France achieves high overall compliance with international standards and codes, with a score of 67.5 out of 100 in our Standards Compliance Index. France's compliance in the area of macroeconomic fundamentals as well as financial supervision is high; but in the institutional and market infrastructure area, compliance is mixed. While France is almost at par with international best practices in the areas of corporate governance, and payment systems, it lags behind in the area of accounting since only listed companies are required to follow International Financial Reporting Standards. France has expressed its commitment toward adoption of International Standards on Auditing, which is scheduled to occur before June 29, 2008. Regarding the country's Anti-Money Laundering/Combating the Financing of Terrorism regime, France was expected to adopt the third EU Money Laundering Directive into legislation, which requires implementation of the FATF requirements.

Macroeconomic Policy and Data Transparency

The International Monetary Fund (IMF), in its 2003 Report on the Observance of Standards and Codes (ROSC), found the French data dissemination system to be remarkably transparent. France is a member of the IMF's Special Data Dissemination Standard (SDDS) and meets or exceeds all requirements for coverage, periodicity, and timeliness, although it does avail itself of the timeliness flexibility option for central government operations. According to the IMF's SDDS website, France generally complies with the SDDS requirements on access, integrity, and quality of data. However, it does not provide clear information on the SDDS website for a few data points with regards to some of the requirements. For example, France provides no information as to whether unemployment data are released simultaneously to interested parties. France does, however, produce summary methodologies and advance release calendars for all required datasets, and both data and methodologies are regularly updated. Facilitating transparency and public accessibility of data is part of the philosophy of both the principal statistical agency and the central bank. More »

France adopted the Euro with its launch in January 1999. Thus, its monetary policy is no longer governed by the Banque de France. Rather, the Governing Council of the European Central Bank (ECB) determines French monetary policy, and the Eurosystem (consisting of the ECB and the central banks of the member states that have adopted the euro) is responsible for its implementation. According to the IMF, the Eurosystem and the ECB maintain high transparency standards and a commitment to openness. The ECB observes the IMF's codes and standards for monetary policy transparency and pursues an active policy of communication with the public. More »

According to a succession of ROSCs published by the IMF in 2000, 2001, 2002, and 2004, the French fiscal policy process is highly transparent and has been subject to ongoing improvement. Key to the progress achieved in recent years has been the passage and progressive implementation of a new Organic Law on the Budget Acts, first achieving parliamentary approval in 2001 and attaining full implementation in 2006. France scores an 86% (extensive) rating in the International Budget Project's Open Budget Index of 2006 as compiled by Michel Bouvier for the Open Budget Initiative. The IMF's 2007 Article IV Consultation report announced that France had recently embarked upon a comprehensive review of its public policy, with positive implications for its approach to fiscal reform. More »

Institutional and market infrastructure

The European Commission's Expert Group, reporting in 2003, found that of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, France had fully adopted 15, almost fully adopted 10, partially adopted 14, and failed to adopt 2. Philippe & Partners and Deloitte & Touche reported in 2002 that the French system was unfavorable to creditors and a 2005 PricewaterhouseCoopers report found that reforms had been enacted that philosophically favored rescue and restructuring of at-risk debtor firms. Further reforms were embodied in the 2005 Law on Safeguards of the Enterprises, which included provisions modeled on the U.S. Chapter 11 proceedings. More »

French accounting requirements are primarily contained in the Code of Commerce, supplemented by laws, decrees, and the French Tax Code. As pointed out in a number of publications, French accounting requirements differ from the international standards. With regard to convergence, a 2007 European Committee of Central Balance Sheet Data Offices report points out that the National Accountancy Council (CNC) will continue its policy of "progressive convergence" of national Generally Accepted Accounting Practices (GAAP) towards International Financial Reporting Standards (IFRSs), with simplification for small and medium sized enterprises. However, since 2004, in line with its progressive convergence policy position, France has been selective in endorsing IFRSs and has partially adopted only a few of the international standards. A 2006 National Organization of Registered Auditors self-assessment further explains that convergence in France is limited and is likely to stay that way until national tax and legal issues arising due to the application of international accounting standards in the individual annual accounts are resolved. Per European Commission Regulation No. 1606 of 2002, in France, only listed companies are required to follow IFRSs in consolidated accounts beginning January 2005. As for the consolidated accounts of unlisted companies, the French standard-setter, CNC, allows for the option to choose between IFRSs and the French GAAP. The 2006 European Commission report on the implementation of Regulation No. 1606 of 2002 further noted that IFRSs are not permitted for use in the annual accounts of any type of companies. More »

The legal framework for corporate governance in France follows the broad global trend. Over the last decade, major changes have occurred in France. Two laws were passed to strengthening the legal position on corporate governance: the May 2001 Law on New Economic Regulations and the August 2003 Financial Security Law. These laws specifically target transparency and ethics within companies. France is thus taking a legalistic approach to corporate governance, rather than relying on voluntary or comply-or-explain codes. The unified French financial regulator, the Securities Markets Authority (AMF) was created by the 2003 Law. This law also requires the AMF to publish an annual Report on Securities Issuers' Corporate Governance and Internal Control, which is has done since 2005. A cause for concern is the substantial deviation from the "one share/one vote" principle in France. Many companies in France feature, in principle, one type of share (ordinary shares) but grant double voting rights to shareholders who have been registered for at least two years. This system was originally implemented to reward loyal shareholders. In practice, however, it is mainly to the benefit of strategic shareholders who use the double voting right system to reinforce their voting power. More »

According to the 2006 National Organization of Registered Auditors (CNCC) self-assessment, statutory audits are conducted in accordance with French standards issued by the CNCC. The self-assessment noted that, since 2000, French standards have been transposed directly from the International Standards on Auditing (ISAs), adding that the process of transposition entailed "strict translation [and] adaptation to the national context." However, since August 2003, French law has mandated that the CNCC standards require the endorsement of the Ministry of Justice in order to be enforceable. At the time of the self-assessment, the deadline for the endorsement was September 30, 2006. There is no further publicly available information on whether the Ministry of Justice has provided this endorsement. Nevertheless, in May 2006, Directive 2006/43/EC of the European Parliament and Council came into force. Per this regulation, all statutory audits of annual and consolidated accounts must be carried out on the basis of ISAs as adopted by the European Commission. European Union (EU) member states must adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. More »

The IMF published a detailed assessment report for France in 2005, wherein it also assessed France's compliance with the Financial Action Task Force (FATF) 40+8 Recommendations, as issued in October 2002. Per the report, France has a comprehensive Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime, a sentiment echoed by the 2007 U.S. Department of State report on France. Further, according to the IMF, France maintains a high level of compliance with the FATF Recommendations with a comprehensive overall legal and institutional framework and an AML/CFT regime that in many areas goes far beyond the FATF requirements for compliance. Some areas where France could improve, per the IMF report, are fully implementing the United Nations Security Council Resolution 1373; improving the quality of suspicious transaction reports; expanding the scope of the AML/CFT requirement to cover a wider range of financial and non-financial sectors; and strengthening the internal controls and due diligence obligations of reporting entities. The FATF methodology and recommendations were, however, revised in 2004 and there is little subsequent information assessing France's compliance with the revised AML/CFT methodology. France was expected to implement the third European Union Money Laundering Directive by December 2007. This directive, by various accounts, requires subscribing states to implement the FATF requirements. Nevertheless, there is little subsequent information publicly available as to whether France adopted the third EU Money Laundering Directive into legislation. More »

In 2005, the IMF assessed France's systemically important payment systems (SIPS). The two large-value payment systems are the Transferts Banque de France (TBF) and Paris Net Settlement (PNS) systems, and the retail payment system is the Système Interbancaire de Télécompensation (SIT). TBF was France's component of the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) system, the Euro area payment system. However, in November 2007 TARGET2 replaced TARGET and payment services were harmonized under a single shared platform (SSP) across its member countries. France joined TARGET2 with the second wave of countries on February 18, 2008. The TBF and PNS systems were deactivated and replaced by TARGET2. According to the IMF report, in 2005, TBF and PNS either observed or broadly observed the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS). The 2005 IMF report concluded that the SIT observed 7 principles, broadly observed 2, and did not observe one principle. Moreover, the IMF assessment stated that all 4 principles relating to central bank responsibilities are being fully observed by the French central bank. However, there is little information assessing TARGET2's compliance with the CPSIPS except for a statement in the European Central Bank's 2002 report on TARGET2, in which it indicated that the system is expected to fully comply with the CPSIPS. Despite the lack of information on TARGET2, it is generally believed that TARGET2 is an improvement over its predecessor and its component systems. Therefore, the level of compliance assigned to France's payment systems by past assessments is maintained until TARGET2 is fully implemented in all the member countries and assessed against the CPSIPS. More »

Financial Regulation and Supervision

The IMF, in a 2005 report based on its 2004 Financial Sector Assessment Program (FSAP), concluded that France exhibits a very high level of compliance with the Basel Core Principles (BCPs). The report found France to be compliant with all but one BCP, BCP 5, which the report found to be largely compliant. With regard to this principle, which deals with investment criteria, the report recommended that France introduce an obligation to obtain prior approval from the Committee for the Establishment of Credit Institutions and Investment Companies (CECEI, the licensing agency) for banks seeking to acquire equity in non-financial enterprises. The IMF report acknowledged that French authorities have developed but not yet enacted measures in this regard, but as yet there remains insufficient publicly available information addressing this issue. There are three distinct authorities responsible for the three main banking supervisory functions. The Minister in charge of the Economy is the regulatory authority, the CECEI is the licensing authority, and the Banking Commission is the supervisory authority. The legal framework for banking supervision is mostly contained in the Monetary and Financial Code. The Code comprises several laws, including the 1984 Banking Act, as amended by the 1996 Financial Activity Modernization Act. More »

Securities markets in France are large and sophisticated, as reported in the 2007 Article IV Consultation by the IMF. Euronext Paris is the only stock exchange in France and replaced the Bourse de Paris. In 2007, the Euronext Stock Exchange merged with the New York Stock Exchange. The IMF, in a 2005 report based on its 2004 FSAP concluded that France fully implemented 18 of the International Organization of Securities Commissions' Objectives and Principles of Securities Regulation, broadly implemented 7 principles, and partly implemented 2 principles. The 3 remaining principles were either not applicable, or were not rated. The Financial Markets Authority was established in August 2003 under the Financial Security Law as the securities market regulator, merging the Stock Exchange Commission, the Financial Markets Council, and the Financial Management Discipline Council. According to the IMF's 2005 assessment, the revised regulatory framework can be described as a "twin peaks" model, where the prudential and regulatory authorities are separated. The compilation of the statutory provisions, known as the Monetary and Financial Code, was last amended in February 2007. More »

Insurance sector regulation in France is incorporated in the French Insurance Code (Code des Assurances) and also relies heavily on EU directives on insurance supervision. The Minister in charge of the economy is charged with insurance regulation, while the Insurance Supervisory Authority (CCAMIP) and the Comité des Entreprises d'Assurance are responsible for insurance sector supervision. The CCAMIP was created in 2003 as a result of the merger of the Commission de Contrôle des Assurances and the Commission de Contrôle des Mutuelles et des Institutions de Prévoyance, and was renamed l'Autorité de Controle des Assurances et des Mutuelles (ACAM) in 2006. According to the 2005 detailed assessment by the IMF on insurance sector supervision in France, the country is fully compliant with 21 of the 28 Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (as revised in October 2003). Further, ICPs 9, 10, 17, and 18 are "largely observed," and ICPs 3, 24, and 28 are "partly observed." Per the IMF report, there is room for improvement in supervisory authority, suitability of persons, corporate governance, internal control, group-wide supervision, risk management, intermediaries, and anti-money laundering. In two areas, group-wide supervision and intermediaries, France will be fully compliant once it implements the EU Financial Conglomerates Directive and the Insurance Mediation Directive, respectively. More »

Legend:

Credit Ratings

Moody's Aaa/Stable

Fitch AAA/Stable

Standard & Poor's AAA/Stable

Macroeconomic Data

2007 GDP (Current Prices): 2,560.3 billion USD (IMF)

2007 GDP (Per Capita): 41,511 USD (IMF)

2008 GDP (Growth Forecast): 1.4% (IMF)

2008 Inflation (CPI): 2.5% (IMF)

2007 Unemployment: 8% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 81.1 billion USD (UNCTAD)

FDI (Outward): 115 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): 10601 million USD (OECD)