
  - AMF: supervisory programs include offsite reviews and onsite inspections, but onsite inspections of ISPs and FIAs appear limited; enforcement actions limited. ACP uses off- and onsite inspections for prudential supervision; reliance on “informal” measures persists. Criminal enforcement faces challenges.
- Principle 16. Full, accurate, and timely disclosure of financial results, risks, and other material information. — FI
  - Issuers of public offerings must submit a prospectus; extensive periodic and ongoing reporting for issuers admitted to RMs; adapted regime for OMTFs; disclosure requirements do not apply to securities listed on MTFs only (in line with EU legislation); AMF has robust compliance review system.
- Principle 33. Establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight. — FI
  - Robust requirements for authorization of RMs and MTFs, including capital, fit-and-proper, and organizational requirements.
- Principle 34. Ongoing regulatory supervision of exchanges and trading systems. — FI
  - AMF and ACP arrangements for ongoing supervision of RMs and MTFs; resources concentrated on Euronext; joint supervision college working well.
- Principle 35. Regulation should promote transparency of trading. — BI
  - Market fragmentation since MiFID has affected pre-trade and post-trade transparency.
- Principle 36. Regulation should detect and deter manipulation and other unfair trading practices. — FI
  - AMF automated market surveillance, reasonable number of administrative sanctions annually though processes are lengthy; criminal enforcement limited.
- Principle 37. Proper management of large exposures, default risk and market disruption. — FI
  - LCH Clearnet S.A. monitors large exposures daily; intraday margin regime in place since 2008; default procedures clear; crisis-management framework includes periodic simulations; short-selling disclosure system in place.
- Principle 38. Securities settlement systems and CCPs should be subject to regulatory and supervisory requirements. — Not assessed.

(Assessment grades: Fully Implemented (FI), Broadly Implemented (BI), Partly Implemented (PI), Not Implemented (NI), Not Applicable (NA))

### Key implementation strengths
- Robust automated market surveillance by AMF.
- Daily monitoring of clearing member positions and comprehensive intraday margin regime at LCH Clearnet.
- Clear authorization requirements for RMs and MTFs, including capital, fit-and-proper, and organizational requirements.
- Extensive reporting and disclosure regimes for issuers admitted to RMs; prospectus requirements for public offerings.
- Effective domestic and international cooperation frameworks (AMF signatory of IOSCO MoU; AMF cooperates extensively with foreign regulators).

### Principal weaknesses and capacity constraints
- AMF inspection capacity limited relative to supervised population; onsite inspections for ISPs and FIAs limited.
- Criminal enforcement of market abuse faces challenges; very few convictions.
- Governance concerns across AMF, ACP boards, and H3C (including participation of MoF representative and active industry members).
- H3C lacks direct enforcement powers and sufficient resources; legislative limits on headcount constrain capacity.
- Market fragmentation has reduced pre- and post-trade transparency in equities markets.

### Recommended action plan (selected recommendations)
- Principle 1: Continue harmonizing approaches for common institutions and commonly offered financial products; consider extending single Ombudsperson used for securities to financial services more generally.
- Principle 2: Consider governance changes including: (i) increase formal distance of MoF representative while maintaining informal information channels; (ii) restrict Board and sanctions Committee membership to former industry members without vested interests; (iii) increase representation of retail investors and consumers; (iv) increase limitations on topics former industry members can participate in.
- Principle 3: AMF should increase capacity of its inspection unit to step up supervision and enforcement at ISPs and FIAs. H3C should accelerate planned capacity increases.
  - ACP should consider redefining supervisory philosophy to enhance enforcement orientation.
- Principle 6: AMF should continue contributing to systemic-risk framework and risk culture.
- Principle 7: AMF should adapt risk processes to enhance capacity to review the regulatory perimeter systematically.
- Principle 8: AMF could further explore identified risk areas raised by respondents.
- Principle 12: AMF and ACP could design a lighter sanctions procedure for smaller/objective infringements that preserves rights of defense while reducing time and man-hours.
- Principle 14: ACP should establish mechanisms to monitor that cooperation with foreign regulators is provided diligently.
- Principles 16 & 17: Authorities should consider additional safeguards for Marche Libre and Alternativa, e.g., prohibiting retail investor access.
- Principle 19: H3C should expand its inspection team (accelerate if possible); include all auditors who audit listed companies in the PIE concept; establish cooperation arrangements with the Public Prosecutor to ensure timely case progression; grant H3C more direct enforcement powers.
- Principle 20: Ensure similar oversight for auditors’ selection and independence for issuers admitted to OMTFs as for RMs.
- Principle 21: Consider adopting the quality control standard of ISA as part of French auditing standards.
- Principle 23: AMF should consider supervising remuneration of sell-side analysts as part of compensation oversight.
- Principle 30: ACP should consider implementing more frequent capital adequacy reporting and make the onsite inspection program more risk based.
- Principle 31: See recommendation on Principle 3 (increase inspection capacity).
- Principle 32: ACP should define threshold triggers for additional reporting scope/frequency; conduct crisis management exercises for systemically important institutions; AMF should finalize crisis-management toolkit for PMCs.
- Principle 33: AMF and ACP should continue actions to ensure information technology reliability of Euronext.
- Principle 34: AMF should ensure Euronext keeps sufficient resources for market integrity; request Euronext implement a disclosure policy for enforcement actions; re-evaluate oversight arrangements and resources for non-Euronext MTF operators as their activity increases.
- Principle 35: AMF should work with European regulators (via ESMA) to (i) limit negative impact of waivers on pre-trade transparency and address definitional imprecisions; (ii) achieve a single and exhaustive European consolidated tape in equity markets; and (iii) develop consolidated audit trails on orders in the EU to allow national regulators to monitor equity markets.
- Principle 36:
  1) Market abuse provisions should be extended to all MTFs.
  2) AMF should work through ESMA to implement order reporting requirements across Europe; pursue a unique client identification number in the context of MiFID2 implementation.
  3) AMF and Public Prosecutors should work to address challenges to criminal enforcement.
- Principle 37: Implement a large trades report (“commitments of traders”) including information on clients’ positions for derivatives markets.

*Source: France detailed assessment and recommended action plan as presented in the Table 2 and Table 3 summaries of the IOSCO Principles implementation review.*

### 42.      The French Authorities would like to express their appreciation to the International

### French Authorities' Response to the IOSCO Assessment

### Appreciation and role of the FSAP
- The French Authorities express appreciation to the International Monetary Fund and its staff for their thorough analysis of the French financial sector and the very informative exchanges of views within the context of the IOSCO assessment.
- The Financial Sector Assessment Program (FSAP) is described as the key vehicle for an effective implementation of IOSCO international regulatory standards and confirms the added value of the robust IOSCO assessment methodology as reinforced in the aftermath of the financial crisis.
- The AMF will monitor with great interest future FSAPs to learn from other countries’ experiences within the context of consistent implementation of international standards.

### Compliance, historical context, and implications
- The Authorities welcome the IMF’s judgment stating that France exhibits a high level of compliance with the IOSCO standards.
- Since the last FSAP in 2005, France has reinforced its system in several aspects as identified by the IMF.
- This assessment is the second FSAP for France; conclusions are expected to be beneficial to further improve the French regulatory and supervisory approach and to help inform the future development of the European legislative and regulatory framework.
- The assessment used the revised IOSCO standards, which were largely reinforced since France’s first assessment in 2005; this explains why certain grades may now be set at a lower level than at the time of the first assessment and should not be interpreted as a decrease in the level of regulation or supervision in France.

### Independence and governance of the AMF
- The Authorities raise a concern regarding the IOSCO assessment of the independence of the AMF.
- Key governance features highlighted:
  - The AMF disposes of full regulatory and supervisory powers.
  - Its statutory independence is ensured through its statute as “autorité publique indépendante” defining, among others, also a budgetary independence.
  - The AMF Chairman has a nonrevocable and nonrenewable mandate of five years.
  - AMF’s decisions are taken in a collegial manner within the AMF Board as well as in the distinct Enforcement Committee.
  - The Board and the Enforcement Committee include representatives nominated by institutions independent from the executive power and representatives of the private sector—issuers, investors, and intermediaries—nominated by the Minister of Finance on the basis of their expertise and experience.
  - The composition of the Board and the Enforcement Committee brings together the views of the public sector (represented by judges, public authorities such as the Banque de France or the Autorité des normes comptables) as well as those of market intermediaries, investors and issuers to reach a balanced outcome.
  - The role and powers of the representative of the Ministry of Finance are fully set in the law and do not confer membership status in the AMF Board and Enforcement Committee; the only right attributed by law is to ask for a second deliberation in the Board for matters other than sanctions.
  - The request for a second round of deliberations has no effect on the eventual content of the decision but gives the Board an opportunity to review its decision, within a very short space of time, so as to consider all its consequences and to ensure it is reasonably undisputable.
- The Authorities note that many other market authorities do not benefit from the same safeguards and some are placed under the direct supervision of the Ministry of Finance.
- The Authorities state no failures have been identified with the current system that has been in place for several years.

### Formalized exchanges, coordination, and regulatory quality
- Efficient financial regulation requires that all parties work together and have efficient exchanges; the French authorities believe that this relationship and dialogue need to be clearly defined.
- France prefers clear and formal ways of exchange of views, framed in law, which provides transparency about the position of the Ministry of Finance to all stakeholders.
- The participation of the representative of the ministry in the Board is a way to ensure good coordination and efficient information sharing between authorities on issues related to financial stability, financing of the economy as well as on European and international negotiations.
- These exchanges are said to improve the quality and reactivity of the process of elaboration of financial regulations.

### Purpose of the detailed assessment
- The purpose of the assessment is to ascertain whether the country’s legal and regulatory securities market’s requirements, and the operations of the securities regulatory authorities, in implementing and enforcing these requirements in practice meet the standards set out in the IOSCO Principles.
- The assessment aims to identify potential gaps, inconsistencies, weaknesses, and areas where further powers and/or better implementation of the existing framework may be necessary and to be used as a basis for establishing priorities for improvements to the current regulatory scheme.

*Source: _cr13182 - 42.      The French Authorities would like to express their appreciation to the International*

### 49.      The assessment of the country’s observance of each individual Principle is made

### _cr13182 - 49.      The assessment of the country’s observance of each individual Principle is made

### Assessment categories and methodology
- Assessment categories: fully implemented, broadly implemented, partly implemented, not implemented, and not applicable.
- The IOSCO assessment methodology provides a set of assessment criteria to be met in respect of each Principle to achieve the designated benchmarks.
- The methodology recognizes that the means of implementation may vary depending on the domestic context, structure, and stage of development of the country’s capital market, and it acknowledges that regulatory authorities may implement the Principles in many different ways.

- A Principle is considered fully implemented when all assessment criteria specified for that Principle are generally met without any significant deficiencies.
- A Principle is considered broadly implemented when the exceptions to meeting the assessment criteria specified for that Principle are limited to those specified under the broadly implemented benchmark for that Principle, and do not substantially affect the overall adequacy of the regulation that the Principle is intended to address.
- A Principle is considered partly implemented when the assessment criteria specified under the partly implemented benchmark for that Principle are generally met without any significant deficiencies.
- A Principle is considered not implemented when major shortcomings (as specified in the not implemented benchmark for that Principle) are found in adhering to the assessment criteria specified for that Principle.
- A Principle is considered not applicable when it does not apply because of the nature of the country’s securities market and relevant structural, legal, and institutional considerations.

*Table 4. France: Detailed Assessment of Implementation of the IOSCO Principles (excerpts below).*

### Principles Relating to the Regulator — Principle 1: Responsibilities of the regulator
Description / Responsibilities
- Institutional structure: two main regulatory agencies under a variation of a twin peaks model:
  - Autorité de Contrôle Prudentiel (ACP): primarily in charge of prudential supervision of investment services providers (ISPs) and market infrastructure providers, including regulated markets (RMs), multilateral trading facilities (MTFs) and central clearing counterparties (CCPs).
  - Autorité des Marchés Financiers (AMF): markets supervisor responsible for conduct supervision of all participants in the securities market including ISPs, PMCs, FIAs, and market infrastructure providers; exercises prudential supervision over PMCs and the funds they administer.
  - Haut Conseil du Commissariat aux Comptes (H3C): oversight of external auditors that conduct audits of public interest entities (including auditors of listed issuers) and nonpublic interest entities.
- Powers and responsibilities of these authorities are established by law.
- AMF statutory objectives (Article L. 621-1 COMOFI): (i) insure the protection of savings invested in financial instruments and all other investments which give rise to publicly marketed financial products; (ii) oversee the information provided to investors and the proper functioning of the financial instruments markets (and of other assets such as greenhouse gas emission allowances); (iii) lend its support to the regulation of markets at EU and international level; and (iv) ensure that approved codes of conduct applicable to the relevant professionals are implemented.
- LRBF makes explicit the need for the AMF to take financial stability into consideration when carrying their mandates.
- ACP statutory mission (Article 612-1 et Seq. COMOFI): responsible for ensuring financial stability and protecting customers, policy holders, members and beneficiaries of the entities subject to its supervision.
- Operational responsibilities largely correspond to the AMF: issuers (prospectus/tender offers/ongoing reporting), collective investment schemes (CIS) authorization and supervision, market and conduct supervision of ISPs and FIAs, market surveillance, enforcement actions.
- ACP: authorization of ISPs other than PMCs (with AMF participation), ongoing prudential supervision of ISPs (other than PMCs) and market infrastructure providers; ACP can take enforcement actions in connection with its functions.
- Authorization as a regulated market decided by order of the Minister for the Economy on proposal from the AMF (with ACP participation).

Capacity to interpret laws and regulations
- AMF empowered to issue instructions and recommendations to clarify interpretation (Article L. 621-6 COMOFI). Uses instructions, positions, recommendations, accepted practices, and rulings; doctrine is generally subject to consultation except in cases of deadlines or confidentiality. AMF publishes doctrine on its website and periodical; improving access via website.
- ACP issues instructions and recommendations and makes them publicly available via its website.

Gaps and level playing field
- No apparent gaps in the regulation of securities markets.
- AMF and ACP have shared responsibilities; respective responsibilities clearly defined by law.
- Potential for divergent positions between AMF and ACP on same topics (e.g., compliance function) due to differing responsibilities (conduct vs. prudential).
- Legal mechanisms for cooperation and coordination (consultation) exist for ISP and trading venue authorization; monthly Réunion des Autorités Financières (RAF) meetings for common issues; operational cooperation on day-to-day supervision topics.
- Institutional cooperation mechanism (Pôle Commun) established by law in 2010 (Article L. 612-47 COMOFI) to coordinate monitoring of all investment vehicles and address integrated distribution of banking and insurance products.
- Distribution and marketing of “investment-like” products to retail investors not all subject to the same legal/regulatory framework:
  - For financial products covered by MiFID: stricter disclosure and suitability obligations than for investment products wrapped in insurance products.
  - Certain MiFID requirements extended to FIAs in France: FIAs required to inform clients clearly about services and products recommended, including advantages and risks; natural person and legal entity FIAs must disclose how they are remunerated, including inducements, and names of all product providers with which they have a significant relationship.
  - Banks subject to equivalent requirements, but individual bank advisors do not need to disclose how they are remunerated, though they must act honestly, fairly, and professionally, with due skill, care, and diligence, in the best interest of clients.
- Pôle Commun developed doctrine on highly complex products to provide consistent guidance on distribution; further work required (see Principle 26 note).
- Potential overlaps with ARPP (advertising monitor) and DGCCRF (consumer protection against unfair/misleading marketing practices); cooperation exists:
  - AMF and ACP working with ARPP; AMF relied on ARPP in TV advertisement cases; partner agreement between AMF and ARPP concluded in 2011 to set cooperation on advertising for financial products.
  - ACP and DGCCRF required to exchange information at least annually (Article D. 612-23 COMOFI).
- AMF and ACP have cooperation arrangements with H3C and AML authority; COREFRIS (MoF, BDF, ACP and AMF) coordinates to identify and mitigate systemic risks (discussed in Principle 6).

Assessment
- Broadly implemented.

Comments (Principle 1)
- Grade results from evaluation of issues related to maintaining a level playing field.
- Division of responsibilities between AMF and ACP generally clear; some potential overlaps exist but are not critical.
- Coordination and cooperation mechanisms exist; Pôle Commun and COREFRIS are positive developments though early to assess full benefits.
- Level-playing-field issues require more attention; Pôle Commun has started coordinating inspections and single point of contact efforts (e.g., use of questionnaires in life insurance and investment advice), but results not yet fully assessable.
- European-level action may be required due to market integration; PRIPs initiative noted as a step.
- Additional issues (not considered for grade as they extend beyond IOSCO Principles):
  - Consolidation of conflict resolution (mediation) framework: currently a single Ombudsperson for securities markets but fragmented, less independent mediation services for banking and insurance intermediaries; concerns about mediation effectiveness and potential loss of investor trust across sectors; assessors suggest potential consolidation into a single independent Ombudsperson scheme, positioned outside supervisory agencies or separated by a Chinese Wall.
  - Differences in tax treatment between financial products may distort intermediary placement behavior (see Preconditions).
  - Level playing issues at the European level can impact French companies and markets (see Preconditions).

### Principle 2: Operational independence and accountability of the regulator
Description / Legal nature
- AMF: “independent public authority” (legal person outside regular administrative structures, performs public functions, independent processes, autonomous budget).
- ACP: “independent administrative authority” (institution without legal personality placed outside regular administrative structures, performs public functions, independent processes, autonomous budget outside that of the French State), attached to the Banque de France (BdF).

Governance — AMF
- Governed by a Board led by the AMF chairman; day-to-day affairs managed by a Secretary General; separate Enforcement Committee (Commission des sanctions) imposes sanctions.
- Distribution of competences and decisional process specified in law (Art. L. 621-2 and L. 621-3 II COMOFI).
- AMF Board composition: 16 members (Article L. 621-2 COMOFI); Chairman appointed for a non-renewable five year term by Decree and has legal power to act for AMF.
- Board membership selection: representatives nominated by independent institutions (conseiller d’Etat, conseiller of the Cour de cassation, BdF representative, three members appointed by Presidents of Sénat, Assemblée nationale, Conseil économique, social et environnemental for expertise), Chief Advisor to Cour des comptes, Chairman of ANC; six private sector members appointed by Ministre de l’Economie et des Finances after consultation with representative organizations; a shareholder-employees' representative appointed by the Ministre de l’Economie et des Finances after consulting representative trade unions.
- Terms: Board members (except BdF representative, Chairman of ANC, and Chairman) five years renewable once; one-half Board renewed every 30 months; not removable except for failure to attend meetings on three or more successive occasions. Members subject to ethical and conflict-of-interest rules (Article L. 621-4 and Article 111-1 to 111-9 RG AMF).
- Enforcement Committee: 12 members (Article L. 621-2 COMOFI) with representatives from independent institutions and six private sector members appointed by the Ministre de l’Economie et des Finances after consultation; two employee representatives appointed similarly. Terms five years renewable once; one-half renewed every 30 months.
- Chairman of Enforcement Committee must be a judge of Cour de cassation or Conseil d’Etat; elected by other members.
- Secretary General appointed by the Chairman after consultation with the Board and absence of any objection by the Ministre de l’Economie et des Finances (Articles L. 621-5-1). No specified term; no legislative requirement for reasons for dismissal to be publicly disclosed.

Governance — ACP
- ACP governed by a Board; day-to-day operations managed by a Secretary General; Enforcement Committee for sanctions.
- ACP Board composition: 19 members—Governor of the BdF (chairs Board); vice-chairman; Chair of the AMF; two members designated for financial and law expertise by parliamentary chamber chairmen; chairman of ANC; member of Conseil d’Etat; judge of Cour de Cassation; member of Cour des comptes; two members for consumer protection/quantitative expertise; four members expert in insurance activities; four members expert in banking/investment/payment services (COMOFI, Articles L612-5).
- Governor of BdF appointed for six years, renewable once; removable only for incapacity or gross misconduct by majority of Banque’s General Council; no legislative requirement to publicly disclose reasons for dismissal. In practice, delegate (BdF Deputy Governor) mostly performs Chair role.
- ACP Board expert members appointed for five years (renewable once) by the Minister of Economy (except parliamentary appointees). Vice-chairman appointed by joint order of Ministers of Economy and Social Affairs.
- Board members removable for due cause by majority vote of other Council members; reasons need not be publicly disclosed.
- Two sectoral sub-colleges: banking sub-college and insurance sub-college. Restricted college (8 of 19 members) deals with significant individual issues and supervision of financial conglomerates.
- ACP Enforcement Committee: six members (two Conseil d’Etat members, one Cour de Cassation judge, three experts); members appointed for five-year periods and cannot be Board members.
- Secretary General appointed by the MoF on proposal of the chairman of the ACP (COMOFI, Articles L. 612-15). No term specified; no requirement for public disclosure of dismissal reasons.

Participation of the MoF at Board and Enforcement Committee meetings
- Directeur Général du Trésor (head of Treasury in MoF) or representative attends AMF and ACP Board meetings by law but is not a member and has no voting right; participates in strategy, supervisory policy, regulation drafting, doctrine, and budget discussions.
- Representative has right to request a second deliberation (except on sanctions) as per decree of the Conseil d’Etat (Articles L. 621-3 and R. 621-8); right never exercised.
- MoF representative attends Enforcement Committee meetings but is not a member and does not participate in deliberations/decisions; AMF practice allows representative to express views during discussion phase but not present during judgment phase. Presence intended to improve regulatory effectiveness and European negotiation outcomes.

Participation of industry and investor representatives
- Industry representatives participate in AMF and ACP Boards to enhance subject matter expertise; AMF appointments are after consultation, intended to nominate for expertise rather than representation.
- Some market participants expressed concerns about active industry members on AMF Board.
- ACP COMOFI explicitly forbids Board/Enforcement Committee members from holding office or receiving salary from regulated entities; internal rules prohibit Board members from having shares in regulated entities (with limited transitional rules).
- Legal/regulatory framework imposes strict disclosure obligations and forbids deliberation where conflicts of interest exist; Chairman must ensure compliance. Party in sanction proceeding may request member withdrawal for conflicts.
- AMF: earlier two enforcement sanctions rejected on appeal due to apparent conflicts of interest; procedures enhanced and issue has not repeated.
- Decisions made collegially; judges on Enforcement Committees ensure quality.
- Limited representation of retail investor/consumer community on AMF Board and Sanctions Committee; AMF has advisory Committee on Consumer Protection with retail/consumer membership meeting monthly and advising Board.
- ACP has advisory Committee on Consumer Protection meeting three times a year with majority banking/insurance/ISP members and minority retail/consumer representatives.

Regulation and rulemaking powers
- AMF can draft its own regulations subject to “homologation” by MoF (procedural stamping necessary to bind third parties).
- ACP cannot develop its own regulations; must request MoF to draft regulation and Ministry would submit to Law Making Committee.

Funding and budget
- AMF has financial autonomy by law (Articles L621-5-2, L621-5-3, L621-5-4, R621-10 sq, and D621-27 to D621-30 COMOFI). Funded by fees levied on market participants; rates fixed by MoF within a range established by law.
- Law increased AMF resources and restructured funding to reduce market fluctuation dependence by creating two new fees: one based on market capitalization of listed companies, and the other on the amount of capital of investment service providers except asset management companies (law n°2010-1657 of December 29, 2010). AMF can engage in multi-year planning and has full independence in budget allocation with no ex-ante oversight.
- ACP has an autonomous budget set by its Board. Major resources from levy on institutions with rate fixed by Minister of Finance within a legal range. Levy computation based on own funds requirements for capital requirements (insurers subject to levy related to premiums). BdF authorized to supplement ACP resources if necessary.
- Parliamentary headcount restrictions apply to independent agencies via annual budget law. AMF indicated the restriction has not affected it to date; ACP indicated maximum is planned headcount at end-2012 and exceeding it would require parliamentary approval. ACP requested increase in effective levy rate to meet resource plans for 2012 and following two years; MoF decision pending at time of mission.

Legal protection and liability
- Both operate under French administrative law.
- AMF may be sued for damages under French administrative law and be responsible for damages arising from serious negligence.
- ACP has no legal personality and cannot incur liability in its own right; actions against ACP acts/omissions brought against the French state; State may incur liability if ACP acts/omissions qualify as serious negligence (Conseil d’Etat, November 30, 2001, Ministry of Economy vs. Kechichian).
- General administrative provisions: staff can only be held liable for gross negligence. AMF/ACP responsible for legal protection and associated costs of Secretary General, Board members, Enforcement Committee members, and staff if act/decision taken in course of function and in good faith.
- Since its creation, three cases in which AMF has been sued for damages; claims rejected by tribunals. No staff has been sued.

Accountability to parliament and audit
- AMF Annual Reports submitted by Chairman to legislature and President of the Republic (Article L. 621-19 § 3); contain EU regulatory evolution, AMF actions, and annual accounts (Article R. 621-15).
- AMF subject to audit by Cour des Comptes (approx. once every five years); most recent audit was in 2007/2008.
- ACP produces annual report to President of Republic and Parliament published in Official Journal (Article L. 612-12 COMOFI); subject to oversight by Cour des comptes.

Procedural fairness, due process, and judicial review
- All individual administrative decisions of AMF and ACP must be motivated under administrative law (Law n° 79-587 of July 11, 1979, as amended in 2011, Articles 1 and 3).
- AMF Enforcement Committee decisions require specifically reasoned decisions (Article L. 621-15 IV COMOFI). Failure to provide reasons gives parties the right to apply to courts for revocation.
- Affected persons permitted to make representations before decisions take effect; procedural protections must comply with Article 6 of the European Convention on Human Rights.
- Judicial review:
  - All AMF individual decisions subject to judicial review (Articles L. 621-30 and R. 621-45 COMOFI).
  - Decisions affecting professionals in Article L. 621-9 II (including AMF Enforcement Committee decisions) appealable to Conseil d’Etat (Article R621-45 I COMOFI).
  - Other AMF individual decisions appealable to Cour d’appel de Paris (Article R. 621-45 II COMOFI).
  - Appeal periods: 10-day period generally; two months for AMF Enforcement Committee decisions (Article R. 621-44 COMOFI).
  - Appeals do not suspend sanctions unless court orders otherwise; court may suspend enforcement if consequences likely manifestly excessive (Article L. 621-30 COMOFI).
  - Same right to appeal applies to ACP decisions (Article L. 612-16 COMOFI).

Confidentiality
- See Principles 4 and 5 (not detailed in this excerpt).

Assessment
- Partly implemented.

Comments (Principle 2)
- Independence is clearly a topic of relevance in France, raised repeatedly in respondent discussions.

*Document: _cr13182 - 49.      The assessment of the country’s observance of each individual Principle is made*

### introduction regarding the French organization and the choices as they have been

### introduction regarding the French organization and the choices as they have been made.

### Structure, independence, and composition
- Most respondents support the current structure as it operates in France; minority positions exist.
- External concern: presence of market participants on the Boards of the AMF and the ACP and on the Enforcement Committee of the AMF may raise questions about independence.
- Alternative suggested (external perspective): restrict memberships to former industry participants more distant from decision making on strategy; supervisory approach; rules; policies; doctrines; and budgets to inspire more confidence in independence.
- Risks identified from current composition:
  - Reputation risk that could lead to political backlash.
  - Potential effectiveness risk: roles and responsibilities may become obfuscated, especially in periods of stress.
- Observations on Board/Committee composition:
  - Some Board and Committee members are still active in the industry.
  - Only one Board/sanctions committee has a few members with affinity to the investor and consumer community.
  - Limited participation of investors’ representatives seems incompatible with the chosen structure; such members would bring expertise and balance views of industry participants.
- Presence of the MoF representative:
  - Could detract from independence and blur roles and responsibilities.
  - Benefits of MoF participation (firsthand experience; efficient concerted action) might be achieved through other mechanisms.
- ACP rulemaking constraint:
  - ACP cannot develop its own regulations; AMF regulations are subject to MoF “homologation” (stamping).
  - Assessors note this does not contradict the Principles requirement and was not considered in the grade.

### Principle 3 — Powers, financing, and resources (description & issues)
- Adequate powers
  - AMF and ACP have broad licensing, investigation, supervision, and enforcement powers in their respective competencies.
  - Enforcement frameworks strengthened: increased amount of fines and AMF settlement powers.
  - Limitation: rulemaking
    - AMF drafts regulations subject to “homologation” by the MoF (AMF describes as strictly procedural and necessary to make rules binding).
    - ACP does not have power to develop its own regulations; must request MoF to take up topics; MoF would draft a proposal and discuss in Law making Committee.
  - Authorization as a regulated market in financial instruments: decided by order of the Minister for the Economy on a proposal from the AMF.
- Financing
  - AMF:
    - Full financial independence.
    - Board approves budget and amendments; Secretary General seeks opinion of Chairman of the Enforcement Committee regarding resource allocation (Article R. 621-13 of the COMOFI).
    - Board approves general terms for recruiting, employing, and paying personnel; use of funds; investing reserves; acquisitions and transactions (Article R. 621-10 of the COMOFI).
  - ACP:
    - Budget independence; budget approval by the college, after recommendation of ACP Audit Committee.
    - Many services provided to ACP by the BdF and billed by BdF to ACP; ACP budget must be approved by College before BdF overall budget is presented to its general council.
    - Salary scales set by governing body of the BdF, not by ACP College.
  - Legislative initiatives (e.g., cap on hiring / plafonds d’emplois) discussed in parliament could incidentally impact AMF or ACP capacity to allocate human resources.
- Resources — AMF (exact figures)
  - AMF salary policy allows individual increases and bonuses; target aim between 0 percent and 15 percent of their salary for 2012.
  - As of the end of 2010, number of staff at the AMF was roughly 400 staff.
  - In 2010, staff recruitments amounted to 68.
  - Staff dedicated to markets distributed as follows:
    - Licensing: 129 employees (Direction de la Gestion d’Actifs (DGA) and Direction des Emetteurs DE))
    - Supervision of intermediaries/market surveillance: 45 employees (Direction des marchés (DM))
    - Enforcement: 88 employees (Direction des Enquêtes et des Contrôles (DEC) and Direction de l’Instruction et du Contentieux des Sanctions (DICS))
  - Training and IT:
    - Since 2007, roughly 6 percent of the gross income is dedicated to the training policy.
    - Roughly 98 percent of the staff is trained in a year.
    - In 2010, there were 10,000 training hours — that is, 24.8 hours per employee.
    - AMF invested in IT and has state of the art (SMART) technology for market surveillance; developed databases to support supervisory program, especially in CIS.
- Resources — ACP (exact figures)
  - Total employees resources of the ACP amounted to €163 million in 2010.
  - As of mid-2011, there were 974 up from 900 at the creation of the ACP.
  - Human resources planned to increase to roughly 1,140 at the end of 2012.
  - ACP reports most of this increase results from new mission of consumer protection and strengthening insurance supervision.
  - Of the staff, roughly 60 staff are directly involved in prudential supervision of ISPs (25 in onsite inspection, 23 in offsite inspection, and 12 in authorizations).
  - ACP staff training and budgets:
    - On average, an ACP staff member has 55 hours of training per year.
    - A junior supervisor’s initial training represents up to 140 hours for the first two years.
    - The travel budget (including for supervision and international rule setting) is €4.2 million.
  - ACP staffing mix: central bank staff via competitive exams and contractual staff; most members of French civil service.
  - Turnover was up to 15 percent; ACP did not meet hiring objectives in past two years but expected objectives to be achieved at end- 2012, when number of staff members will reach and exceed 1,000.

### Capacity to perform: organization, strategy, and decision style
- AMF strategic plan of 2009 (period of five years; updated every two years and created every four to five years) sets three key objectives:
  1. boost efforts on investor protection;
  2. increase a risk based effective supervision by improving market surveillance and enforcement;
  3. contribute to making financial markets serve the real economy.
- Supervisory approach dimensions observed:
  - Institutional versus thematic: AMF increasingly identifies themes for market-segment interventions (examples: joint AMF-ACP approach on highly complex products initiated in 2010; July 2011 thematic inspection on structured investments in Greek debt; 2009 Madoff-type reverse engineering resulting in three funds investigated and one fine of €300.000).
  - Rule versus problem oriented: AMF moving toward objective-oriented (“teleological”) approach; ACP remains more formal and law-letter oriented.
  - Reactive versus pro-active: AMF increasingly proactive and risk-oriented; risk culture still developing.
  - Formal versus informal influencing: AMF uses formal follow-up letters (“lettre de suite”) and guidelines; number of sanctions relatively low given market size; AMF could improve informal, broad influencing especially for smaller entities (e.g., newsletters, workshops, influencing advice software providers). ACP prefers informal measures and historically viewed a sanction as a failure of supervision (that doctrine is fading).
- Organizational structure highlights (AMF):
  - Direction de la gestion d’actifs et des marchés:
    - Direction de la gestion d’actifs (focus on PMCs)
    - Direction des marchés (unit on ISPs; market surveillance unit; market infrastructure unit)
  - Direction des émetteurs et des affaires comptables:
    - Direction des émetteurs
    - Direction des affaires comptables
  - Control and investigation: Direction des enquêtes et des contrôles conducts inspections and investigations; chosen because inspection/investigation culture differs from ongoing monitoring teams.
- Risk processes and information gathering:
  - AMF macro market process fed by all departments and central unit feeding AMF Risk Committee.
  - Comité du suivi decides priorities including companies to inspect.
  - AMF analyzes anonymous complaints, telephone calls, emails to Pôle Commun, and internal databases (especially SMART VL); currently relies more on own market databases than on investor/consumer complaints.
  - Observations:
    - Operational focus more on individual institutions than overarching risks (though thematic inspections increasing).
    - Investor protection perspective increasing due to DREP.
    - Advanced market data leads to attention on technical issues of small PMCs.
  - Resource allocation not directly linked to risk processes; example: limited resources allocated to FIA segment despite potential risks.

- Decision style and quality control:
  - Dominant top-down decision making: Board led by AMF Chairman decides based on briefing notes; Secretary General (SG) manages staff and has inspection/investigation powers.
  - Inspections/investigations initiated/modified by SG on staff proposal; follow-up actions decided by the Board (e.g., initiate sanction proceedings).
  - Operational management: department heads forward inspection decisions and progress to SG.
  - Quality control is hierarchical: weekly reviews by SG and department heads of specific cases to ensure consistency across inspections.

### Investor protection
- AMF initiatives:
  - Centralized investor protection in Direction des relations avec les épargnants (DREP) created in May 2010.
  - Permanent hotline: AMF Epargne Info Service.
  - Produces brochures and educational guides explaining markets, products, and investment rules.
  - Publishes warnings about specific financial products, investment services, or marketing practices.
  - Single gateway Assurance Banque Épargne Info Service available via website, helpline, or mail.
  - Participates in Institute for Public Financial Education (launched 2006 by AMF) with five main activities: dedicated public education policy; nationwide awareness campaigns; academic research facilitation; investor education; dialogue with authorities and stakeholders.
  - Uses studies to tailor consumer education (e.g., 2011 study by Crédoc on financial literacy).
  - Outreach to regional consumer organizations to educate key personnel.
  - Thematic work and mystery shopping campaigns:
    - Mystery shopping campaigns: three full campaigns and one pilot.
    - Thematic inspections on questionnaires in advice processes and commercialization of products; second phase focused on substance of advice.
    - Continued focus on ETFs and highly complex product doctrine from retail-investor perspective.
- ACP:
  - ACP mandate includes consumer protection related to banking and insurance products.
  - Dedicated Business Practices Supervision Department.
  - Business conduct obligations from provision of investment services are AMF responsibility.
  - Market participants perceive AMF as more developed in investor protection than ACP (ACP started only in 2010).
- Assessment for investor protection: Broadly Implemented.
- Comments:
  - AMF consumer protection priority and DREP/Pôle Commun setup have worked well.
  - Mystery shopping and thematic inspections enhanced understanding of retail business practices and advice quality.

### Supervision and enforcement capabilities (issues and observations)
- When AMF inspects and investigates, it can be intrusive and impose sanctions where necessary; staff mindset is hands-on.
- Volume of inspections aimed at FIA and ISP is relatively low; volume of sanctions relatively low.
- AMF enforcement strengthened: higher sanctions, settlement capacity except in market abuse, inspection department growth, investments in market surveillance.
- Concern: inspection and investigation combined units may be understaffed relative to market complexity and post-crisis needs; inspection capacity much less than authorization functions devoted to PMCs.
  - Example resource allocation imbalance in PMCs:
    - Roughly 30 people (about 80 percent of 36 people) working on authorizing and ongoing supervision for PMCs — this capacity exceeds total inspection capacity of AMF by one third.
  - Risk: AMF potentially acting as compliance officer for small PMCs; alternative would be more risk-based authorization reviews to free capacity for high-priority issues.
- ACP enforcement:
  - Limited enforcement appears due to supervisory philosophy/mindset.
  - ACP seems to have sufficient capacity but could benefit from more risk-based approach and greater use of enforcement powers.
  - ACP plans to increase enforcement in following years.

### Organization, approach, and suggested improvements
- AMF moving from rule orientation to problem/objective orientation; suggested further strengthening through:
  - Improved risk processes, quality control procedures, hiring of expertise on influencing approaches, and change management.
- Balance between formal and informal influencing: AMF could explore behavioral economics and other academic findings to influence institutions’ behavior.
- Consider delegating more decisions to lower levels to utilize organizational potential and stimulate risk culture.

### Principle 4 — Regulatory processes, consultation, transparency, and fairness
- Better Regulation (announced November 2006) commits AMF to:
  - Transparency: clarifying processes and reasons for decisions.
  - Dialogue: involve professionals and investors in decision-making.
- Practices for modification of Règlement général (RG) AMF subject to public consultation:
  - Preliminary analysis via consultation paper on key issues or projected amendment.
  - Compliance with reasonable timeframes: usually one month minimum unless special deadlines apply.
  - Publication of consultation summary and reasons for final decisions referencing comments received.
  - Emphasis on cost-benefit type impact assessment.
- Participation of industry members:
  - AMF Board set up five Consultative Commissions: Retail Investors; Markets and Exchanges; Clearing, Custody, and Securities Settlement; Individual and Collective Asset Management; Disclosures and Corporate Finance.
  - ACP set up three consultative committees: prudential affairs Committee; anti-money laundering Committee; business practices Committee.
  - Committees composed of experts appointed by Boards and chaired by Board Members; report to Board.
- Transparency and publication:
  - Laws and regulations published in Journal Officiel and central French Administration website.
  - AMF publishes Better Regulation document and policy document processes on its website.
  - AMF disclosures (generally in French and English) include: issuer decisions and financial information; list of authorized asset managers and CIS information; decisions by AMF Enforcement Committee; reports of AMF Working Groups; Strategic directions and Interim Review and Perspectives for the AMF Strategic Plan (published June 2011); AMF Annual Report.
  - ACP discloses similar information on its website (less frequently in English): list of entities authorized to provide investment services; decisions by ACP Enforcement Committee; reports of working groups; ACP Annual Report.
- Procedural fairness and confidentiality:
  - Regulators required to hear affected person before decisions on licenses or enforcement actions; decisions must be motivated in writing.
  - Enforcement procedures subject to stricter “due process”; separate Enforcement Committee intended to insulate decision-making from operating programs.
  - All decisions subject to judicial review.
  - Laws on free access to administrative documents (Law No. 78-753 of July 17, 1978) and IT/data files and civil liberties (Law No.78-17 of January 6, 1978) provide rights to access administrative documents and personal data under conditions.
  - Staff bound by professional secrecy; investigation reports covered by secrecy and cannot be made public; only sanction decisions can be made public (Article L. 621-15 COMOFI).
- Assessment for Principle 4: Fully Implemented.

### Principle 5 — Professional standards, conflicts of interest, and confidentiality
- Conflicts of interest frameworks:
  - AMF staff bound by legal/regulatory requirements in multiple provisions (e.g., Articles L. 621-5-1 al. 4; R. 621-11 6° of COMOFI; Article 48 décret n° 2003-1109; AMF Internal Regulation; Article 87 loi n° 93-122; Articles 432-12 and 432-13 of Penal Code).
  - ACP deontology rules established 2010 by Decision No. 2010-C-72 and Deontology Code of BdF.
- Avoidance of conflicts during function:
  - Employees must inform manager of any close personal relationship that could present apparent conflict; manager assesses and draws operational consequences.
  - AMF inspectors cannot participate in inspections/investigations concerning entities they had professional relations with in past three years (Article R. 621-33 of COMOFI). Similar provisions for ACP.
- Post-employment (cooling-off):
  - Employees wishing to leave AMF or ACP subject to ethical rules and cooling-off period of three years for taking business/financial participation in entities they participated in controlling or supervising.
  - Boards are consulted and issue opinion on compatibility of future activities; cases with potential conflicts brought before Commission nationale de déontologie whose opinion is binding if activities are incompatible.
  - Since AMF creation, Commission nationale de déontologie never issued a negative opinion on AMF cases presented.
  - Criminal penalties for infringements: two years’ imprisonment and a fine of €30,000 (Article 432-13 Penal Code).
- Transactions in securities and asset declarations:
  - AMF staff required to declare assets in financial instruments in writing; modifications declared within three months; annual portfolio statement on December 31st.
  - Restrictions: AMF staff cannot purchase financial instruments other than negotiable government debt securities or units in collective investment schemes issued through a public offering, except in strict rare situations (Article 5-4 of annex I to AMF Internal Regulation).
  - Derogations limited (e.g., acquisitions from dividends or previous stock options with compliance officer authorization).
  - Compliance officer empowered to inform staff of obligations; provide advice; monitor implementation; inform SG of infringements.
  - ACP staff prohibited from acquiring securities of supervised entities and must provide ethics Committee access to securities account.
- Use of information and secrecy:
  - Employees subject to duties of discretion, reserve, and loyalty even after leaving.
  - Confidential information covered by professional secrecy (Article L. 621-4 COMOFI) and subject to criminal penalties of Article 226-13 Penal Code (one year’s imprisonment and a fine of €15,000).
  - Specific AMF Internal Regulation provisions forbid use of inside information and prescribe preventive care with documents and computers.
  - Secrecy exceptions: exchange of information among listed authorities under professional secrecy conditions; cannot be invoked against judicial authorities in criminal proceedings or judicial liquidation (Article L. 621-4 II COMOFI); refusal to disclose to judicial authorities for criminal investigation is a criminal offense (Articles 60-1, 77-1-1 and 99-3 Criminal Code).
  - Personal data protection per Law No. 78-17 of January 6, 1978; processing declared/authorized by Commission nationale de l’informatique et des libertés.
- Procedural fairness and compliance enforcement:
  - SG responsible for implementing standards; supported by compliance officer (AMF) or deontology delegate (ACP).
  - Violations subject to judicial, criminal, or administrative sanctions; AMF Internal Regulation Title 4 describes disciplinary sanctions (written observation to dismissal).
  - CNIL administrative sanctions for personal data infringements up to €300,000.
- Assessment for Principle 5: Fully Implemented.

### Principle 6 — Monitoring and managing systemic risk
- Legal and operational context:
  - Loi de la régulation bancaire et financière (LRBF), approved 2010, requires AMF to consider financial stability objectives in its mission.
  - AMF Strategic Plan 2009 includes monitoring and prevention of risk as strategic priority.
  - Processes contributing to systemic risk monitoring, mitigation, and management:
    - AMF Risk Committee
    - Annual risk mapping exercise
    - Pôle Commun
    - Follow-up Committee (Comite de Suivi)
  - At ACP:
    - Risk assessment process (individual ISP risks) feeding bi-annual reports.
    - Team dedicated to macro prudential analysis.
  - Coordination on systemic risk through COREFRIS.
  - AMF and ACP are members of the ESRB with BdF at international level.
- AMF Risk Committee details:
  - Created in 2010 with two main objectives:
    1. develop insights by combining macroeconomic analysis and aggregated/industry data with operational observations to leverage institutional knowledge and ensure information sharing and confrontation of views;
    2. identify potential risks earlier and develop pro-active mitigating actions.
  - Other objectives: develop risk culture within AMF and tools for monitoring risks.
  - Committee chaired by AMF Secretary General; composed of senior executives in regulation, authorizations, supervision, compliance and enforcement; two Board representatives are members.
  - Position created: Senior Executive Officer Risk Policy to support Committee work.
  - Committee brings together experience from operational supervision, academic sphere, and macroeconomic/financial stability perspectives.
  - Committee met for the first time (text ends here).

*Italic source: introduction regarding the French organization and the choices as they have been made.*

### 2010. It meets at least three times a year and has a written charter. There are

### _cr13182 - 2010. It meets at least three times a year and has a written charter. There are 

### AMF Risk Committee — governance, remit, and operations
- Meets "at least three times a year" and "has a written charter."
- Minutes are kept of meetings; at each meeting the Committee is kept informed of the implementation of proposed actions on earlier identified risks and of other AMF initiatives related to the AMF’s risks policy.
- Focus: "macro or generic market risks" consistent with the Committee charter; examples of identified potential risks:
  - high frequency trading and ETFs (including risks to financial stability)
  - structural changes in commodities markets
  - regulation of money market funds in Europe and related run risk
- Typical actions decided: policy initiatives, external communication, co-operation with other authorities, development of new monitoring tools and risk indicators, further analysis, inspections.
- Limitations noted:
  - Link between Risk Committee work and setting of operational priorities "is not yet explicit."
  - How decisions of the Risk Committee feed into the budget process "is not made explicit."
  - Committee "mostly reviews emerging and/or potential risks."
  - Retail investor protection topics "seem to be less prominent" on the Risk Committee agenda; they are addressed by DREP, DGA, Pôle Commun, Advertising Committee, and regular “Regulation” meetings.
- Evolution: initially a "long list of risks"; after two years discussions are "higher level" as other committees/processes became operational (Pôle Commun, Comité de suivi, Advertising Committee) and "risk culture has permeated the organization."

### Risk measurements, indicators, scenario analysis, and tools
- Objective: identify AMF needs in risk monitoring and propose new tools.
- Developed internal risk indicators based on AMF market surveillance data to analyze equity market trends and assess potential risks including financial stability; work ongoing to extend to other (non-equity) markets.
- Extension of internal risk indicators to other AMF areas: "asset management, supervision of intermediaries and market infrastructures, supervision of issuers, identification of trends in savings, etc."
- "Preliminary results have been presented to the AMF’s Risks Committee in December 2011, and work is continuing in 2012."
- AMF developing capabilities in risk analysis including scenario analysis (example: effects of rebalancing leveraged and inverse ETFs on underlying equity market).
- New tools:
  - new alert tools for supervision of investment funds
  - developing a scoring system for inspection program
  - from 2013, reporting by alternative investment funds under the Alternative Investment Fund Manager Directive will allow development of new tools/indicators covering hedge fund industry (notably on leverage)
  - automated supervision system will be extended progressively to all markets and adapted for new trading techniques; intention to integrate central trade repositories data in time.

### Risk mapping and reporting
- AMF Risk Committee contributes to AMF’s annual Risks Mapping (initiated in 2007).
- Risk Mapping report outlines AMF’s assessment of important risks in four areas:
  - (i) financial stability
  - (ii) business financing
  - (iii) price formation and financial intermediation
  - (iv) innovation in savings markets and investor protection
- Production of the report enforces internal discipline: risks must be reviewed and updated; significant internal and external communication effort to alert investors, market participants, and other regulators/authorities.

### Coordination — domestic bodies and cross-authority linkages
- COREFRIS: Committee created in the LRBF approved in 2010; aims to identify possible systemic risks and address them. Participants: Ministry of Finance (MoF), regulators (AMF and ACP), Banque de France (BdF), Autorité des normes comptables (ANC). COREFRIS:
  - "does not have formal decision power"; coordinates action on systemic issues as agreed by each participant.
  - Started early 2011; will issue an annual report; "first report is expected in 2012."
  - Example: mortgage-related actions (ACP and BdF restrictions in August) were discussed/prepared in COREFRIS.
- Institutional mechanisms linking supervisors:
  - Deputy Governor of the BdF is member of AMF Board; Chairman of AMF attends Board of ACP.
  - BdF regularly invited to AMF Risks Committee (examples: July 2011 and March 2012).
  - Pôle Commun established to facilitate AMF–ACP cooperation.
- International fora participation: ESRB, ESMA (CEMA and Financial Innovation Standing Committee — FISC), IOSCO (Standing Committee on Risk and Research, Joint Forum, CPSS-IOSCO), FSB.

### ACP and BdF risk assessment roles
- ACP: risk assessment system (ORAP2 — Organization et Renforcement de l’Action Preventive) used to identify risks to individual ISPs and prioritize supervisory work; ORAP summary reports provided to ACP senior management and the College.
  - Macro prudential analysis department: "composed of 11 staff," produces a monthly publication provided to all directors and feeding into firm analysis.
  - Trends and developments monitored and summarized in a bi-annual report used in offsite analysis.
- BdF: dedicated direction for financial stability analysis with "roughly 40 staff." Bi-annually produces the Banque de France Financial Risk Assessment (ACP contributes).

### Principle 7 — review of regulatory perimeter, Pôle Commun, and Comité de Suivi
- AMF Risk Committee is main mechanism to review emerging/systemic risks and issues connected with regulatory perimeter; Pôle Commun and Comité de Suivi play complementary roles.
- Pôle Commun (created by law in 2010) objectives:
  - coordinate proposed priorities for supervision of regulated professionals and analyze supervisory findings for Secretaries General
  - coordinate monitoring of customer transactions and supervision of marketing campaigns for financial products
  - provide a single point of contact for customer queries (Assurance Banque Épargne Info Service hotline)
- Comité de Suivi (Follow-Up Committee):
  - focuses on inspections; meets "two times a year"
  - discusses inspection program, relevant findings of past inspections, sets priorities including companies where AMF will conduct inspections, and monitors program progress
- Coordination limitations:
  - "There is no formal process" to determine how priorities and work of AMF Risk Committee, Pôle Commun, and Follow-up Committee are coordinated or linked.
  - Examples: quality of advice (Pôle Commun) not on AMF Risk Committee agenda; ETFs risks not consistently captured across committees.
  - AMF response: different scopes/objectives; coordination partly ensured by Director of DREP participating in both Risk Committee and Pôle Commun.
- Regulatory perimeter adjustments and actions:
  - AMF and ACP issued a November 2010 joint statement on highly complex structured products to remind distributors of obligations and require marketing warnings for high mis-selling risk products: required wording in marketing documents — “the AMF considers this product too complex to be marketed to retail investors and has therefore not examined the marketing documents.”
  - AMF revisited program of operations required of PMCs to refocus on organization, resources, marketing, and control system.
  - May 2011 joint position (AMF and ACP) clarified legal framework for rolling spot foreign exchange (forex) transactions and when such transactions qualify as financial instruments.
  - LRBF adopted in 2010 expanded AMF’s perimeter (supervision of the carbon market Chapter II, credit rating agencies Chapter III, derivatives markets and short selling Chapter V).

### Enforcement, inspections, surveillance — powers and activity levels
- AMF enforcement and inspection powers: broad statutory powers to access premises, require information, take statements, obtain search warrants in specified cases, and override professional secrecy (exceptions for lawyers and bailiffs). Criminal penalties for obstruction: up to "two years imprisonment and a fine of up to €300,000" (Article L. 642-2 of COMOFI).
- Administrative sanctions (AMF Enforcement Committee):
  - fines up to "€100 million or 10 times the profit made, if any"; for natural persons fines up to "€15 million, or 10 times the profit made ... or €300.000 or five times the profits made, in other cases."
  - other sanctions: warnings, reprimands, temporary/permanent bans, striking from registers.
- Settlement procedure ("composition administrative") introduced by LRBF (October 22, 2010): applicable to breaches of professional rules; one settlement case signed (at time of assessment) with homologation pending; five additional cases negotiated.
- Referral to criminal authorities: AMF must inform Public Prosecutor of crimes/misdemeanors; AMF transmits reports in specified cases (insider trading, price manipulation, dissemination of false information).
- Suspension powers: AMF can order general suspensions of trading, specific suspension on regulated systems, suspension on specific instruments, and request delisting.

Key inspection and enforcement statistics (as presented):
- AMF organizational counts for ongoing supervision teams:
  - DPSI and DPC together "comprise 36 people (16 and 20, respectively)."
- Market & entity counts supervised by AMF:
  - Listed companies: "586 (Eurolist), 167 (Alternext)"
  - CIS: "12,182" with "€1,474 billion in AUM"
  - Intermediaries: "ISPs 368 (roughly 100 IFs)"
  - PMCs: "590"
  - FIAs: "4,000"
- Inspections and surveillance staffing:
  - Direction des contrôles and Direction des enquêtes: about "25 investigators and about 20 inspectors, together 45 people." Market surveillance: "about 20 people."
- Supervision of PMCs:
  - AMF database monitors roughly "10,000 funds" offered by French PMCs.
  - Supervisory visits on PMCs (number of visits): 2008 "56", 2009 "80", 2010 "84", 2011 "100".
- Reviews and inspections (AMF):
  - Offsite reviews: 2008 "108", 2009 "76", 2010 "n/a*".
  - Onsite inspections: 2008 "64", 2009 "77", 2010 "69".
- Onsite inspections by type (AMF) — inspections and reports:
  - ISPs (other than PMCs) inspections/reports by year:
    - 2008: Inspections "29", Reports "35"
    - 2009: Inspections "21", Reports "17"
    - 2010: Inspections "35", Reports "24"
    - 2011: Inspections "8", Reports "23"
  - PMCs inspections/reports by year:
    - 2008: Inspections "34", Reports "27"
    - 2009: Inspections "27", Reports "27"
    - 2010: Inspections "20", Reports "15"
    - 2011: Inspections "30", Reports "29"
  - FIAs inspections/reports by year:
    - 2008: Inspections "1", Reports "1"
    - 2009: Inspections "29", Reports "17"
    - 2010: Inspections "14", Reports "24"
    - 2011: Inspections "11", Reports "23"
  - Total onsite inspections (aggregate table lines include inconsistent formatting in source)
- Outsourced onsite inspections (launched in a year):
  - 2008 "28", 2009 "60", 2010 "53"
  - Experts used: 2008 "19", 2009 "20", 2010 "21"
  - Commission bancaire/ ACP: 2008 "9", 2009 "8", 2010 "12"
  - Banque de France / IEDOM / others: counts include "32", "9", "11" in source table fragments.
- Market surveillance outputs:
  - automated alert system generates ~50,000 alerts per year; "150 suspicious transaction reports" leading to supplementary investigations regarding "around 215 cases" and about "40 proposals for opening an investigation."
- Investigations opened by AMF:
  - 2007 "92", 2008 "97", 2009 "76", 2010 "73"
  - Investigations closed: 2007 "96", 2008 "95", 2009 "80", 2010 "73"
  - Cases referred to AMF Enforcement Committee: 2007 "26", 2008 "22", 2009 "20", 2010 "14"
  - Nature of investigations examples (2007–2010 counts shown in table):
    - Market manipulation: 2007 "2", 2008 "4", 2009 "4", 2010 "6"
    - Insider trading: 2007 "38", 2008 "30", 2009 "24", 2010 "25"
    - Misrepresentation of material information: 2007 "17", 2008 "21", 2009 "14", 2010 "14"
  - International cooperation: 2007 "50", 2008 "55", 2009 "40", 2010 "36"
- Investors’ contacts in 2010:
  - AMF Ombudsman requests "1,400"
  - ACP requests "3,600"
  - Pôle Commun information service phone calls "15,000" of which "7,500" directed at the AMF
- AMF letter de suite counts: 2011 "60", 2010 "84", 2009 "64"
- AMF Enforcement Committee sanctions and fines:
  - Number of sanctions pronounced:
    - 2007 "65", 2008 "84", 2009 "45", 2010 "50"
  - Number of persons sanctioned:
    - 2007 "65", 2008 "84", 2009 "39", 2010 "50"
  - Fines (aggregate euros):
    - 2007 "19, 894, 000"
    - 2008 "24, 715, 000"
    - 2009 "6, 345, 100"
    - 2010 "6, 936, 600"
  - Number of sanction decisions by origin:
    - Resulting from investigations (usually market abuse related): 2009 "24", 2010 "20", 2011 "24"
    - Resulting from inspections: 2009 "6", 2010 "7", 2011 "19"
  - Decisions with sanctions imposed by category (AMF Enforcement Committee):
    - Market-abuse related: 2009 "15", 2010 "14", 2011 "9"
    - Others: 2009 "15", 2010 "15", 2011 "15"
- AMF referrals to Public Prosecutor to initiate criminal proceedings:
  - 2008 "21", 2009 "21", 2010 "22", 2011 "15"
- Criminal convictions (numbers cited):
  - 2008 "6", 2009 "3", 2010 "2" (none resulted in imprisonment; suspended sentences given)
- H3C auditor inspections:
  - Roughly "600 PIE auditor firms in France"; "180 PIE auditor firms were inspected in 2010."
  - H3C conducted "60" of those inspections in 2010 (including "2 of the big 6 auditing firms").
  - H3C referred results of inspections to public prosecutor in "seven" cases.

### Principle 8 — conflicts of interest and inducements
- Regulatory framework requires regulated entities to implement mechanisms to identify, monitor, and mitigate conflicts of interest; sectoral rules referenced (Principles 31, 24, 19, 22, 23, 33 in source).
- Mitigation approaches vary: bans (e.g., on certain non-audit services), robust controls/separation, disclosure (e.g., remuneration disclosure for sell-side analysts).
- Monitoring compliance mainly via supervisory programs and onsite inspections.
- Enforcement examples:
  - 2008: AMF sanctioned a bank for inadequate conflict-of-interest procedure and imposed a fine of "€300 000."
  - 2011: AMF sanctioned a PMC for failure to disclose payments received from an EMTN issuer sold to a client.
- Market concerns raised about inducements/retro-cessions paid to FIAs and ISPs; market participants expressed divergent views on whether MiFID inducement rules adequately address conflicts; AMF acknowledges issues in fund distribution.
- Banking advice concerns: mystery-shopping campaigns show bank advisors tend to advise insurance investment products regardless of client profile; remuneration schemes of bank advisors often include material variable pay; "50 percent of French banks and assurance companies are mutualist networks (“réseaux mutualistes”) that put a ceiling to the bonus of employees (and there is no indexation to the sales)."

### Principles for Self-Regulation (Principle 9) — associations and SRO role
- Membership in professional associations is mandatory for credit institutions, investment firms, market operators, clearing houses, and financial investment advisers (COMOFI cited Articles L. 531-8, L. 511-29, L. 541-4).
- Associations can develop codes of conduct which AMF can approve as mandatory "professional standards"; AMF must verify consistency with applicable laws and publish decisions.
- Associations of FIAs must develop a code of conduct; associations submit a program of operations for training and compliance control including onsite inspections; annual performance reports to AMF required.
- Associations’ control activities seen as an "additional 'alert'" for AMF but do not replace AMF supervisory powers; AMF cannot share supervisory information with associations.
- RMs and organized MTFs: carry market surveillance roles (real time) and complement AMF in market surveillance and issuer compliance monitoring; not considered SROs for assessment purposes; subject to AMF/ACP oversight.

### Information sharing and cooperation (Principles 13–14)
- Legal foundations for domestic cooperation: COMOFI provisions (Article L. 631-1 and related) require BdF, ACP, and AMF to cooperate and share necessary information; Article L. 561-30 mandates cooperation with TRACFIN (financial intelligence unit); Article L. 621-20 governs cooperation with judicial authorities.
- Domestic arrangements in practice: bilateral agreements and memoranda exist (AMF–H3C January 11, 2010; ACP–H3C April 2011; AMF–ACP Pôle Commun April 30, 2010; AMF–CRE December 10, 2010; AMF–ARPP partner agreement May 18 [year in source truncated]).
- International cooperation: COMOFI provides framework with differentiated provisions for EC/EEA members and non-EC/EEA authorities (Articles L. 632-1, L. 632-6, L. 632-7, L. 632-16). AMF is signatory to IOSCO MMOU (since 2002).
- Conditions for cooperation with non-EC/non-EEA authorities: foreign authority must carry out similar duties, professional secrecy rules must be similar, and reciprocity required.
- Grounds for refusal to cooperate: potential breach of French sovereignty/security/essential economic interests/public order; criminal proceedings in France on same facts; final judgment on same facts (Articles L. 632-5 and L. 632-16§3).
- Scope: legal framework permits sharing of all matters required by IOSCO, including investigative, enforcement, surveillance, issuer information, and identification of beneficial owners and account records; no external approval required for cooperation in most cases.
- Confidentiality: staff and members of AMF and ACP bound by professional secrecy; sharing covered by professional secrecy rules of provider; professional secrecy cannot be opposed to judiciary authorities; information transmitted by foreign authorities may have transmission restrictions (Article L. 632-16).

*Source: _cr13182 - 2010. It meets at least three times a year and has a written charter. There are*

### 2011. This agreement sets out the cooperation between these two regulators

### _cr13182 - 2011. This agreement sets out the cooperation between these two regulators

### Cooperation between AMF and CRE / AMF and ACP
- Agreement signed between the AMF and the CRE covering supervision of greenhouse gas emission allowances, electricity, and natural gas and their derivatives.
- The agreement establishes cooperation, regular meetings, and information exchange to share respective information and expertise to identify risk factors on these markets.
- Mechanisms of cooperation and coordination between the AMF and the ACP appear to be working well; additional progress has been made toward a consistent approach for regulation and supervision of distributors and marketing of investment-like products.

### Legal foundation for international cooperation
- Article L. 632-1 of the COMOFI explicitly defines the AMF or the ACP able to cooperate with EC or EEA member states.
- For non-EC or non-EEA member states, Article L. 632-7 I and Article L. 632-16 §4 of the COMOFI explicitly authorize the AMF and ACP to enter into information-sharing arrangements; no external approval is needed.
- Prior to signing an information-sharing agreement with a foreign authority, the AMF or the ACP reviews that the confidentiality provisions to which the foreign authority is bound are consistent with French legal requirements.

### Bilateral and multilateral agreements (as of November 2011)
- AMF:
  - 47 bilateral agreements
  - 1 European agreement (the CESR/ESMA MMOU)
  - 1 international multilateral agreement (the IOSCO MMOU)
  - About 80 regulators are also signatories of the IOSCO MMOU
- ACP:
  - 22 bilateral agreements
  - 1 international multilateral agreement (IAIS MMOU)
  - 2 European MoUs specifically dedicated to crisis management situations
    - First signed March 2003 between banking supervisors and central banks of the EU
    - Second signed April 2005 between financial supervisory authorities, central banks, and financial ministries of the EU (revised version agreed at the informal ECOFIN of April 4, 2010)

### Domestic cooperation practice
- Formal arrangements for AMF–ACP cooperation discussed in Principle 1.
- Formal arrangements for H3C and financial authorities discussed in Principle 19.
- For ISPs and MTFs, law establishes a consultation process at the moment of authorization; no formal arrangements for exchange of information during supervision where authorities have shared competencies, but informal arrangements (meetings, regular exchange) exist.
- Historically, AMF delegated a significant part of its onsite inspection plan to the ACP (see Principle 10).
- No formal arrangements for cooperation on supervision of market infrastructure; informal mechanisms exist including regular meetings and sharing of reports (see Principle 34).

### International cooperation practice and AMF procedures
- AMF is point of contact for securities regulators for matters under its competence; if matter falls outside AMF competence, foreign regulator must channel request to ACP.
- AMF can intermediate requests outside its competence (example: FINRA) and does so; such situations occur rarely.
- Prudential matters cannot use IOSCO MMOU if ACP is not signatory; foreign regulator must send request directly to ACP.
- AMF has dedicated team within the Cellule internationale of the Direction des enquêtes et des contrôles for international requests (three staff). All requests are channeled through the department.
- If information requested is in AMF files, it is sent directly; if not and requires third-party information (e.g., market abuse), AMF opens an investigation to obtain legal powers to request such information.
- AMF authorized by law (Article 632 ss of the COMOFI) to conduct investigations on behalf of foreign regulators, regardless of existence of an independent domestic interest. Investigators have same powers as domestic investigations, including requesting documents and taking statements.
- AMF can conduct onsite inspections on behalf of foreign regulators for rules-of-conduct-related matters.
- AMF reported no requests for information have been denied.

### Statistics: Requests for information on intermediaries (information already in AMF files)
- Number of requests for information on intermediaries / Processing time (in number of working days)
  - 2008 — 96 / 23
  - 2009 — 72 / 19
  - 2010 — 65 / 18
  - 2011 — 99 / 16

### ACP operational practice
- ACP does not have a centralized unit to deal with requests for information and does not keep statistics on number of requests received.
- Foreign regulators usually channel requests directly to control departments.
- Many requests occur as part of a fluid relationship (e.g., colleges of supervisors for major bank groups); cooperation in this area analyzed in the BCP assessment.

### Cooperation in the context of Euronext and LCH Clearnet
- Colleges of supervisors created for these two infrastructure providers.
- Colleges discussed in Principles 34 and 37; colleges for banking groups discussed in the BCP assessment.
- Colleges for Euronext and LCH Clearnet appear to be working well; evaluation of LCH Clearnet arrangement within this assessment was limited.

### Assessment and comments (general)
- Assessment: Fully implemented
- Comments:
  - AMF and ACP cooperation mechanisms appear to be working well.
  - MOU between AMF/ACP and the H3C provides robust cooperation framework, including approach for AMF/ACP assistance in quality review of auditors of listed companies.
  - AMF statistics and examples indicate active cooperation with other regulators within reasonable timeframes.
  - Requirement to open an investigation to provide information not in files has not impeded cooperation, as evidenced by number of investigations concluded on behalf of foreign regulators.
  - ACP should establish control mechanisms to monitor whether cooperation is provided on a timely basis.

### Principle 15 — Assistance to foreign regulators (legal powers and practice)
- Legal basis:
  - Article L. 632-1 et seq. of the COMOFI explicitly authorizes AMF and ACP to conduct surveillance, monitoring and investigations at request of foreign authorities with similar powers.
  - For requests from non-EEA member states, reciprocity is required (Article L 632-16 for AMF; Article L. 632-7 et seq. for ACP).
  - Article L. 621-10 and L. 612-24 of the COMOFI: AMF or ACP investigators conducting investigations on behalf of foreign regulators have same powers as domestic investigators and may obtain same kinds of information, including bank records, telephone records, and data held by telecommunications operators and internet service providers.
  - AMF can obtain court orders on behalf of foreign counterparts (Article L. 621-13 of the COMOFI), which includes freezes.
- Practice and statistics:
  - There has been only one request for freeze of assets. In 2011, at the request of a foreign regulator, the AMF obtained a freezing injunction to freeze assets held in France by an individual under investigation by the foreign regulator.
  - Number of investigations opened on behalf of foreign regulators / Processing time (in number of working days)
    - 2008 — 55 / 37
    - 2009 — 40 / 39
    - 2010 — 36 / 24
    - 2011 — 41 / 30
  - Number of interviews conducted by the AMF on behalf of foreign regulators
    - 2008 — 1
    - 2009 — 3
    - 2010 — 4
    - 2011 — 10
- Assessment: Fully implemented
- Comments:
  - Powers granted to AMF and ACP align with IOSCO principles and in some areas exceed requirements (e.g., freeze of assets).
  - Bulk of assisted cooperation takes place at AMF level; AMF statistics evidence active and effective assistance to foreign regulators.
  - ACP should implement mechanisms to monitor timeliness and effectiveness of cooperation.

### Principles for Issuers — Principle 16 (Disclosure requirements)
- Objective: Full, accurate, and timely disclosure of financial results, risk, and other information material to investors’ decisions.
- Market tiers and AMF role:
  - Issuers admitted to trading in a RM:
    - Subject to most stringent disclosure obligations.
    - Verification of compliance mainly responsibility of the AMF.
    - One regulated cash market: Euronext.
    - As at December 31, 2010, there were 617 companies listed on NYSE Euronext-Paris (574 French companies and 43 foreign companies).
  - Issuers admitted to trading on an OMTF:
    - Subject to same disclosure obligations as first tier at moment of offering, but have less stringent periodic obligations.
    - AMF involvement in compliance similar to RM.
    - One OMTF where equities are traded: Alternext.
    - As at October 2011, there were 169 companies admitted to Alternext.
  - Issuers admitted to trading on a MTF:
    - Prospectus requirement applies only if issuer initially conducted a public offering.
    - Periodic and ongoing obligations not prescribed by legal framework; stem from listing contract with the MTF.
    - AMF not involved in ensuring compliance; responsibility of the MTF.
    - Three non-organized cash MTFs: Marche Libre, Alternativa, and MTS.
      - Marche Libre has roughly 250 issuers.
      - Alternativa has 30 issuers.
      - MTS has only a handful of non-sovereign bond issuers.
    - Very few companies have made a public offer on Marche Libre since late-2006: during this period there were three IPO public offers and four other public transactions opened to shareholders.
- Disclosure obligations at moment of offering — equity and debt issuers of public offering or admitted to trading on a RM or Organized MTF:
  - Pursuant to Article 412-1 of the COMOFI, any issuer of public offering or whose securities are admitted to trading in a RM must prepare a prospectus; prospectus subject to pre-approval by the AMF.
  - Pursuant to Article 212-38-1 of the RG AMF, AMF reviews prospectus of offerings of mutual and cooperative banks (about 80 approvals in 2011) although they are not covered by the Prospectus Directive.
  - RG AMF establishes transactions that do not constitute a public offering if one of the following characteristics is present:
    - (i) the total amount is less than €100.000 or the foreign currency equivalent;
    - (ii) the total amount is between €100,000 and €2.5 million or the equivalent, and the transactions concerns financial securities accounting for not more than 50 percent of the capital of the issuers;
    - (iii) the transaction is intended for investors acquiring at least €50,000 worth or equivalent, per investor, per transactions; and
    - (iv) the transactions concerns securities with a minimum denomination of at least €50,000.
  - Article 212-7 of the RG AMF: prospectus must contain all information necessary to enable investors to make an informed assessment of the financial position of the issuer and the rights of the securities being offered; format must comply with schedules and building blocks referred to in European Regulation 809/2004 of April 29, 2004 (implemented into French law on July 1, 2005).
  - Prospectus must include information about issuer and business, substantial holdings, management, related party transactions, risk factors, and financial information including financial statements.
  - AMF developed Instruction 2005-11 of December 13, 2005, to provide additional guidance on prospectus content and documents to be filed with the AMF.
  - CESR/ESMA Q&A series: first Prospectus Q&As in July 2006; last update from April 2011.
  - Prospectus must include a summary note (Article 212-8 of the RG AMF) that conveys essential characteristics and main risks in brief non-technical language; AMF developed a recommendation on drafting a summary note in 2007.
- Note: Securitization funds whose securities are offered to the public or admitted to trading a RM or OMTF (text continues beyond provided content).

*Source: _cr13182 - 2011. This agreement sets out the cooperation between these two regulators.*

### Chapter I bis (Articles 421-17-1 to 421-17-18) of the RG AMF, Book IV, Title II

### Chapter I bis (Articles 421-17-1 to 421-17-18) of the RG AMF, Book IV, Title II

### Disclosure requirements for securitization funds and prospectus regime
- Securitization funds whose securities are offered to the public or admitted to trading on a regulated market or an OMTF are subject to the obligations stated in Articles 223-1 A to 223-10-1 of the RG AMF, which-for the purposes of this section-means that such securitization funds that are offered to the public or admitted to trading are subject to the prospectus requirement.
- The AMF published Instruction No. 2011-01 of January 11, 2011 providing guidance on prospectus content and dissemination and AMF Position No. 2011-02 (Q&As) of January 11, 2011 on securitization funds.

### Approval process and timing
- Draft prospectus must be submitted for AMF approval (Article 212-20 RG AMF).
- AMF may ask questions, clarifications, or require additional information to be incorporated (Article 212-21).
- AMF may request additional information from statutory auditors or an external specialist if it considers the statutory auditor has not fulfilled obligations (Article 212-20).
- Timing: for first-time issuers approval once documents are complete must take place within 20 trading days; 10 trading days for other issuers.

### Supplement to the prospectus and final terms
- Issuer must submit a supplement for any significant new factor, material mistake, or inaccuracy arising between approval and closing/start of trading (Article 212-25 RG AMF).
- Summary note and translations must be supplemented if necessary.
- AMF to issue approval within seven trading days (Articles 212-20 to 212-23 RG AMF).
- Supplement published and disseminated in same way as initial prospectus.
- For debt issues where final terms are not in base prospectus or supplemental note, final terms must be provided to investors and filed with AMF as soon as practicable and-if possible-before the offer is launched (Article 212-32). Point 1° of Article 212-17 applies regarding disclosure of criteria/conditions for final price and quantity.
- If significant new disclosure occurs after offer launch, investors must be entitled to withdraw acceptance during at least two trading days following publication of final price and quantity (Article 211-2 RG AMF).

### Prospectus distribution and publication formats
- Prospectus must be posted on AMF’s website.
- Acceptable distribution formats:
  - published in the print media (“nationally distributed or widely distributed publication”);
  - available free of charge at issuer’s registered office or from the market operator;
  - posted on issuer’s website, regulated market website, or websites of financial intermediaries placing/dealing instruments.
- If made available free of charge or web-posted, issuer must publish a summary in the print media or issue a press release explaining how the prospectus may be obtained.
- If published in print or made available free of charge, it must also be posted online on issuer’s website (all issuers listed on a regulated market shall have a website), if such a site exists.

### Responsibility and liability for the prospectus
- Persons responsible for the prospectus must be identified and sign a declaration confirming that, to the best of their knowledge, the information is true and there are no material omissions (Article 212-14 RG AMF).
- Strict liability regime for issuers.
- Statutory auditors must give an opinion on whether financial statements give a true and fair view (Article 212-15 RG AMF) and review prospectus according to a CNCC standard.
- ISPs: for the first three years after initial admission to trading, ISPs are required to certify to the AMF they exercised customary professional diligence and found no inaccuracies or material omissions; after three years ISPs must certify only details of the offer/admission and characteristics of securities (Article 212-16 RG AMF).

### Periodic disclosure obligations for issuers admitted to trading on a regulated market
- Annual registration document: issuers may prepare a registration document annually per an AMF instruction; can take the form of an annual report to shareholders (Article 212-13 RG AMF). Registration document is part of the prospectus; must be filed with the AMF; made publicly available free of charge on the day after filing or registration; electronic version sent to AMF for posting.
- Annual financial report: must be published and filed with AMF within four months of close of accounting period; report made available to public for five years; includes annual accounts, consolidated accounts (where applicable), management report, declarations of responsible persons, and auditors’ report.
- Half-yearly financial report: publish and file within two months of end of first half; includes summary half-year accounts (consolidated where applicable), half-year activities report, responsible persons’ declaration, and auditors’ limited examination report.
- Quarterly financial statements: publish and file within 45 days of first and third quarters; must include: explanation of major transactions/events and their impact; general description of financial situation and results; information on turnover.
- Additional regulated information required by AMF includes: report on internal control and corporate governance; news release on fees paid to statutory auditors; monthly disclosures of total voting rights and shares; description of share buyback programs; ongoing information releases; procedures for obtaining prospectus and documents for general meetings; monthly summaries of weekly share buyback reports; changes in rights attaching to financial instruments or new debt issues (list enumerated as (i)–(ix)).

### Periodic and ongoing disclosures specific to securitization schemes with securities admitted to trading
- Annual activity report: no later than four months after financial year close, securitization company or management company must prepare and publish activity report under oversight of depositary and after statutory auditor verification (Article 421-14 RG AMF).
- Half-yearly activity report: no later than three months after close of first half, securitization company or management company must prepare and publish half-yearly activity report under depositary supervision and after statutory auditor verification (Article 421-14 RG AMF).
- Other disclosures: fund manager must make periodic disclosures on assets and liabilities (annual and half-yearly activity reports, financial accounts, management reports, and all events that could affect securities issued).
- Reports must be sent free of charge to holders who request them; investors can obtain reports upon publication free of charge from securitization company, management company, and depositary.

### Regimes for issuers on OMTFs, Marché Libre, and unlisted public offerings
- Companies listed on an OMTF (currently ALTERNEXT):
  - Registration document: voluntary, same terms as for RM issuers.
  - Annual report: within four months of financial year end publish annual financial statements, consolidated statements where applicable, group management discussion and analysis, and auditors’ reports.
  - Half-yearly report: within four months of end of second quarter publish semi-annual report covering first six months; may be condensed and not necessarily audited; includes operations report.
- Companies listed in the Marché Libre:
  - No periodic obligations other than annual report for shareholder consideration required by Code de commerce; annual report includes audited financial statements; not required to submit additional reports or communicate material events.
- Issuers of public offerings not listed or admitted to trading: only a few issues; examples in 2011:
  - Tax incentive issues under TEPA law: 10 in 2011, approximately 20 in 2010, unit amount less than €10 million and an average amount of €3 million;
  - LBO Employees schemes: 3 in 2011, each under €30 million;
  - Other public offers: 2 in 2011, with unit amount of approximately €5 million.

### Ongoing (material event) obligations and insider rules
- Every issuer admitted to trading on a RM or OMTF must disclose to the public as soon as possible any privileged (material, non-public) information, as defined in Article 621-1 RG AMF, directly concerning that issuer (Article 223-2 AMF Regulation). Securitization schemes with securities admitted to trading on a RM or OMTF are subject to the same obligation.
- For OMTFs the French framework is more stringent than the European framework concerning ongoing obligations.
- Insider conduct: Article 622-1 RG AMF requires persons with access to inside information to refrain from (i) using it; (ii) disclosing it except in normal course of duties; and (iii) advising others to trade on such information. AMF Recommendation 2010-07 (November 2010) addresses prevention of insider misconduct. Sanctions recorded: 14 individuals/legal entities in 2010; 9 in 2009; 30 in 2008.

### Advertisement rules
- Any advertisement relating to a public offer or admission to trading on a RM must be communicated to AMF before dissemination (Article 212-28 RG AMF).
- Advertisement requirements: (i) state that a prospectus has been or will be published and indicate where investors can obtain it; (ii) be clearly recognizable as advertisement; (iii) contain no false/misleading statements; (iv) be consistent with prospectus information or required prospectus information; (v) contain notice drawing attention to risk factors section of prospectus; (vi) where applicable and at AMF request, include warning about exceptional characteristics of issuer/ guarantors/ securities (Article 212-28).
- All oral/written information about a public offer or admission must be consistent with prospectus (Article 212-29).
- Direction des émetteurs actively reviews advertisements; for IPOs advertisements are reviewed with the prospectus. No formal “visa” but AMF can declare an advertisement not MiFID compliant (“balanced”).
- In 2010, 328 documents concerning advertisement of complex financial instruments were reviewed.
- AMF issued doctrine (explained in Principle 1) for distribution of complex financial products requiring key information in promotional materials and “comply or explain” requirements; distributors must verify product suitability.

### Mechanisms to check compliance, resources, and enforcement
- AMF responsibility for verifying issuers’ compliance with periodic reporting for RM and OMTF issuers assigned to Direction des émetteurs (51 staff) with support from Direction des affaires comptables (11 staff).
- Two divisions review issuers (each with portfolio); each reviewer handles roughly 40-50 issuers.
- Direction des affaires comptables has 10 staff (auditors experienced in audit firms); reviews financial statements using a rotation/cycle approach (CESR-based) and a risk-based approach.
- Prospectus approvals in 2010: 444 approvals for public offers; 10 for IPOs in Euronext and 7 on Alternext; 71 for debt offerings; 8 for securitization funds.
- AMF diligence: since 2010 required loan-level information for securitization funds; requests clarifications beyond formal matters.
- Timely reporting: large companies generally comply; SMEs have higher late reporting (roughly 10 percent according to AMF staff).
- Non-compliance measures: AMF publishes list of delinquent issuers on website; may seek injunction from President of Court of First Instance ordering issuer to publish information (subject to money penalty); may open administrative proceedings and impose money penalties. In practice AMF relies almost exclusively on injunctions; judges usually grant order in two weeks and issuers comply immediately.
- In 2010: 18 petitions sent to court for late annual reports and 9 for late half-yearly reports; by year-end only one company in first case and two in second still had to publish.
- Euronext enforces disclosure via rulebook and may impose disciplinary measures including warning, money penalty of € 5,000 per month of non-compliance, suspension, or delisting.
- AMF reviews periodic reports annually using risk-based selection; in 2010 AMF reviewed 926 periodic documents concerning turnover and results for companies with market capitalization higher than €150 million.
- Enforcement actions on IFRS/accounting in 2010: 11 issuers asked to disclose additional notes; 137 messages sent to issuers without requiring corrective action; Division des affaires comptables sent one request for investigation based on material mistakes in application of IFRS.

### Review of advertisements and complex products
- Direction des émetteurs emphasized review of bond issuance advertisements and complex financial products.
- Doctrine required promotional materials to disclose capital guarantee status, secondary market liquidity non-compliance, eligibility of underlying instrument, issuer nature, and exercise conditions; distributors must verify product suitability.

### Derogations, suspension of trading, and confidentiality deferrals
- Article 212-18 RG AMF permits omission of disclosures from prospectus where detrimental to issuer and omission unlikely to mislead or materially affect investors’ assessment.
- Article 223-2 RG AMF allows deferral of privileged disclosures to protect legitimate interests provided non-disclosure is unlikely to mislead public and issuer can ensure confidentiality; legitimate interests include negotiations in progress or decisions requiring further approvals.
- Suspension of trading: Article L. 421-15 COMOFI allows suspension by issuer, NYSE Euronext, or AMF if time needed for relevant disclosure. AMF can suspend admission when it reasonably suspects the offer would contravene laws/regulations (Article 213-1 RG AMF).

### Prospectus/advertisement practice and statistics
- Prospectus quality varies by issuance complexity and issuer experience: CAC 40 prospectuses very high quality; IPOs of SMEs require more thorough review.
- Securitization funds: AMF requires loan-level information since 2010.
- In practice AMF has requested clarifications beyond formal matters.
- IPO and market advertisement review: Direction des émetteurs active; for IPOs ads reviewed with prospectus.

### Special markets: Marché Libre and Alternativa
- Marché Libre: no periodic or ongoing disclosure requirements beyond annual shareholders’ report under Code de commerce; roughly 250 companies; market operates for institutional/professional investors in practice. 2011 transaction volumes: €106.5 million (compared to €113 in 2010 and €120 in 2009).
- Alternext: differentiated requirements (no mandatory quarterly reports; semiannual deadline longer though in practice most issuers submit within three months); power of Euronext to discipline issuers (warnings, money penalties, suspension, delisting). 2011 transaction volumes for Alternext: €1,879 million.
- New MTF-Alternativa with 30 companies for which periodic disclosure requirements do not apply; instruments classified as complex financial instruments; ISPs must not target retail investors and must ensure product suitability; primary market volumes driven by TEPA tax incentive requiring five-year holding for tax benefit.
- AMF does not have separate arrangement to supervise disclosure obligations in Marché Libre or Alternativa but may pick them up in regular supervisory program; AMF has sent several letters to Alternativa reminding of obligations including Article 533-16 COMOFI related to client classification.

### Cross-border offerings and third-country prospectuses
- Article 212-36 RG AMF: issuers with registered office in state not party to EEA may draw up a prospectus meeting IOSCO/IOSCO-equivalent standards; ESMA in March 2011 adopted a framework under Article 20 of the Prospectus Directive allowing third country prospectuses to be “wrapped” to meet EU Directive requirements.
- Few foreign issuers required the wrap; an example was an issuer from Russia.

### Assessments and supervisory conclusions (relevant findings)
- Assessment for Principle 16 (disclosure and prospectus regime): Fully implemented.
- Observations:
  - Disclosure obligations in Euronext are robust and comply with IOSCO Principles though annual report deadline is long versus international best practice; large issuers typically submit earlier.
  - Alternext requirements comply with IOSCO Principles but are not at the level of international best practices due to lack of quarterly reports and longer semiannual deadline; difference reflects trade-off to reduce SME disclosure costs.
  - Marché Libre and Alternativa lack periodic/ongoing disclosure requirements—assessors express concern given roughly 250 companies in Marché Libre—but authorities note markets operate mainly for professional investors and volumes are limited.
  - Assessors encourage authorities to consider tailored SME regimes and to review whether additional safeguards are necessary (for example, restricting retail investor access to these markets).
  - Need for AMF to keep active monitoring of Euronext to ensure listed issuers comply with periodic obligations.

*Source: Chapter I bis (Articles 421-17-1 to 421-17-18) of the RG AMF, Book IV, Title II*

### Annex I

### Annex I

### Organizational requirements (Annex I, Section A)
- CRAs must have an administrative or supervisory Board.
- Senior management must ensure that conflicts of interest are properly identified, managed and disclosed.
- Independent members of the administrative or supervisory Board have the specific task of monitoring the effectiveness of measures and procedures instituted to ensure that any conflicts of interest are identified, eliminated, or managed and disclosed.
- The compliance officer must:
  - ensure that any conflicts of interest relating to the persons placed at the disposal of the compliance function are properly identified and eliminated;
  - report regularly on the carrying out of his or her duties to senior management and the independent members of the administrative or supervisory Board.

### Operational requirements (Annex I, Section B)
- General obligation:
  - CRAs are subject to a general obligation to identify, eliminate or manage and disclose—clearly and prominently—any actual or potential conflicts of interest that may influence the analyzes and judgments of its rating analysts, employees, or any other natural person whose services are placed at the disposal, or under the control, of the CRA and who are directly involved in the issuing of credit ratings and persons approving credit ratings.
- Prohibitions:
  - The EU regulation prohibits CRAs from issuing ratings when the CRA directly or indirectly owns financial instruments of the rated entity or related parties, or has any direct or indirect ownership interest; or when a control relationship exists or certain other specific types of relationships that may cause conflicts of interest.
  - The EU regulation prohibits CRAs from providing consultancy or advisory services to the rated entity or a related third party regarding the corporate or legal structure, assets, liabilities, or activities of that rated entity or a related third party.
  - A CRA may provide ancillary services.
- Specific rules concerning analysts:
  - Prohibition to participate in fee negotiations.
  - Prohibition of trading securities.
  - Rules related to analysts’ rotations.
  - Rules related to non “business contingent” remuneration.
  - Annex 1, Section C introduces several rules for rating analysts and other persons directly involved in credit rating activities (including securities and derivatives trading by and compensation arrangements).
- Specific disclosures:
  - Disclosure of rated entities and related parties from which a CRA receives more than 5 percent of annual revenue.
  - Disclosure of:
    - (i) the largest 20 clients of the CRA by revenue generated;
    - (ii) a list of those clients of the CRA whose contribution to the growth rate in the generation of revenue in the previous financial year exceeded the growth rate in the total revenues of the CRA in that year by a factor of more than 1.5 times (any such client shall be included on the list only where, in that year, it accounted for more than 0.25 percent of the worldwide total revenues of the CRA at global level); and
    - (iii) a list of all ratings, including the proportion of unsolicited ratings.

### Transparency and timeliness
- General requirement to ensure timeliness on the release and distribution of credit ratings (when newly issued or for subsequent changes).
- A CRA shall disclose any credit rating, as well as any decision to discontinue a credit rating, on a non-selective basis and in a timely manner.
- In the event of a decision to discontinue a credit rating, the information disclosed shall include full rationale for the decision.

### Information on ratings
- Requirements related to the publication of the CRAs’ procedures, methodologies, models and key rating assumptions.
- When methodologies, models or key rating assumptions used in credit rating activities are changed, the CRA must immediately disclose the likely scope of credit ratings to be affected.
- When announcing a credit rating, a CRA shall explain in its press releases or reports the key elements underlying the credit rating.

### Historical defaults
- Requirements related to the publication of information about historical default rates of the CRAs’ credit rating.
- General obligation to disclose information on the ratings’ historical performance to a central repository managed by ESMA (CEREP).
- Obligation of periodic disclosure data (every six months) about the historical default rates of its rating categories, distinguishing between the main geographical areas of the issuers and whether the default rates of these categories have changed over time.

### Confidentiality
- General obligation not to use or share confidential information for any other purpose excepting the conduct of credit rating activities.
- Obligation to take measures to protect non-public information and to achieve the confidentiality objective.

### Enforcement powers
- ESMA enforcement powers in case a regulated CRA fails to meet registration requirements after its initial registration include:
  - (i) the imposition of a fine as well a periodic penalty payment, in order to compel CRAs to be cooperative; and
  - (ii) for certain violations ESMA can:
    - (a) withdraw the registration,
    - (b) temporarily prohibit the CRA from issuing credit ratings with effect throughout the EU,
    - (c) suspend the use-for regulatory purposes-of the credit ratings,
    - (d) require the CRA to bring the infringement to an end, and
    - (e) issue public notices.

### Registration process and ongoing supervision
- As of January 2012, there were 16 registered CRA groups involving 28 legal entities and 1certified entity, all of which were registered under the transitional provisions that had granted the local authorities jurisdiction over the registration process.
- For the global CRA, colleges of supervisors were set out.
- Registration process divided into two stages:
  - Stage 1: the college reviewed that documents were complete.
  - Stage 2: the colleges reviewed that requirements were met from a substantive point of view.
- The process was long (roughly one year).
- At the end of their review, colleges shared their findings and views, which helped to achieve a consistent application of registration requirements.
- In practice, such review led to changes in organizational structure for some CRAs, including:
  - legal changes to isolate the rating activity into one legal entity and/or to incorporate independent members on the Board;
  - changes to procedures were requested (roughly 50 percent of procedures were redrafted).

### Supervision
- Supervision of registered CRAs in France is under the remit of ESMA.
- ESMA created a specialized unit which, at the time the mission visited France, was composed by 12 staff, with authority to increase the number up to 20 staff.
- The ESMA unit is in charge of policy, supervision, and risk identification functions.
- The ESMA unit is solidifying its supervisory approach.
- Inspections program will be fed by risk signals, including:
  - (i) the findings from previous inspections;
  - (ii) complaints; and
  - (iii) signals/concerns submitted by local authorities.
- For smaller/local CRAs, ESMA foresees the possibility to delegate specific tasks in connection with the onsite inspection to the local authorities (for example, review of documents).
- Since October 2011, the ESMA CRA unit has conducted onsite inspections on the three global firms as a “pilot” exercise to:
  - get a better understanding of the rating process;
  - identify potential issues that require further attention (risk signals).
- Inspection details:
  - Three ratings from each of the following categories were selected for review: sovereign, banking and covered bonds.
  - The inspections lasted roughly four weeks and were performed by a team of two to three persons.
  - Individual reports were sent to each CRA, and a report with general findings was made available to the public in March of 2012.

### Assessment
- Broadly implemented
- Comments:
  - Conversations with market participants lead the assessors to conclude that the registration process by the colleges was thorough and that there was an effort to achieve a consistent implementation of the requirements across the different CRAs.
  - With supervisory powers for CRAs having been transferred from all EU national competent authorities to ESMA recently, the supervisory approach is still at an early stage.
  - ESMA has already conducted inspections on the three large CRAs and released a general report on them; this provides evidence that ongoing supervision is shaping well.
  - Once a full-fledged supervisory program is in place, including an inspection plan covering the remaining CRAs (either individually or through thematic work), a review of the grade would be warranted.
  - Obtaining the remaining resources envisioned is key to the effective implementation of such supervisory program.

### Principle 23 — Other entities that offer investors analytical or evaluative services
- Other entities that offer investors analytical or evaluative services should be subject to oversight and regulation appropriate to the impact their activities have on the market or the degree to which the regulatory system relies on them.

### Sell-side analysts — General framework on conflicts of interest
- Article 314-3 of the RG AMF requires that ISPs act honestly, fairly, and professionally in the clients’ best interests as well as in a manner which promotes the integrity of the market.
- Article 313-20 of the RG AMF requires ISPs to establish and maintain an effective conflicts of interest policy, set out in writing, and appropriate to their size and organization and to the nature, scale, and complexity of their business.
- Article 313-21 provides that the procedures and measures for managing conflicts of interests must be designed to ensure that relevant persons engaged in different business activities involving a conflict of interest (...) carry on those activities at a level of independence appropriate to the size and activities of the ISP and of the group to which it belongs, and to the materiality of the risk of damage to clients’ interests.
- Procedures and measures to be adopted must include, as appropriate:
  - (i) effective procedures to control the exchange of information;
  - (ii) separate supervision;
  - (iii) elimination of links on the remuneration of certain persons or activities versus others;
  - (iv) measures to omit the influence of relevant persons; and
  - (v) measures to prevent the involvement of relevant persons in certain activities.
- Article 313-22 of the RG AMF requires ISPs to keep and regularly update a log of the kinds of investment service or ancillary service and other activity carried out by it or on its behalf where a conflict of interest entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of ongoing activities, is likely to arise.
- Article 313-20 states that “where an investment services provider is a member of a group, its conflicts of interest policy must also take into account any circumstances, of which it is or should be aware, that may give rise to a conflict of interest as a result of the structure and business activities of the other members of the group.”

### General obligations concerning research
- Article 315-1 of the RG AMF requires research to be prepared honestly, fairly, and impartially, as well as for it to be presented clearly and precisely.
- Article 315-3 requires ISPs and investment analysts to make their best efforts to ensure that:
  - (i) facts referred to in the investment recommendations are clearly distinguished from interpretations, estimates, opinions and other kinds of non-factual information;
  - (ii) all sources are reliable;
  - (iii) all projections, forecasts and price targets are clearly indicated as such, and the principal assumptions are disclosed;
  - (iv) all important sources for the investment recommendation are disclosed;
  - (v) any basis or method used to value a financial instrument or to establish a price target is summarized in an appropriate manner;
  - (vi) the meaning of any recommendation made, such as “buy,” “sell,” or “hold,” as well as any time horizon associated with such recommendation, is adequately explained, and any appropriate risk warning (including a sensitivity analysis of the assumptions used) is indicated;
  - (vii) The expected frequency of updates to the recommendation is disclosed, as well as any material change in the policy with regard to the issuer;
  - (viii) the date on which the investment recommendation was first released for dissemination is clearly and prominently indicated, as are the date and time of day of any actual price mentioned for a financial instrument; and
  - (ix) where an investment recommendation differs from a recommendation issued during the previous 12 months regarding the same financial instrument or the same issuer, this change and the date of the earlier recommendation are indicated clearly and prominently.

### Specific measures to address conflict of interest
- Governance:
  - Article 313-26 of the RG AMF states ISPs that produce or arrange for the production of investment research intended to be subsequently disseminated to their own clients or the public must ensure that the provisions of Article 313-21-II are applied to investment analysts involved in production of such analysis and other relevant persons whose responsibilities or business interests may conflict with the interests of persons to whom the investment research is disseminated.
- Prohibitions directed to analysts:
  - Article 313-27 of the RG AMF states that ISPs must adopt measures to ensure that investment analysts and other relevant persons do not undertake personal transactions or trade in financial instruments to which investment research relates, or in any related financial instruments, if they are aware of the likely dissemination date or content of the investment research and this knowledge is not accessible to the public and clients.
  - ISPs, investment analysts, and other relevant persons involved in the production of investment research must not accept inducements from persons with a material interest in the subject-matter of the investment research and must not promise issuers favorable coverage in their analysis.
- Disclosure requirements:
  - Article 315-5 of the RG AMF requires investment research to disclose any relations and circumstances concerning the investment analyst or ISP that one can reasonably believe likely to impair the objectivity of the recommendation. In particular, when the provider, analyst, or any person who participated in the preparation of the research has a significant financial interest in one or more of the financial instruments recommended, or a significant conflict of interest with the relevant issuer, this fact must be disclosed.
  - Article 315-6 of the RG AMF specifies the minimum information to be disclosed regarding the ISP or related entities in compliance with Article 315-5:
    - Any interests held by them or conflicts of interest involving them, knowledge of which was accessible or reasonably expected to be accessible to persons who took part in preparing the recommendation; and
    - Any interests held by them or conflicts of interest involving them that were known to persons that did not take part in preparing the recommendation but had access, or can reasonably be expected to have had access to the recommendation before it was disseminated to clients or to the public.
  - Article 315-7 of the RG AMF requires research to disclose clearly and prominently, inter alia, the following information on interests and conflicts of interest of the ISP:
    - any relevant shareholding links;
    - when the ISP is a market maker or liquidity provider in the issuer’s financial instruments; and
    - when the ISP has recently been lead manager or co-lead manager in a public offering of the issuer’s financial instruments.
  - Article 315-8 of the RG AMF requires research to disclose, in general terms, the information barriers set up within the ISP to prevent and avoid conflicts of interest with respect to investment research.
  - Article 315-9 of the RG AMF requires the ISP to publish, on a quarterly basis, a breakdown of the recommendations it has disseminated showing the proportion of recommendations that are ”buy,” “hold,” “sell” separately for all recommendations, and for recommendations pertaining to issuers to which the provider has furnished certain investment services to a significant extent during the previous 12 months.

### Practice
- The first regulations of AMF in connection with investment analysis date from 2000-

*Source: Annex I, _cr13182 - Annex I*

### 01. At that time, the AMF followed quite closely the implementation of such

### _cr13182 - 01. At that time, the AMF followed quite closely the implementation of such

### Research, disclosure, and independent analysts
- In 2004-05, the AMF encouraged transparency on the cost of research to foster analysis produced by independent research bureaux not associated with an ISP.
- Currently, there is no systematic review of research to ensure compliance with disclosure obligations; internal controls of ISP are reviewed during onsite inspections, and research requirements including disclosure obligations are likely to be subject to thematic inspections in the near future.
- Roughly 99 percent of research is produced by the analysts of banks and ISPs.
- “Independent analysts” exist but are not required to register; their number is uncertain.
- Regulatory framework extensions and requirements:
  - If an ISP disseminates investment research produced by another person, it must ensure the producer is subject to requirements equivalent to those listed in Article 313-21-II of the RG AMF or that it has established a policy setting such requirements.
  - Articles 315-1 to 315-14 apply in such cases.
  - Specific rules for investment analysts not associated with an ISP: Articles 327-1 to 328 of the RG AMF.
  - Rules applicable to personal transactions of ISP staff also apply to “independent analysts”; Article 327-2-1 adds specific rules for personal transactions of “independent analysts.”
  - Inducements to “independent analysts” are subject to general disclosure requirements and rules preventing conflicts of interests (Article 314-76).
  - “Independent analysts” must comply with Articles 315-2 to 315-11 of the RG AMF; Article 327-4 details additional obligations to ensure independence.
  - Article 327-6 requires “independent analysts” to adopt a code of conduct, unless they belong to an industry association recognized by the AMF.
- When third parties disseminate research they did not produce, they must clearly communicate their identity and indicate any change made to the original; summaries must be fair and not misleading.

### Fairness opinions (tender offers)
- The AMF views the fairness opinion as a critical element of investor protection in the context of tender offers.
- AMF regulations for fairness opinions:
  - Prohibit the author of the fairness opinion from being conflicted in relation to the target, offeror, or their advisers.
  - Set the contents of the expert’s report, which must include a self-certification of independence, a description of diligences performed, and a comprehensive evaluation of the target.
  - Prohibit the use of the term “fairness opinion” for any opinion that does not comply with AMF regulations.
- Market structure and oversight:
  - There are currently two associations for experts that provide “fairness opinions,” although only one is active.
  - There are roughly 40-50 experts; 10 to 15 of them provide opinions on a regular basis, and 10 of them concentrate roughly 80 percent of the cases.
  - The AMF checks that experts do not provide opinions to the same bank and assesses both independence and quality of opinions.
  - Reviews of files indicate opinions are detailed and include different mechanisms to price the securities.
- AMF staff assessment: fairness opinions provide value added to shareholders by offering a price reference for minority shareholders to evaluate the offer.

### Proxy advisers
- The AMF issued guidance rather than direct regulation in the proxy adviser area.
- On March 18, 2011, the AMF published a recommendation and encouraged implementation for the 2012 General Meetings season.
- Key recommendations:
  - All proxy advisors should publish their general voting policy on their website.
  - Proxy advisory firms should have appropriate skills and resources to analyze draft resolutions; persons examining draft resolutions must have adequate skills and experience.
  - Proxy advisors should engage in dialogue with listed companies whose draft resolutions they analyze; submit draft reports to the relevant company for review or state clearly in the report that the draft was not submitted and explain why.
  - Proxy advisors should establish and web post reasonable and appropriate measures to prevent and manage conflicts of interest, particularly if active in multiple areas (consulting services to issuers, provision of a voting platform, proxy solicitation, etc.).

### Assessment and supervisory priorities
- Assessment result for this area: Fully implemented.
- Active monitoring of the framework (via onsite inspections) for sell-side analysts is not a current priority of the French authorities; internal controls reviews of ISPs providing research services would indirectly address this issue.
- Given other pressing issues, assessors do not consider this to be a material concern.
- Authorities could consider including remuneration of sell-side analysts as part of topics for further review in connection with compensation of ISPs.

### Principles for Collective Investment Schemes — Overview of regulatory framework (Principle 24)
- Scope:
  - Marketing of CIS can be carried out by: (i) ISPs (including Investment firms, among which are PMCs, and Credit institutions); (ii) direct marketers; and (iii) FIAs.
  - Each category is subject to authorization.
- Direct marketers:
  - Subject to fit and properness requirements: (i) holding a qualification in promotion and direct marketing or at least two years’ experience; (ii) a clean criminal record; and (iii) professional liability insurance meeting certain coverage requirements.
  - Must comply with conduct of business obligations.
- Management of a CIS:
  - Requires authorization pursuant to the COMOFI.
  - Authorization of firms whose main activity is portfolio management belongs to the AMF (Article 311-1, 311-2, and 311-8 of the RG AMF and AMF Instruction 2008-03).
  - Firms that provide portfolio management among other services: authorization falls within the competence of the ACP, but requires prior consultation with the AMF.
- Prior to granting approval to a management company, the AMF checks:
  - Registered office and principal administrative establishment are in France.
  - Sufficient initial capital and financial resources:
    - Share capital of a management company must be at least €125,000 and must be fully paid-in cash.
    - Once authorized, capital must at all times be at least equal to the higher of:
      - €125,000 plus an amount equal to 0.02 percent of assets under management by the management company in excess of € 250 million; the total capital requirement must nevertheless not exceed € 10 million; or
      - one-quarter of general operating expenses for the preceding financial year (Article 312-3 of the RG AMF).
    - DGAM requires a three-year business plan describing expected assets under management, relevant incomes (and their origins), and liabilities (AMF Instruction 2008-03).
    - DGAM requires information on the nature of the shareholder and consistency of capital base to assess recapitalization ability (AMF Instruction 2008-03, Annexes 2 and 2.1).
  - Identities of direct or indirect shareholders with a qualified equity holding and the amount of their holdings.
  - Management by persons with necessary fit and properness qualities and experience:
    - AMF verifies Board members’ respectability, competence, and adequate experience.
    - Experience of portfolio managers is assessed via résumés and declarations relative to the CIS’s investment strategy and instrument complexity (AMF Instruction 2008-03, Annexes 3 and 3.1).
    - Résumé of the compliance and internal control officer is checked.
    - Shareholders above a 10 percent stake are assessed for fitness and properness; for foreign managers/shareholders, AMF seeks comparable information from the home regulator (AMF Instruction 2008-03, Annexes 1, 2, 2.1, 3, and 3.1).
  - A program of operations describing organizational structure, management, marketing channels, and type of transactions; submitted with constituting documents (prospectus, fund rules, key investor document, etc.).
  - Appropriate internal controls, risk management, and a compliance function:
    - A compliance and internal control officer (RCCI) is required for authorization.
    - Very small companies may designate a responsible person or outsource controls.
    - Within the first six months of authorization, the RCCI is granted a professional card by the AMF based on an oral exam, considering personal ability, experience, organization of compliance functions, and reporting lines (Articles 313-66 to 313-71 of the RG AMF).
  - Appropriate governance and conflict of interest policies; executives generally cannot be shared between two or more CIS operators except in very limited circumstances.
  - Membership in the Fonds de Garantie des Dépôts for the “securities guarantee” procedure.
- Ongoing obligations and enforcement:
  - PMCs must comply with authorization conditions at all times (Art. L.532-9 of COMOFI).
  - AMF may withdraw authorization if conditions are no longer met (Art. L.532-10 of COMOFI and Art. 311-4 of the RG AMF).
  - A French UCITS can be operated by a PMC established in another EEA Member State if approved by its home competent authority to operate in France under establishment or freedom to provide services (Art. L.532-20-1 and L.532-20-2 of COMOFI).
  - French PMCs seeking to operate in another EEA state must notify the AMF per specified COMOFI articles and AMF Instruction 2008-03, Annexe 9 (Art. 311-7 of the RG AMF).
  - Specific provisions apply to companies managing securitization vehicles and management companies of real estate investment funds (RG AMF, Art. 321-1 to 321-48).

### Practice: authorization, supervision, and monitoring of PMCs and funds
- Directorate and staffing:
  - Authorization and ongoing supervision performed by the Direction de la gestion d’actifs (DGA).
  - DGA team: a team of 60 people split in 4 divisions:
    - (i) Management Company division: authorization and ongoing monitoring of management companies (Division prestataires de services d’investissement).
    - (ii) Product division: authorization and ongoing monitoring of funds and supervision of marketing materials and campaigns (Division produits et commercialisation).
    - (iii) Expert division: first-level expertise on legal questions (4 persons), complex products & risk management (2 persons), and risk managers (1 person) (Division expertise juridique, doctrine opérationnelle et gestion complexe).
    - (iv) Support division: managing data, reports, analyses related to funds and management companies (Division maîtrise d’ouvrage et métiers support).
- Authorization process for new CIS operators:
  - Applications reviewed by the DGA; review takes approximately two months (and less than three months).
  - Process steps: initial interview of PMC directors by Management Company Division staff; review of regulatory documents and development of a scoring grid by an analyst; second review by head or deputy head and validation; formal analysis presented to managing director of the DGAM; presentation at internal pre-Board meeting; formal decision at AMF Board meeting.
  - Until 2010, AMF policy was to conduct an onsite visit for newly registered entities; policy changed to a more risk-based approach. In practice, PMCs generally receive either a supervisory visit from the DGA or an onsite inspection from the DEC in the first three years of their existence.
- Changes to authorization:
  - Changes in organization, management, or any condition under which authorization was given must be reported to the AMF.
  - Depending on the issue, amendment may require prior AMF authorization or immediate notification (e.g., changes in managers, acquisitions, and increases in holdings require authorization).
  - Changes in the CIS must be transmitted to unit-holders; material changes require prior AMF approval and give unit-holders a right to obtain reimbursement without charges during 3 months.
- Supervision and monitoring:
  - AMF uses a risk-based approach to detect suspected breaches that may lead to follow-up or inspection.
  - Offsite supervision includes reporting obligations: Annual account and situation reporting (FRA), annual compliance report (RAC), and specific annual reporting.
  - Pursuant to Art. L.214-23 of the COMOFI, the CIS, or CIS operator where relevant, must prepare annual and semiannual reports containing accounting information relevant to the CIS and a statement concerning interests in the CIS that have been redeemed or repurchased over the relevant period.
  - Accounts in these reports must be prepared in accordance with applicable accounting standards.
  - These annual and semiannual reports are transmitted to the AMF (Art. 411-122 of the RG AMF).
  - In addition, the PMC sends its financial statements each year to the AMF (Art. ...).

*Source: _cr13182 - 01. At that time, the AMF followed quite closely the implementation of such*

### 313.59 of the RG AMF).

### _cr13182 - 313.59 of the RG AMF)

### Supervisory tools, monitoring and enforcement
- SMARTVL (dedicated IT system) provides analysis on NAVs using more than 100.000 data points monthly.
- Alerts generated by SMARTVL:
  - Roughly 100 alerts per month.
  - Alerts are given for formal review to members of the Product Division (Division agreements et suivi – DAS).
  - After initial analysis, a full review of a significant event is performed during a monthly meeting with all members of the DGA.
  - A formal score (between 0 and 8 points) is given to all cases analyzed.
  - Single cases presenting the highest score are assigned for further action (e.g., reassigned to another DAS member).
- Historical cases opened:
  - 2008: 34 cases opened.
  - 2010: 61 cases opened.
  - 2011: 70 cases opened.
  - Outcomes of some cases included: reform of internal procedures by the PMC, modification of prospectus or marketing materials, referral to the Direction des contrôles (roughly 3 percent), or compensation to investors (9 percent).
- Kantar (dedicated tool) monitors marketing campaigns linked to retail investment products:
  - Between April and October 2011, 82 marketing campaigns on funds were identified and analyzed.
  - Marketing campaigns relating to bank and insurance products are referred to the ACP.
  - Monthly meeting with other AMF groups reviews marketing campaigns.

### Onsite and offsite supervisory activity (selected statistics)
- Onsite work conducted by the AMF on PMCs:
  - Onsite inspections on PMCs: 2008: 34; 2009: 27; 2010: 20; 2011: 30
  - Supervisory Visits: 2008: 56; 2009: 80; 2010: 84; 2011: 100
  - Onsite inspections on depositories: 2008: 3; 2009: 3; 2010: 4; 2011: n/a
- Detection of breaches:
  - Sums recouped for investors following offsite work and visits:
    - 2011: €5,073,650
    - 2010: €432,000
  - Onsite inspections are followed by a follow-up letter (“lettre de suite”).
  - Sanctions have followed in some cases, though the number of sanctions for conduct violations is limited.

### Record keeping, conflicts of interest and conduct obligations
- Record keeping:
  - ISPs (including PMCs) must keep records of all services and transactions sufficient to enable the AMF to monitor compliance (Art. L.533-10 of the COMOFI).
  - Records must be retained for at least 5 years (Art. 313-49 of the RG AMF).
  - Agreements that set out the relationship with a client must be kept at least for the duration of the relationship.
- Conflicts of interest:
  - Art. 313-20 of the RG AMF requires ISPs to establish and maintain an effective conflicts of interest policy, set out in writing and appropriate to their size and organization.
  - Art. 313-21 of the RG AMF requires procedures and measures to ensure relevant persons engaged in different business activities carry out those activities at a level of independence appropriate to the size and activities of the ISP.
  - PMCs must take all reasonable steps to identify and restrict conflicts; where arrangements are insufficient to prevent damage to client interests, the management company must disclose the general nature and/or sources of conflicts before undertaking business (Art. L.533-10.3 of the COMOFI and Art. 313-18 et seq. of the RG AMF).
- Rules of operational conduct:
  - Principle of fair treatment embedded in law (Art. L.214-9 of the COMOFI and Art. 314-3 and 314-3-1 of the RG AMF).
  - PMCs must comply with obligations related to:
    - (i) best execution;
    - (ii) proper handling and allocation of orders;
    - (iii) prohibition of churning (sanctions have been imposed in this area);
    - (iv) related party transactions (including notification and a “registry” system);
    - (v) due diligence in selection of investments;
    - (vi) fees and expenses (obligation to prevent undue costs and disclosure obligations).

### Delegation and resource requirements
- Delegation principles:
  - PMCs must retain necessary resources and expertise to effectively monitor activities carried out by third parties (Art. 313-77 of the RG AMF).
  - Delegation is limited: only activities within the scope of authorization; cannot involve a major or critical part of PMC activity.
  - Investment management of a CIS can only be delegated to a CIS operator duly authorized by a public authority (Art. 313-78 of the RG AMF).
  - Any delegation project between two CIS must be filed with and approved by the AMF; AMF reviews diligence and controls and assesses monitoring measures (Art. 313-77 of the RG AMF).
  - Liability of the PMC or depositary is not affected by delegation (Art. 313-77 of the RG AMF).
  - AMF doctrine refuses or withdraws authorization from companies not having at least three full time persons employed (letter box entities not allowed).
  - AMF Instruction 2005-02: all delegations must be disclosed to investors in the prospectus.

### Assessments and supervisory stance (comments)
- Implementation:
  - AMF applied the risk management framework from bank regulation (Instruction 97-02) to PMCs in UCITS IV implementation, creating a more comprehensive risk management framework compared to 2005.
- Supervisory style:
  - Supervision on PMCs is active and interpretation of law stringent; serves French investors well but raises some European level playing field issues.
  - AMF has stricter diversification requirements than many other European jurisdictions.
  - AMF requires aggregation and measurement of all risks within a fund into a single number, which can result in lower overall allowable fund risk relative to other jurisdictions.

### Legal form, asset segregation and winding up (Principle 25)
- Legal forms of CIS:
  - UCITS take the form of either open-end investment companies (SICAVs) or unit trusts (FCPs) (Art. L.214-4 of the COMOFI).
  - SICAV must be a public limited company or société par actions simplifiée (SA) (Art. L.214-7 of the COMOFI).
  - Investors in SICAVs have voting rights; in FCPs investors are represented by the PMC (Art. L.214-9 of the COMOFI).
- Changes to a CIS:
  - Investors must be informed of every modification; material changes require personal notice before changes take effect and give investors the right to redeem without fees.
  - Material changes include identity of PMC or depositary, investment objectives or policy, fees, risk profile, reduced NAV publication frequency, change of guarantor, delegation of substantial part of investment management.
- Compliance with investment rules:
  - Investment objectives and policies must be in the prospectus; depositary ensures compliance with stated policies.
  - AMF conducts ongoing supervision of CIS (Art. L. 621-9 et seq. of the COMOFI and Art.143-1 et seq. of the RG AMF).
- Segregation/safekeeping:
  - CIS assets must be held by a single custodian separate from the PMC, chosen from a list by the Ministre de l’Economie et des Finances; custodian must keep CIS assets segregated from its own assets (Art. 322-17 of the RG AMF).
  - Conflicts of interest safeguards include annual auditor reports on adequacy of depositary measures (Article 313-17-1 of the AMF RG) and a special annual audit of depositary accounts (Article 323-10 of the AMF RG).
  - AMF conducted inspections on 3 depositories acting solely for CIS managed by a related PMC; lettres de suite were sent.
  - If a custodian entrusts assets to a third party, the custodian remains responsible for restitution (Art. L.214-10 of the COMOFI and Art. 323-2 and 322-4 of the RG AMF); French courts have upheld this obligation (2012 decisions).
  - If a PMC goes into liquidation, fund assets belong only to the fund and are protected from PMC liquidator claims.
- Winding up:
  - Formation, conversion, merger, demerger or liquidation of a UCITS subject to AMF authorization (Art. L.214-3 of the COMOFI).
  - Conditions for liquidation and asset division determined by fund rules (Art. L.214-12).
  - Custodian or PMC assumes liquidator functions, failing which a court-appointed liquidator may be requested by any unit holder.
  - Winding up process: management company requests winding up; reviewed by a product fund analyst and signed off by a senior analyst. For structured funds, convergence of the formula and potential guarantee payment is checked.

### Disclosure and investor information (Principle 26)
- Disclosure obligations overview:
  - PMC must submit prospectus and Key Investor Information Document (KIID) for authorization.
  - Ongoing and periodic disclosure requirements similar to issuers apply.
- Prospectus must include:
  - Date of issuance; legal constitution and attributes of shares/units; information on CIS operator; valuation rules and NAV procedures; custodial arrangements; information on risks; persons with significant independent roles; fees and charges; names of auditors.
- KIID requirements:
  - Must be provided free of charge ahead of subscription (Art. 411-128 of the RG AMF).
  - Format regulated by Regulation of the European Commission 583/2010.
  - Must include identification of UCITS, short description of investment objectives and policy; past performance or performance scenarios where relevant; costs and associated charges; risk/reward profile and guidance; written in nontechnical language.
  - Length limits: should not exceed two pages, except structured UCITS up to three pages.
  - Specifies where/how to obtain additional information including prospectus, annual and semi-annual reports.
- Authorization process for a CIS (five-step process):
  - (i) initial review of fund regulatory documents by staff (complex funds include thorough marketing materials analysis);
  - (ii) second review by a reviewer;
  - (iii) short review by deputy head of Division produits et commercialisation or head of product team;
  - (iv) presentation in the AMF Fund Committee (meeting twice per week);
  - (v) formal approval by the Chairman of the AMF.
  - AMF verifies prospectus and KIID provide information in a clear, fair and not misleading manner (Art. L.533-12 of the COMOFI).
- Periodic and ongoing information:
  - Financial statements prepared in accordance with French GAAP and audited (Art. 411-35 of the RG AMF).
  - Annual and semi-annual reports must contain accounting information and a statement on redeemed/re-purchased interests plus a management report (Art. L.214-23 of the COMOFI and Art. 411-121 and 411-122 of the RG AMF).
  - List of assets at end of each semester required; offering circulars published within eight weeks following period end (Art. 411-125 of the RG AMF).
  - Annual financial statements and related reports must be available at registered office and sent to unit-holders upon request within eight business days; may be sent electronically with consent (Art. 411-128-3 of the RG AMF).
- Advertising and marketing controls:
  - Advertising outside offering documents must comply with various RG AMF articles; inaccurate, false or misleading advertising prohibited.
  - AMF may require pre-approval of marketing communications (Art. 314-30 of the RG AMF).
  - AMF monitors websites, newspapers and other publications; noncompliance triggers contact and recommended corrective actions.
  - AMF published guidelines on advertising outside offering documents and Position No. 2010-05 on marketing of complex financial instruments.
- Distribution rules:
  - PMCs and distributors subject to conduct obligations including suitability or appropriateness depending on service.
  - UCITS can be distributed on an execution-only basis as they are considered non-complex under MiFID; authorities have advocated elimination of automatic categorization of all UCITS as non-complex.
- Assessment: Fully Implemented.
- Comments:
  - Disclosure requirements for CIS are robust.
  - Assessors welcome actions to eliminate automatic classification of UCITS as noncomplex.
  - AMF’s highly complex product doctrine interprets suitability broadly and limits marketing of highly complex structured products; products with a guarantee of at least 90 percent of the principal fall outside this doctrine.
  - Respondents urged inclusion of fees, commissions and hidden costs in the doctrine and sharper definition of simple vs very complex products.

### Asset valuation, NAV publication and pricing (Principle 27)
- Valuation framework:
  - Art. L.214-19 of the COMOFI requires PMCs to value CIS assets accurately and independently; valuation must follow French GAAP.
  - Art. 411-24 to 411-33 of the RG AMF: PMC responsible for policies/procedures to ensure accurate NAV calculation; financial instruments must be valued each day for NAV calculation.
  - Art. 411-28: accounting rules must be consistent across assets of the same class.
  - AMF Instruction 2008-06 and AMF Instruction 2005-02 complement valuation rules and require prospectus disclosure of valuation rules.
- Illiquid assets:
  - AMF Instruction 2008-06 guides valuation of illiquid assets.
  - Portfolio manager must not rely entirely on counterparty prices for OTC derivatives and must use/validate valuation models, select appropriate inputs, and implement independent valuation control.
  - Art. 313-53-4: valuation procedures must be reviewed and supported by the permanent risk management function, independent from operating units; external accountant audits compliance.
- NAV publication and frequency:
  - Art. 411-123: CIS must publish NAV at least twice a month.
  - UCITS may publish once a month with AMF authorization; in practice that occurs only for funds marketed to professional investors.
  - Practical NAV publication landscape:
    - About 4000 funds for the retail public (daily publication).
    - Another 4000 funds calculate the NAV on a quasi-daily basis (usually publish daily unless delayed by calculation duration).
    - About 2000 funds mostly have a weekly cycle for NAV calculation (aimed at institutional investors).
  - Quoted CIS must establish and publish NAV on each negotiation day (Art. 411-124).
  - NAV calculation frequency specific rules:
    - Private equity CIS marketed to retail investors: at least twice a year (Art. 412-42).
    - Real estate CIS marketed to retail investors: at least four times a year within a maximum three month interval (Art. 424-42).
  - Prospectus must establish frequency of NAV calculation/publication; subscriptions and redemptions calculated on that NAV.
- Mispricing and compensation:
  - AMF doctrine "Guide de suivi des OPC" addresses pricing errors and good practices for compensation.
  - When mispricing occurs, CIS operator must analyze impact and compensate: (i) the CIS; (ii) unit holders who have subscribed; (iii) unit holders who have redeemed.
  - CIS operator must contact AMF, provide methodology for impact computation, compensation schedule, and disclosure information.
  - 2010 total amount PMCs compensated unit holders for pricing errors: €4.3 million (per AMF report referenced).
- Suspension of redemptions:
  - PMC can suspend redemption or issuance of units only in exceptional circumstances to protect unit-holders and according to fund rules (Art. L. 214-7-4 and L. 214-8-7 of the COMOFI).
  - AMF must be informed without delay of reasons and terms before implementation, and all competent EU Member State authorities must be informed (Art. 411-20).
- AMF powers and special measures:
  - AMF can carry out controls and inquiries to verify compliance with asset valuation and pricing rules (Art. L.621-9 of the COMOFI).
  - SMARTVL used to detect abnormal performance and valuation compliance.
  - COMOFI allows side pockets in exceptional circumstances when sale of assets is not in unit-holders’ interest; AMF must approve and monitor communications to investors.
- Assessment: Fully Implemented.
- Comments:
  - Creation of side pockets in MMFs is unusual but may have been justified by the crisis; assessors encourage authorities to assess the side pocket experience and consider enhancements to MMF regulation.

### Hedge funds oversight (Principle 28)
- Background:
  - Hedge funds (within IOSCO meaning) in France may be structured as non-UCITS (nationally regulated funds) and must be authorized or registered with the AMF depending on legal form; they are regulated like other comparable CIS.
  - Framework to be revised/completed from 1st July 2013 for AIFM Directive implementation; AMF considers most provisions already in force in France.
- Authorization requirements for hedge fund managers:
  - PMCs managing HFs subject to same standards as other CIS operators concerning internal organization and operational conduct.
  - Requirements include respectability and adequate experience, adequate material/financial/human resources, employment of skilled personnel, sufficient initial capital and suitable ongoing financial resources (Art. L.532-9 of the COMOFI).
  - Establishment of a risk management policy for measurement and management of risk is required.
  - PMCs must demonstrate a program of operations showing adequate resources relative to nature, scale and complexity of funds (Art. 313-54 of the RG AMF).
  - Authorization contingent on AMF being convinced PMC can manage HFs and employs a risk-management process enabling real-time risk monitoring and measurement (Art. L.532-9 et seq. of the COMOFI, Art.313-53-3 et seq., Art.313-60 of the RG AMF, AMF Instruction 2008-03).
  - AMF checks effective direction by at least two persons of good repute and sufficient experience.
  - Authorization has been refused in the past where AMF detected poor internal conduct codes or potential conflicts of interest.
- Authorization requirements for hedge funds (fund types):
  - Two types corresponding to IOSCO HF description:
    - HFs which must be authorized by the AMF (OPCVM ARIA).
    - HFs which are only registered with the AMF (tailor-made funds).
  - Particular AMF Instruction exists for each kind of HF.
  - "OPCVM ARIA" (CIS with streamlined investment rules):
    - PMCs managing HFs required to undergo full authorization process as for ordinary funds (Art. L.214-33 et seq., Art. L.214-3, Art. 411-3 et seq., 412-44 of the RG AMF).
    - Conversion or liquidation of a CIS with streamlined rules also subject to AMF authorization (Art. L.214-3).
    - Subscriptions/purchase of these funds restricted to professional investors, with specific rules on minimum net worth and minimum subscription for individuals.

_Italic: Source — IMF content unit _cr13182 - 313.59 of the RG AMF)._

### 2. Tailor-made funds "only registered" with the AMF

### 2. Tailor-made funds "only registered" with the AMF

### Registration and scope
- This form of fund does not need to be authorized by the AMF, but must file a registration with the AMF that contains the elements stipulated in an AMF Instruction.
- The conditions under which their formation, merger, demerger, takeover, liquidation, conversions and changes must be reported to the AMF are specified in Art. 412-74, 412-95 et seq., and 412-108 et seq. of the RG AMF, as well as under AMF Instructions numbers 2005-04, 2009-06 and 2009-09.
- Subscription and purchase of these funds is restricted to professional investors; minimum subscription requirements for individuals are higher than those established for an OPCVM ARIA.

### Internal organization and segregation of assets
- PMCs that manage HFs need to disclose during the authorization process and on an ongoing basis all details on the internal procedures and processes, including full details on their risk management process.
- Each PMC must appoint a single depositary pursuant to Art. L.214-8-1 and L.214-10 of the COMOFI.
- The AMF exercises control over the choice of the depositary pursuant to Art. 411-8 and 411-11 of the RG AMF.

### Conflicts of interest
- PMCs that manage HFs need to disclose during the authorization process all types of potential conflicts of interest pursuant to Art. L.533-10 of the COMOFI and Art. 313-18 et seq. of the RG AMF.
- Example: HF managers that are part of the same group as a broker dealer need to disclose the potential amount of trades done with the group.
- PMCs that manage HFs must set up a conflict of interest policy and provide it to investors, as any other investment firm (see details on the conflict of interest policy in Principle 23).

### Prudential requirements
- PMCs that manage HFs are subject to the same capital requirements as any other fund manager, which are detailed in Principle 24.
- The AMF highlighted that these requirements will be amended to be harmonized with all other European Member States as from July 2013 with the entry into force of the AIFM Directive.
- PMCs that manage HFs must establish and maintain effective decision-making procedures which notably include due diligence in connection with the selection, monitoring and management of the risks associated with the financial instruments in which the CIS invests.
- PMCs must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them.
- For all prudential requirements, PMCs must take into account the nature, scale, complexity and range of the services that they provide and the businesses in which they engage.

### Information to investors
- The prospectus requirement also applies to HFs.

### Ongoing supervision — Powers
- The AMF control and inspection/investigation powers are the same for PMCs that manage HFs as for any PMC generally (Art.L.621-10 of the COMOFI and Art.143-1 et seq. of the RG AMF).
- The AMF can impose sanctions on both the management companies and the individuals acting under their authority or acting on their behalf (e.g. investment service compliance officers, salespersons, investment managers, investment analysts, traders, etc.).
- Based on its general powers of investigation, the AMF can request the production of any information and document, including information on HFs exposure to counterparties.
- As long as the conditions required for cooperation and exchange of information between the AMF and foreign regulators are fulfilled, the AMF can exchange information with a foreign regulator, including information concerning internationally active funds that may pose systemic or other significant risks (Art.L.632-1 to L.632-6 for EEA regulators and Art.L.632-7 for non-EEA regulators of the COMOFI).

### Offsite and onsite supervision
- Any updates from the initial authorization need to be disclosed to the regulator (referred to in Art.L.214-3 of the COMOFI and Art.411-16 et seq. of the RG AMF).
- The AMF receives all the NAVs of the different funds and runs many tests on these NAVs to check potential anomalies or to detect emerging systemic risk (Art.411-29 of the RG AMF).
- The AMF can request details on the portfolios.
- The AMF receives annual and semi-annual reports that contain accounting information relevant to the HFs pursuant to Art.411-121 et seq. of the RG AMF.
- When HFs need not be authorized by AMF, the AMF receives NAV information (Art.142-1 of the RG AMF), but does not receive annual and semiannual reports of the HFs.
- Pursuant to Article 313-61 of the RG AMF, PMCs that manage HFs must communicate to the AMF the types of derivative instruments, underlying risks, quantitative limits and methods that are chosen in order to estimate risks associated with transactions in such derivative instruments regarding each managed CIS. AMF may control the completeness and regularity of this information.
- PMCs that manage HFs are subject to onsite inspections as part of the regular plan of inspections of the AMF.

### Reporting under the AIFM Directive
- As from July 2013, in application of the AIFM Directive, PMCs that manage HFs (among other non-UCITS managers) will have to report to their national regulators regarding, inter alia, the potentially systemic implications of the funds they manage.
- Such reports must be forwarded by EU national regulators to the ESMA and to the ESRB for the purpose of systemic surveillance.

### Assessment
- Assessment: Fully implemented

*Source: _cr13182 - 2. Tailor-made funds "only registered" with the AMF*

### Introduction

### _cr13182 - Introduction

### Regulatory framework and supervisory responsibilities
- ACP: primarily responsible for prudential supervision of ISPs (investment service providers); authorizes ISPs other than PMCs, in consultation with the AMF (COMOFI Articles cited throughout).
- AMF: markets supervisor; responsible for conduct supervision of all participants in the securities market including ISPs and PMCs; exercises prudential supervision over PMCs and the funds they administer.
- PMCs: comply with Principles 29–32 as market intermediaries (details for PMCs described elsewhere in source).

### Definition of ISPs and authorization scope
- ISPs include investment firms and credit institutions authorized to provide services per Article 321-1 of the COMOFI: reception and transmission of orders, execution of orders, own account trading, portfolio management, underwriting, placing of financial instruments (with or without firm commitment), investment advice, operation of multilateral trading facilities.
- Authorization regimes:
  - French entities: direct authorization required (COMOFI Art. L 531-1).
  - EU cross-border: authorization in home jurisdiction with MiFID notifications.
  - Third-country entities: must be authorized (COMOFI Art. L533-4 and L511-41-1).
- Authorization process governed by Articles L 532-1 to L 532-5 of the COMOFI; AMF must approve operational program for asset management or investment advice services.

### Authorization requirements (ACP review prior to license: COMOFI Art. L532-1 to L532-4)
- Capital: minimum capital requirements (CRBF Regulation 96-15) depending on services:
  - €125 000 for investment advice, reception and transmission of orders, executing orders and portfolio management for third parties (€50 000 when such services are to be provided without custody of client assets).
  - €1 100 000 for trading for own account, underwriting and placing (amounts are reduced to €730 000 when the provider holds no client assets).
  - €730 000 for placing of financial instruments without a firm commitment basis and operation of an MTF.
  - Substantially higher requirements for clearing/custody firms: minimum capital requirement of €3.8 million.
- Internal controls: compliance with CRBF Regulation 97-02 (risk management, compliance, outsourcing, AML).
- Management: two senior managers of integrity and experience required (Art. L532-2-3). ACP application form requires detailed management information; FIDEC centralized database operational.
- Program of operations: business plan and technical/financial resources reviewed.
- Suitability of shareholders: disclosure of identity and holdings of qualified holdings (10 percent); ACP assesses quality for sound management.
- Membership in guarantee mechanism: assessed per Art. L 322-1 to L 322-4 (Art. L 532-2-6).
- ACP authority to attach conditions to license and to withdraw license based on non-compliance or as sanction; all requirements publicly available.

### Authorization process and staffing
- Direction des Autorisations, des Agréments et de la Réglementation (DAAR) of the ACP manages authorizations.
- Two specialized units: banks (15 staff) and ISPs (12 staff).
- Authorization decisions taken by the Banking sector sub-college; applicants use public ACP “Authorization Dossier”.
- Historical notes:
  - Over past 6 years, 24 applicants withdrew their requests.
  - In 2010 ACP refused a license based on AMF non-approval of operational program.
- No routine post-authorization “nursery” visits; onsite inspection selection is risk-based.

### Changes in ownership and senior management
- CRBF Regulation 96-16 (Art. 2.1): ACP authorization required prior to major ownership changes (thresholds: 1/2, 1/3, 20 percent and 10 percent of voting rights), legal form, registered name, services.
- Art. 9: appointment of any senior manager must be notified to ACP when taking position; appointment subject to original authorization conditions; unsuitable appointee may trigger license review.
- Similar requirements for PMCs (decisions by AMF).

### AMF licensing of individuals and fit/proper assessment
- Employment in certain positions subject to professional licenses and fitness/proficiency requirements (COMOFI Art L621-7 IV 3°, RG AMF Art. 313-29 to 313-49; RG AMF Art. 313-7-1 and following).
- Functions requiring professional licenses include: compliance and internal control officer; compliance officers for investment services; traders; clearers; investment analysts. In PMCs, compliance and internal control officers require licenses.
- AMF issues licenses for compliance officers and ensures fit and properness; exams organized by AMF.
- Professional licenses for traders, clearers, analysts issued by ISP compliance officers subject to ISP verification and Article 313-7-1.
- AMF keeps a register of professional licenses and is informed of licenses delivered/withdrawn and disciplinary sanctions.

### Custodians, financial advisors, FIAs
- Entities holding client assets must be ISPs or specially licensed entities (COMOFI Art. L542-1, 5°, Art. L 621-6 VI, 1°; RG AMF Art. 322-1 and following); in practice nearly 100 percent of custodians are licensed as ISPs.
- Financial advisors (FIAs) who only provide investment advice and transmission to an ISP:
  - Not required to hold ISP license; regulated nationally; do not benefit from EU passport.
  - Must be registered with a professional association and comply with fit and proper, resources/procedures, professional liability insurance, fair treatment, duty of care, KYC, client disclosures (COMOFI Art. L 541-1 to L 541-8).
  - RG AMF Art. 325-1 to 325-31 further specify compliance procedures and conflict-of-interest measures.
  - FIAs must keep records: client agreements, products recommended, written suitability explanation.
  - Must disclose remuneration and inducements and significant relationships with product providers.

### Assessment of fit and proper practices
- Assessment: Broadly implemented.
- Comment: Current review focuses on two senior managers per MiFID; IOSCO requires broader assessment for all persons who control or can materially influence the applicant. Assessors welcome EU negotiations (CRD IV, MiFID II, Solvency II) to extend review to Board members; encourage French authorities to extend review to all ISPs as done with PMCs.

---

H3: Principle 30 — Capital and prudential requirements for market intermediaries

### Capital adequacy and own funds
- Investment firms (non-bank ISPs), except PMCs and firms with no client assets limited to order reception-transmission and/or investment advice, must maintain own funds equal to total client positions divided by 150 (CRBF Regulation n°97-04, Art. 1).
  - Client positions include positions in financial instruments on regulated and OTC markets, cash debits, uncovered short positions on spot market held in client name, and debit balances on settlement accounts.
- Components and calculation defined in Regulation n°90-02 and Instruction n°2007-02.
- Tier structure:
  - Tier 1: core capital, general reserves, certain hybrid instruments meeting 27 October 1998 Basel criteria.
  - Tier 2: subordinated debt subject to limits (Art. 4 c and 4 d of Regulation n°90-02).
  - Tier 3: strictly limited to coverage of market risks.

### Large exposures
- CRBF Regulation n°93-05 applies to ISPs (other than PMCs): exposures > 10 percent of own funds.
- Maximum exposure to one counterparty limited to 25 percent of own funds (weightings may apply).
- Since 2010 maximum exposure on credit institutions is €150 million and may not exceed 100 percent of the shareholder funds of the institution concerned.
- Investment firms must ensure total value of any client’s positions is less than 15 times the amount of their overall own funds (Art. 5 Regulation n° 97-04).

### Liquidity and risk management
- Art. 31 CRBF Regulation n° 97-02: ISPs must have policies/procedures for ongoing and forward-looking liquidity risk measurement and management; contingency plans required.
- Credit institutions providing investment services are subject to a liquidity ratio per Ministerial Order of May 5, 2009 (Art. 8–10 of the Order).
- Basel III: new liquidity standards to be implemented with revision of Capital Requirements Directives.

### Risk systems and records
- Art. 17 et seq. CRBF Regulation 97-02: ISPs must set up risk analysis/measurement systems for credit, market, overall-interest-rate, intermediation, settlement, liquidity, operational risks; assess and maintain appropriate internal capital; regular internal reviews required.
- Records: must permit reconstruction of transactions and determination of positions and P&L daily; retention period: five years (CRBF Regulations n°97-04 and n°97-02).

### Reporting and disclosure
- Annual accounts published within 45 days of approval by competent body (Art. 4 Regulation n°97-03; Art. 10 Regulation n°91-01); must include statutory auditor’s report.
- ISPs with balance sheet > €450 million must publish quarterly financial statements within 75 days from end of quarter.
- COREP reporting: summary capital ratio and risk reports submitted quarterly by institutions with total consolidated balance sheet > €80 billion using IRB; semi-annually by other subject institutions.
- Additional annual reports: securitization (CR SEC Details), internal models for market risk (MKR IM Details), 10 largest operational risk losses (OPR Loss Details), CRM Detail, SOLVA Group — reporting deadline two months after statement date (June reports three months).
- ISPs trading commodity derivatives: monthly position statements to ACP (Art. 9 CRBF Regulation 97–04).
- Long settlements reported quarterly (applies to 12 institutions).
- Annual report on internal controls required.

### Consolidated supervision and onsite inspection resourcing
- Art. 43 CRBF Regulation n°97-02: consolidated ISPs must prepare at least once a year a report on measurement and monitoring of exposures.
- ACP can extend onsite inspections to contractually related entities affecting autonomy (Art. L 612-26-5° COMOFI).
- ACP staffing: Service des Entreprises d’Investissement — 23 people (offsite ongoing monitoring); Délégation au Contrôle sur place — roughly 25 people (onsite inspections).
- ACP uses OREP system for monitoring; risk assessment methodology uses 13 indicators:
  1) Quality of credit portfolio
  2) Doubtful (nonperforming) loans and provisions
  3) Concentration risk
  4) Operational risk
  5) Organization of internal control
  6) Anti-Money Laundering policy
  7) Safeguarding of client assets (specific to investment firms)
  8) Strategy and Organization
  9) Market risk
  10) Liquidity risk and level of transformation
  11) Interest rate risk in the banking book
  12) Earnings and profitability
  13) Own funds
- Ratings: individual indicators scored (materiality and adequacy of internal control) and combined into a global rating 1 (best) to 5 (worst).
- Higher risk firms subject to intensified monitoring and ad-hoc reporting; currently about 4 percent of ISPs report additional ad-hoc information.

### Inspection cycle and examples
- Aim: full inspection of each ISP every five to six years; exceptions for smallest ISPs (offsite only) and large institutions with continuous supervisory staff.
- Example population: of 137 IFs, 33 not inspected last year (started business <5 years), 18 financial holding companies inspected with ISP subsidiary, remaining 70 inspected every five years leading to 12 inspections last year in that population.
- ACP conducted targeted visits in response to frauds on internet brokerage platforms (IT and risk compliance).

### Enforcement powers and use
- ACP enforcement tools: follow-up letters, injunctions, administrative measures, remedial plans, protective measures, sanctions; can appoint provisional administrator.
- Historical enforcement: provisional administrator appointed in one ISP insolvency; ACP issued instruction in two other cases; recently imposed a fine of €0.8 million on a bank and a warning to another bank for AML internal control deficiencies.
- Assessment: Broadly implemented.
- Comments and recommendations:
  - Recommends ACP increase frequency of capital adequacy reporting to monthly now that XMRL platform is in place; implement explicit triggers for increased reporting.
  - Suggests increasing risk-based supervision (particularly inspections) for cost effectiveness; invest in more frequent risk information collection.
  - Increase enforcement use and potentially adjust supervisory philosophy and mindset.
  - Encourages review of capital definition and related challenges (not graded here).

---

H3: Principle 31 — Internal controls, compliance and investor protection

### Internal control requirements (ACP: CRBF Regulation n°97-02)
- ISPs (other than PMCs) must set up internal control system including:
  - controls of operations and internal procedures;
  - organization of accounting and information processing systems;
  - risk and result measurement systems;
  - risk monitoring and risk control systems;
  - documentation and information system;
  - system for monitoring cash and securities flows.
- Appointment of officer responsible for coherence/effectiveness of periodic controls (Art. 6); periodic control staff must be independent (Art.7).
- Audit schedule: at least once a year based on internal control objectives.
- Officer in charge of periodic controls can inform audit committee directly (Art. 9-1).
- Controls must apply to entire organization including branches and undertakings under control (Art. 10).
- Designation of a person responsible for compliance controls who cannot be an executive nor participate in commercial operations (Art. 11).
- Designation of a person in charge of risk management (Art. 11-8).
- Executive and decision-making bodies responsible to assess and control effectiveness of policies/systems (Art. 38).

### AMF compliance framework (RG AMF)
- Art. 313-1: ISPs must maintain operational policies/procedures to detect risk of non-compliance with professional obligations (including conduct of business).
- Art. 313-2: ISPs must establish an independent compliance function with responsibilities to monitor adequacy/effectiveness and to advise/assist relevant persons.
- Art. 313-3 and 4: designate a head of compliance (RCSI) who must be approved by AMF (Art. 313-38 to 313-44).
- Art. 313-7: senior management must receive compliance, risk control and internal audit reports at least once a year; supervisory body receives periodic written reports.

### Segregation of functions and remuneration
- Art. 7-1 Regulation n°97-02: units initiating transactions must be independent from those validating them (accounting, settlement, risk function); independence may be organizational or procedural.
- Remuneration of validation unit employees must be determined independently and be adequate to attract qualified staff.
- Art. 31-2 Regulation n°97-02: compensation policies must forestall risks and conflicts of interest and take into account risk in compensation policy consistent with FSB principles.

### Conflicts of interest and DEA/DMA
- Art. L 533-10-3 COMOFI: ISPs must prevent conflicts of interest from adversely affecting client interests; if measures insufficient, must disclose nature/sources before undertaking business.
- Euronext Rule Book Art. 8106/3–4: members must vet orders prior to submission and monitor positional/financial risks; must demonstrate integration of position limits and automatic rejection or manual hold processes.
- ESMA Guidelines on DEA require automated pre-trade controls; recently become binding under “comply or explain”.

### Protection of client assets and auditor reporting
- Art. L533-10-6 COMOFI: ISPs safeguarding client ownership rights; prevent use of client instruments on own account without express consent.
- RG AMF Art. 313-13: recordkeeping to distinguish client assets, accuracy, periodic reconciliations, separation on third-party books, organizational arrangements to minimize loss risk.
- Art. 313-17-1 RG AMF: statutory auditor must report at least yearly to AMF on adequacy of client asset protection measures; AMF may order corrective actions or appoint an agent to safeguard assets; Art. 322 provides custody account keeper regime.

### Investor complaints, AML, KYC and client information
- Art. 313-8 RG AMF: ISPs must maintain effective transparent complaint-handling procedures and records.
- COMOFI Art. L 561-5 and L 561-6: AML CDD requirements — collect information on purpose/nature of business relationship before commencing; enhanced ongoing monitoring; identify beneficial owners; justify measures taken.
- ACP issued nonbinding guidelines Oct 2011 regarding beneficial owners.
- MiFID transposition created three client regimes (COMOFI Art. L 533-13; RG AMF Art. 314 series):
  - Suitability regime: portfolio management and investment advice — collect knowledge/experience, financial situation, investment objectives.
  - Appropriateness regime: other investment services — collect knowledge/experience to assess appropriateness.
  - Execution-only regime: execution/reception/transmission without client info if conditions met (noncomplex instruments; client initiative; informed no conduct protection; other obligations met).
- Art. L533-14 COMOFI and RG AMF Art. 314-59 to 314-64: written client agreement for retail clients specifying services, fees, reporting, order types, transmission methods.
- Custody account keeper notifications: corporate actions, executed trades; repetitive transactions may be reported every six months; statement at least annually (Art. 314-105 RG AMF).

### Due care and recordkeeping
- COMOFI Articles 533-1 and 533-11; RG AMF 314-3 and following: ISPs must act honestly, fairly and professionally to promote market integrity and act in clients’ best interest.
- Recordkeeping obligations (Art. L533-10-5 COMOFI; RG AMF Art. 313-49):
  - Data retained for at least five years.
  - Recorded information must be unaltered and readily accessible.
  - Telephone conversations of designated staff must be recorded for monitoring.

### Supervision and onsite inspection statistics
- Ongoing monitoring by ACP (prudential) and AMF (conduct); Pôle Commun work referenced.
- Onsite inspections by ACP (table in source) — aggregated totals:
  - IFs/credit institutions and totals presented for 2009–2011 in source (see original for detailed numbers).
- AMF onsite inspections (summary table for 2008–2011):
  - ISPs (other than PMCs): 2008: 29; 2009: 21; 2010: 35; 2011: 8
  - PMCs: 2008: 34; 2009: 27; 2010: 20; 2011: 30
  - FIAs: 2008: 1; 2009: 29; 2010: 14; 2011: 11
- AMF adopted risk-based approach since 2009; inspections are followed by formal ‘lettre de suite’.
- The AMF has focused on sales/marketing practices, client categorization, suitability, conflicts, client agreements and complaints; since 2011 requires specified skills and training for sales/advisory staff; conducted mystery shopping campaigns (three full, one pilot).

### Assessment and recommendations
- Assessment: Broadly implemented.
- Comments:
  - Supervision and enforcement could be improved, especially for FIAs.
  - AMF has delivered quality results but limited quantities; additional resources suggested.
  - AMF should continue building FIA capabilities; professional associations cannot substitute for AMF enforcement powers.
  - Joint ACP/AMF work on client questionnaires and quality-of-advice review planned; further supervisory priority recommended.

---

H3: Principle 32 — Failure management, early warning and investor protection

### Failure preparedness and early warning
- ACP has not developed formal plans/manuals for each ISP failure; rationale: historically very few ISP failures in France.
- ACP scoring system (offsite monitoring) used as critical early warning tool; fed by reporting, auditors, complaints.
- Example actions: ACP placed failing ISP under temporary administration after auditor early warning and onsite inspection; requested Guarantee Fund engagement; authorization withdrawn and judiciary liquidation launched; coordination with AMF and EU counterparts.

### Powers to address failures (ISPs other than PMCs)
- ACP powers (Articles 612-30 to 612-37 COMOFI): warnings, formal notices, remedial plans, protective measures (including restricting operations), sanctions.
- ACP can order transfer of client accounts to another intermediary; clearing house mechanisms for member defaults (Article 440-9 COMOFI).
- ACP may suspend senior managers, place ISP under special administration, appoint provisional administrator (Article L 612-34 - I COMOFI). Historical use: provisional administrator appointed in emergency procedures.

### PMCs and AMF crisis processes
- AMF has developed a template and key action points for crisis management of PMCs: key scenarios, escalation process, legal forms, contacts, potential administrators; internal implementation ongoing.
- Art. 311-5 RG AMF: PMCs must be supervised by an AMF-designated administrator between withdrawal of authorization and de-registration; in recent cases AMF placed PMC under supervision and later withdrew license.
- PMCs may not hold cash or securities on behalf of clients; after withdrawal, PMC must ask clients to choose transfer, liquidation, or self-management (Art. 311-5 RG AMF).

### Investor compensation
- ISPs required to adhere to investor compensation schemes administered by Fonds de Garantie des Dépôts (FGD).
- Maximum guarantee: €70,000 per investor.
- Cash deposits linked to securities accounts protected up to €70,000.
- Compensation based on market value of securities on date they ceased to be available; ACP sets that date when engaging FGD.
- Customers have 15 days to contest or accept the securities compensation offer.
- Example: securities guarantee mechanism activated at ACP request in recent ISP failure.

### Cooperation and international arrangements
- Art. L 631-1 COMOFI authorizes Banque de France, ACP, AMF and FGD to exchange required information; COREFRIS national platform used to exchange emerging risks.
- ACP has signed two European MoUs dedicated to crisis management; cooperated with EU counterparts in cross-border failure case.

### Assessment and recommendations
- Assessment: Broadly implemented.
- Comments and recommendations:
  - ACP’s risk scoring functions as early warning but lacks notification system with specific thresholds requiring immediate ISP notification when capital falls below levels.
  - ACP should consider explicit ex ante triggers and conduct crisis management exercises (possibly consolidated basis).

---

H3: Principles for Secondary Markets (Principles 33–35)

### Principle 33 — Authorization and oversight of trading systems and exchanges
- Authorization framework: Title V RG AMF (Art. 511-5 to 515-3). Market operator must seek authorization from the Minister of Finance; AMF reviews and issues recommendation in consultation with ACP (Art. L 421-4 COMOFI).
- MTFs: can be managed by market operator or ISP (Art. L.321-1 COMOFI).
- AMF grants authorization of market operator managing an MTF after ACP opinion on organization, resources, financial resources (Art. L.424-1 and L.424-2 COMOFI; Art. 521-3 to 521-7 RG AMF).
- General requirements for authorization include compliance of market rules, adequate organization and resources, arrangements for continuous compliance (supervising trading/members, monitoring market abuse), arrangements for efficient timely settlement; CCPs to comply with RG AMF or equivalent if outside France (Art. 512-2 RG AMF).
- Information required from applicants includes program of operations, CVs of directors/officers, identity of significant influencers (≥10 percent), latest annual accounts, outsourcing agreements, market rules, arrangements for settlement and clearing house operating rules.
- AMF and ACP rely on entity internal IT assessments during authorization but have in-house expertise for review if concerns arise.
- Market operators must communicate disruptions to AMF/ACP for possible action.

### Outsourcing and fair access
- CRBF 97-02 Article 37-1/37-2 h): conditions for outsourcing; ACP must have access to information on outsourced tasks through onsite inspections; ACP can extend inspections to contractual counterparties affecting autonomy (Art. L.612-26-5° COMOFI).
- Fair access: AMF requires RMs and MTFs to establish transparent and nondiscriminatory rules governing access/membership (Art. L. 421-10 and L. 424-2 COMOFI); breaches subject to enforcement.
- Euronext: must ensure equal access for technical connection solutions; sponsoring members must ensure sponsored participants comply with trading rules.

### Trading halts, transparency of rules, confidentiality and audit trails
- Trading suspension procedures required in RM/MTF rules (Article 514-3 RM; 521-4 MTFs).
- Operators must publish market rules on their website (Articles 511-13 and 521-7 RG AMF).
- Confidentiality provisions for market operators and MTFs exist (Article 512-7 and 9; L. 511-33 or L. 531-12 COMOFI); breach punishable under Article 226-13 French Penal Code: imprisonment one year and/or fine €15,000.
- Audit trail retention: operators must retain transaction data for at least five years (Articles 514-10 and 523-8 RG AMF) including instrument name, quantity, date/time, price, and market member identity.

### Assessment
- Assessment: Fully implemented.
- Comments:
  - Authorization retained by Minister of Finance on AMF recommendation; process transparent and technically guided; assessors encourage review to grant authority to AMF/ACP.
  - IT reliability critical; authorities should audit if necessary.

### Principle 34 — Ongoing supervision of exchanges and trading systems
- Three-tier surveillance approach:
  - Market members: monitor clients and proprietary activities.
  - Operators of RMs/MTFs: real-time surveillance and complementary role in investigating unfair practices; ensure orderly trading.
  - AMF: front-line regulator detecting unfair trading practices/market abuse (Division surveillance des marchés).
- Euronext surveillance structure:
  - NYSE Euronext Market Surveillance: real-time surveillance using SMARTS system; roughly 24 staff (12 dedicated to market integrity).
  - Global Compliance: t+1 surveillance across markets; roughly 24 staff.
  - 2010: 89 investigation reports submitted to AMF; some led to Euronext enforcement measures; seven reports sent to national competent authorities.
- AMF surveillance: t+1 automated alert systems including basic and scenario-based alerts; event-driven surveillance.
- Ongoing supervision responsibilities:
  - ACP: prudential supervision including internal controls, technical systems functioning, and financial resources (Article L. 421-11 III COMOFI; CRBF 97-02 Articles 14 and 14-1).
  - AMF: oversee market rules transparency/non-discrimination, conduct of business of members, rules of persons acting under members, and settlement arrangements (Article L. 421-10 and L. 421-11; L.424-2).
- Cooperation between ACP and AMF governed by Art. L. 631-1 COMOFI and informal arrangements; focus resources on Euronext oversight.

### Oversight of Euronext and College of Supervisors
- AMF arrangements with Euronext:
  - Frequent meetings: two out of four meetings per month with College of Regulators; bilateral meetings quarterly; ad hoc meetings monthly on average.
  - Designation of professional licenses for four functions; annual reports by designated persons; daily reporting of orders/transactions; obligation to report IT incidents and suspicious transactions.
- ACP oversight mechanisms: onsite inspections (last internal controls inspection in 2006), regular meetings (3–4/year), annual internal control report, audited financial statements, semiannual solvency report, quarterly balance sheet, quarterly liquidity report, quarterly large exposures report.
- Five competent authorities (Netherlands, Belgium, France, Portugal, UK) signed revised MoU for joint Euronext oversight with College of supervisors (Working Party, Steering Committee, Chairmen Committee); consensus-based; regular working party meetings (usually monthly).
- MoU with US SEC for collaboration post NYSE–Euronext merger.

### Oversight of MTFs and change processes
- AMF supervises MTFs not operated by Euronext largely via offsite reporting: daily orders/transactions, suspicious transaction reports (organized MTFs), meetings at least twice a year.
- ACP supervision via bimonthly meetings, annual internal control report, semiannual results/solvency report, quarterly balance sheet and large exposures reporting.
- AMF approval required for RM rules and approval/objection process for MTF rules and modifications (Art. 421-10, 424-2, 511-14 RG AMF).

### Enforcement and assessment
- AMF may impose penalties on RM/MTF operators for breaches of professional obligations (including temporary/permanent prohibition) per Article L.621-15 COMOFI.
- Minister of Finance may withdraw RM authorization on AMF proposal (Art. L. 421-5 COMOFI).
- ACP has regulatory tools including penalties up to €100,000,000, remedial programs, protective measures, referral to public prosecutor, provisional administrator, receivership/liquidation.
- Assessment: Fully implemented.
- Comments:
  - Current supervisory emphasis on Euronext appropriate; AMF increased market surveillance resources.
  - Offsite reporting sufficient for small MTFs presently but should be reviewed with increased activity; include onsite inspections when needed.
  - AMF should ensure Euronext maintains resources for market integrity and request Euronext disclosure policy on enforcement actions.
  - Authorities encouraged to develop crisis management plans within the College of Euronext.

### Principle 35 — Transparency of trading
- EU Directive No 2004/39 and EU Regulation No 1287/2006 establish pre- and post-trade transparency requirements for RMs, MTFs and systematic internalizers; COMOFI transposes these (Articles L421-21, L424-7, L425-2) with RG AMF detailing obligations.
- Pre-trade transparency:
  - Shares: RMs and MTFs must disclose bid and offer prices and size at these prices continuously during normal trading hours on reasonable commercial terms.
  - Other instruments: EU legislation currently imposes no public pre-trade transparency requirement for non-equity instruments; RG AMF imposes general obligation to disclose with particulars left to RM/MTF considering instrument type.
- Derogations: AMF may waive pre-trade disclosure obligations for transactions large in scale compared with normal market size (Directive Articles 29.2 and 44.2) and other derogation provisions (source truncated at end).

*Source: _cr13182 - Introduction*

### Annex II) of EC Regulation No 1287/2006 establish the conditions of the applicability

### _cr13182 - Annex II) of EC Regulation No 1287/2006 establish the conditions of the applicability

### Pre-trade transparency waivers and governance
- CESR (now ESMA) established a protocol for pre-trade transparency waivers.
- ESMA-level review in place: all waivers previously granted in all Member States are being reviewed for compliance with EU legislation/regulation.
- Any new request from a European trading platform to implement such a waiver must be submitted to ESMA for review by the home regulator of the platform.
- ESMA will issue an opinion as to the compliance of the considered waiver with the provisions of EC Regulation 1287/2006.
- Final decision to allow implementation of waivers lies with national regulators, established pursuant to Article 29(a) of Regulation (EU) N°1095/2010.

### Post-trade transparency (RMs and MTFs)
- Shares:
  - RMs and MTFs are required to disclose the price, scope, and time of the transactions.
  - Information must be disclosed on reasonable commercial terms and conditions and within a timeframe as close as possible to real time.
- Other instruments:
  - EU legislation does not impose a public post-trade transparency requirement on transactions in non-equity financial instruments.
  - RG AMF imposes a general obligation to disclose transactions; particulars are left to the RM or MTF taking into account instrument characteristics.
- Practice in France (Euronext):
  - Transactions on RMs and MTFs operated by Euronext are published through the market operator facilities.
  - Use of market data by Euronext members governed by the Euronext market data distribution agreement.
  - Volume and prices associated with transactions made in the central order book of Eurolist, organized MTF Alternext, MTF Marché Libre, and organized MTF NYSE Bond Match are published immediately.

### Derogations and block trades
- AMF may authorize deferred publication of transaction details based on type or size under Directive 2004/39/EC.
- Article 28 and Annex II of EC Regulation No 1287/2006 (10 August 2006) set conditions for deferred post-trade publication:
  - (i) transaction between an investment firm dealing on its own account and a client; and
  - (ii) size of transaction equal to or exceeds the relevant minimum qualifying size as specified in Table 4 in Annex II.
- RM or MTF must disclose when deferred publication has been authorized.
- Euronext Rulebook disclosure timing for block trades:
  - disclose within 60 minutes after reporting if the amount of the Block Trade is less than five times the relevant threshold; and
  - disclose within 120 minutes after reporting if the amount of the block trade is equal to or greater than five times the relevant threshold.

### Obligations on systematic internalizers
- Must comply with pre-transparency rules for liquid shares:
  - publication of firm quotes in accordance with Articles 22 and 24 of Regulation (EC) n° 1287/2006 of 10 August 2006, Article L. 425-2 of the COMOFI and Article 532-1 to 532-3 of the RG AMF.
- Must publish transactions it has conducted within the time periods and according to arrangements set in Regulation (EC) n° 1287/2006 (Article 534-1).

### Dark pools and dark orders
- No dark pools operate in the French market.
- If NYSE-Euronext offers dark services to market members, these services are conducted on a specific venue regulated by the UK FSA; AMF receives reporting (through RDT for French ISPs and TREM for non-French ISPs) for securities under AMF competence.
- Dark orders (reserved orders) remain transparent to the AMF when entered into the order book; AMF receives relevant order information from NYSE-Euronext (including iceberg orders and stop-loss orders).
- Under NYSE-Euronext TCS system (no pre-trade transparency), AMF receives transaction information for negotiated-trade waiver executions on the RM, but AMF cannot systematically monitor dark trading carried out in foreign countries.
- Euronext Rules and Trading Manual:
  - transparent orders have priority over dark orders;
  - principle of price priority applies in all cases.

### Assessment and policy recommendations on transparency
- Assessment: Broadly implemented.
- Key concerns:
  - Percentage of trades carried out without pre-trade transparency has increased significantly in Europe since MiFID implementation.
  - Causes include fragmentation of information, decrease in average trade size, lack of a definition/framework for OTC, too many/wide waivers to pre-trade transparency allowed by EU legislation, uneven understanding of waivers among EU regulators.
  - Lack of a single and exhaustive European consolidated tape in equity markets undermines post-trade transparency and oversight of best execution.
  - Lack of a centralized surveillance system creates room for regulatory arbitrage and market abuse.
- Recommendations:
  - AMF should continue working with other European regulators, notably via ESMA, to address these challenges within future revised EU financial markets legislation.
  - European authorities encouraged to seek an EU-level solution to ensure a consolidated audit trail on orders in the European Union.

### Market abuse — prohibitions and sanctions (Principle 36)
- Prohibited misconduct (RG AMF / COMOFI references):
  - Market or price manipulation: Articles 631-1 to 631-10 of the RG AMF.
  - Misleading information: Article 632-1 of the RG AMF.
  - Insider trading: Articles 621-1 to 621-3, 622-1 and 622-2 of the RG AMF.
  - Front running: Article 621-3 of the RG AMF, treated as a form of insider trading.
- Sanctions:
  - AMF Enforcement Committee can impose administrative pecuniary sanctions under COMOFI; upper limits defined by COMOFI.
  - Example: sanction for insider dealing cannot exceed €100 million or 10 times the amount of any realized profit (or avoidance of loss).
  - Administrative sanction must be commensurate with seriousness and related to advantages/profits derived; penalties must be individualized (principle of proportionality).
  - Insider trading, price manipulation, and dissemination of false information are also criminal violations:
    - criminal sanctions include imprisonment (up to two years) and fines (which cannot exceed €1.5 million or 10 times the profits made).
    - criminal fines are lower than AMF administrative fines.
  - Parallel proceedings possible; combined sanctions cannot exceed the maximum amount applicable in either venue.

### Mechanisms to detect unfair trading practices
- Information sources the AMF receives:
  - Daily reporting on orders and transactions from RMs and MTFs under AMF jurisdiction.
  - Daily reporting from French credit institutions and ISPs of all transactions in financial instruments admitted to trading on a regulated market of the EEA (Article 28 MiFID; Articles 315-46 and 315-48 RG AMF; AMF Instruction n° 2007–06).
    - AMF reporting system RDT: roughly 100 to 130 French credit institutions and ISPs report daily.
  - Reports from European credit institutions and investment firms via TREM of ESMA (Article 14 of Implementing Regulation n° 1287/2006).
  - Suspicious transaction reports from ISPs (about 150 each year) and from NYSE Euronext (between 15 and 20 each year).
  - Reports from Euroclear and LCH Clearnet on positions held and settlement/delivery details.
- OTC derivatives:
  - AMF implementing a transaction reporting system regarding OTC derivatives.
  - AMF has access, through TREM, to OTC derivatives transactions whose underlyings fall within its jurisdiction where European firms have complied with reporting; from January 2012 AMF also received data on OTC derivatives transactions from French credit institutions and ISPs.
- Detection system and analysis:
  - All information analyzed via an automated system with statistical alerts and scenario-based alerts targeting types of breaches.
  - Purpose: identify market abuse (insider trading and price manipulation) and other breaches (order handling or market halts).
  - Division surveillance des marchés (DSM):
    - Team of 20 people, 7 monitor listed securities; staff responsibilities allocated by economic sector and market type.
    - Statistical controls carried out every day; irregularities prompt information requests (often to determine actual beneficiary of transactions).
    - Lack of unique client ID requires AMF to request client names from investment firms; cross-border inquiries use international cooperation.
  - When DSM inquiries are unsatisfactory, cases escalate to AMF Direction des enquêtes which can launch formal investigations (require Secretary General consent).
  - Administrative cases average roughly two years (one year investigation and one year at the Enforcement Committee).

### Domestic cooperation with criminal authorities
- Formal arrangements require AMF to inform the Paris Public Prosecutor of potential market abuse breaches and to send investigation reports.
- Criminal courts have duty to ask for AMF opinion in market abuse trials (Article L. 466-1 of the COMOFI).
- Regular meetings and coordination between Paris Public Prosecutor’s Office and Direction des enquêtes et des contrôles; AMF supports training of judges.
- AMF reports sent to Public Prosecutor:
  - AMF sent 15 cases in 2011, 22 cases in 2010, 21 cases in 2009 and 21 in 2008.
- Criminal practice:
  - Criminal authorities usually wait for administrative investigation to conclude; cases can be lengthy.
  - Number of convictions limited: 2 in 2010, 3 in 2009 and 6 in 2008.
  - None of the persons convicted have been imprisoned (suspended sentences given).
  - Constraints: limited resources and evidentiary complexity affect criminal enforcement; authorities expect convictions to increase over time.

### Cross-market surveillance and commodities markets
- DSM designed to identify potential cross-market abuses; analyzes daily data regarding all transactions on a given financial instrument across venues.
- Detection tests compare activity on principal market versus other venues; cross-analysis between derivatives activity/positions and underlying instruments to detect manipulation.
- Commodities (LIFFE Paris / MATIF):
  - DSM receives daily reports from LIFFE Paris and LCH.Clearnet on transactions and positions.
  - DSM can request detailed positions for each trader from clearing house members to identify dominant positions.
  - AMF may ask commodity derivative traders for explanations to understand trading activity.

### Cross-border cooperation
- DSM exchanges information regularly with foreign counterparts, notably UK FSA.
- AMF has bilateral/multilateral agreements for information exchange (including ESMA framework and IOSCO MMoU).

### Assessment on market abuse surveillance
- Assessment: Fully implemented.
- Comments:
  - Good track record in investigating market abuse with regular sanctions imposed.
  - Some cases would require “police” powers that AMF lacks; criminal authorities have not been sufficiently effective, which can impact deterrence.
  - Lack of application of market abuse provisions to Non-Organized MTFs raises questions; limited activity in France reduces immediate concern but issue should be addressed regionally.
  - European Commission proposals would extend market abuse framework to any financial instrument admitted to trading on an MTF.
  - AMF has invested in technological resources and imposed additional reporting obligations on French intermediaries beyond market abuse directive requirements.
  - Encourage mandatory collection of order book data across Europe and implementation of a unique client ID to enhance investigation efficiency.

### Large exposures, market disruption, and LCH.Clearnet oversight (Principle 37)
- Large exposures (CRBF Regulation n°93-05 and related):
  - Applicable to ISPs; supervises exposures superior to 10 percent of own funds; imposes risk spreading.
  - Maximum exposure for one counterparty limited to 25 percent of own funds (weightings may apply).
  - Since 2010 maximum exposure on credit institutions is €150 million and may not exceed 100 percent of the shareholder funds of the institution concerned.
  - Investment firms (non-bank ISPs): ensure total value of positions of any client is less than 15 times the amount of their overall own funds (Art. 5 Regulation n° 97-04).
- Mechanisms to address market disruption:
  - Euronext uses dynamic thresholds and static thresholds (reinstated after May 2010 “flash crash”); thresholds evaluated regularly.
  - AMF Chairman can halt whole or portions of the market and trading on individual shares in extraordinary events.
  - Euronext concluded a repeat of a US-style flash crash currently not possible because:
    - (i) rules to slow down the market and send orders to other platforms do not exist;
    - (ii) RM still holds the majority of the market volume (roughly 70 percent);
    - (iii) implementation of static thresholds.
- LCH.Clearnet S.A. oversight and risk management:
  - LCH.Clearnet S.A. monitors large exposures in fixed income and derivatives markets; registered in France and subject to oversight by BdF, ACP and AMF.
  - Risk management mechanisms:
    - membership criteria (including capital requirements);
    - daily mark-to-market monitoring of positions;
    - initial margin and variation margin calculated end-of-day and received start-of-day;
    - refusal to clear additional transactions if position limits exceeded;
    - ability to impose additional margins, including intraday margins;
    - right to require positions be reduced and revoke trading privileges or require additional capital;
    - clearing funds stress tested daily; clearing fund sufficient to at least cover risk of single largest member’s default; contributions called monthly;
    - if risk on a member exceeds clearing fund size on a day, additional margin requested.
  - Clearing member accounts:
    - clearing members must keep two separate accounts (own positions and customers’ positions) though still omnibus.
    - LCH.Clearnet provides possibility to segregate individual clients’ accounts; segregation practiced for big customers via bilateral agreements.
  - Commodities position limits:
    - No later than the 12th business day before expiry (D-12), clearing members authorized to maintain an Open Position up to a maximum of 200 percent of the Open Position limit; authorization reduced by 10 percent each business day until D-2 when set Open Position limit applies.
    - LCH.Clearnet S.A can trigger measures including automatic liquidation of surplus open positions.
- Ongoing supervision reports LCH.Clearnet S.A submits to ACP and AMF (two last reports to AMF):
  - risk synthesis daily: net positions and margins in all segments, largest uncovered stress risk, default fund, three largest uncovered stress risk by segment, default fund;
  - CDS report daily: CDS transactions cleared and CDS portfolio (summary and detailed) and market risk;
  - weekly statistics highlight: activity on sovereign debt market, liquidity indicators, market risk indicators;
  - monthly report on large exposures: monthly average level of margins, stress mark risk, contribution to default fund by market by members, biggest participant in terms of stress market risk for each day of the month.
- Supervision and crisis framework:
  - AMF/ACP conduct onsite inspections of LCH.Clearnet S.A.; most recent inspection by Inspection General Department in 2001.
  - MoU for oversight between Dutch, French, Belgian and Portuguese authorities (“College of Supervisors of LCH.Clearnet”) with a permanent secretariat.
  - Monthly College meetings share information including reports on large positions of clearing members.
  - College developed crisis management framework with coordination procedures and annual tests; contact details tested every six months.
  - Most recent test performed in 2011; next test scheduled in March (simulation of default of a fixed income clearing member).
- Default procedures:
  - If a Clearing member defaults, all its collateral, margins and/or payments to the default fund belong to LCH.Clearnet S.A.; LCH.Clearnet will use first margins and contributions of the default member, then contributions of other members.
  - Article L. 440-9 of the COMOFI: in case of insolvency of the clearing member, CCP may transfer positions of nondefaulting clients and their guarantees to another clearing member.
  - CCP operating rules specify transfer procedure (Article 4.5.2.5 and subsequent); LCH.Clearnet S.A instruction IV.5-2 details liquidation and transfer procedure in event of default.

### Short-selling controls and reporting regime
- Market stability power:
  - Pursuant to L. 621-1 of the COMOFI the AMF can take actions related to market stability.
  - Example: August 2011 AMF Chairman decision forbidding taking of net short positions in 10 French securities of the financial sector; decision renewed then lifted.
- Reporting regime (effective as from 1 February 2010):
  - AMF introduced a permanent regime for disclosing net short positions to the AMF and the market (Article 223-37 of RG AMF and AMF instruction n° 2010-08) pursuant to CESR’s May 2010 recommendations.
  - Article 223-37 of RG AMF requirements:
    - Any investor holding a net short position equal to or exceeding 0.2 percent, 0.3 percent or 0.4 percent of the capital of a company whose shares are admitted to trading on a French RM or Organized MTFs must report that position to the AMF within one trading day.
    - Same reporting requirement applies if the net short position falls below one of these thresholds.
    - If a net short position is equal to or exceeds 0.5 percent of the share capital, the investor shall report that position within one trading day to the AMF, which will publish it.
    - Additional reporting required when any additional threshold set at increments of 0.1 percent is crossed upwards or downwards.
  - Exemptions:
    - Limited exemptions for liquidity providers (ISP under MiFID or market member) subject to specific conditions (documented request, service must clearly be liquidity provision).
- Reporting statistics (as of November 23):
  - AMF received 3475 notifications of threshold crossing (concerning 51 issuers).
  - AMF published 712 notifications where investors reported a net short position equal to

*IMF Staff Report content unit: _cr13182 - Annex II) of EC Regulation No 1287/2006 establish the conditions of the applicability*

### 0.5  percent  of  the  capital  or  where  their  position  exceeded  any  additional

### _cr13182 - 0.5  percent  of  the  capital  or  where  their  position  exceeded  any  additional

### Short selling and disclosure framework
- Reporting and disclosure provisions:
  - On November 15th 2011, the European parliament adopted a Regulation on Short Selling and Certain Aspects of Credit Default Swaps.
  - This Regulation shall apply from 1 November 2012.
  - The Regulation includes provisions on reporting and disclosure of net short positions on shares that are broadly in line with provisions already in force in France.
  - The Regulation also contains provisions regarding:
    - net short positions on sovereign debt,
    - restrictions on uncovered sovereign CDS,
    - buy-in procedures by clearing houses,
    - powers of intervention of EU competent authorities and ESMA.
- Thresholds for reporting:
  - 0.5 percent of the capital or where their position exceeded any additional thresholds set at increments of 0.1 percent crossed upwards.

### Measures to promote settlement discipline
- Settlement timing and rules:
  - Under AMF regulation, the date on which a trade is to be effectively settled and, simultaneously, the account entry is to be made at the central depository, shall be three trading days after the order execution date (Article 570-2 of RG AMF).
- Buy-in arrangements:
  - LCH.Clearnet S.A has in place buy-in arrangements when a settlement fail occurs.
- Monitoring and data flows:
  - The French Central Securities Depository (CSD), Euroclear France, transmits every day specific files to the AMF to feed the latter’s internal database.
  - These files are analyzed on a daily basis by the AMF to identify settlement fails.
  - Depending on market conditions and the size of the outstanding transactions, the AMF may decide to investigate to identify the origin of the fails.
- Coordination and review:
  - On a regular basis, the AMF meets Euroclear France representatives to discuss and share main conclusions from their respective analysis of statistical figures regarding the settlement mechanism, including duration, global volumes and numbers of settlement fails, clearing members and financial instruments concerned.

### Assessment summaries
- Assessment: Fully implemented (for settlement discipline measures and associated monitoring as described).
- Assessment: Not assessed (Principle 38 — see below).

### Comments and operational issues
- Since the initial assessment LCH Clearnet S.A has implemented a comprehensive intra-day margin system that has enhanced its risk monitoring of large exposures.
- Limitation noted:
  - LCH.Clearnet S.A still only knows net positions of its clearing members.
  - Recommendation/observational comment: It would be important that a “commitments of traders” report be implemented; i.e., a report that identifies positions of each client.

### Principles Relating to Clearing and Settlement — Principle 38
- Principle statement:
  - Securities settlement systems and central counterparties should be subject to regulatory and supervisory requirements that are designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.
- Description: (not provided in the excerpt)
- Assessment: Not assessed.
- Comments: (not provided in the excerpt)

*Source: IMF staff report excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13182.pdf_