Securities markets in France are large and sophisticated, as reported in the 2007 Article IV Consultation by the International Monetary Fund (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 Financial Sector Assessment Program (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.

General Overview

A 2005 detailed assessment by the IMF on France's compliance with the International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation concludes that 18 of the IOSCO Principles are fully implemented, 7 principles are broadly implemented, and 2 principles are partly implemented. Principles 6 and 7 are not applicable, and Principle 30 has not been rated against the Committee on Payment and Settlement Systems (CPSS) and IOSCO Recommendations, pending their finalization. Per a subsequent 2007 Article IV Consultation report, the IMF notes that the "securities markets are large and sophisticated" (p. 43). However, the 2005 IMF report identified shortcomings with regards to initial and ongoing capital and other prudential requirements for market intermediaries, as well as accounting and auditing standards.

The Financial Markets Authority (Autorité des Marchés Financiers, or AMF) was established in August 2003 under the Financial Security Law (Loi de Sécurité Financière, or LSF) as the securities market regulator, merging the Stock Exchange Commission (Commission des Opérations de Bourse, or COB), the Financial Markets Council (Conseil des Marchés Financiers, or CMF), and the Financial Management Discipline Council (Conseil de Discipline de la Gestion Financière, or CDGF). The compilation of the statutory provisions is known as the Monetary and Financial Code (Code Monétaire et Financier, or COMOFI), which was last amended in February 2007. 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. Per the same report, the AMF shares certain licensing powers with the prudential authorities. The new framework also creates an independent structure for imposing sanctions.

In terms of stock market capitalization, France ranked fourth in the world after the U.S., the UK, and Japan in 2003, according to the IMF's 2005 assessment. Euronext Paris is the only stock exchange in France, replacing the Bourse de Paris in 2000. It was formed as a result of the partial consolidation of European stock markets that merged the stock exchanges in Paris, Amsterdam, Brussels (later including Lisbon and Porto) under the umbrella holding company Euronext NV. The internal market structure of Euronext Paris remains as it was for the Bourse de Paris. It has four segments: the Bourse de Paris (comprised of the Premier Marché and the Second Marché), the Nouveau Marché for cash, the Financial Futures Market (Marché à Terme International de France, or Matif), and the Paris Traded Options Market (Marché des Options Négociables de Paris, or Monep) for derivatives. According to the central bank (Banque de France, or BdF) statistics cited by the IMF, equities are primarily traded by institutions and foreign investors. In 2007, the Euronext Stock Exchange merged with the New York Stock Exchange. As of 2006, according to the IMF's 2007 Article IV Consultation report, there were 116 securities firms in France with total assets amounting to 353.6 EUR.

The IOSCO Multilateral Memorandum of Understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral Memoranda of Understandings (MoUs). The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The AMF of France is a signatory to the MMoU and an ordinary member of IOSCO.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

CP

According to the IMF's 2005 assessment, "the responsibilities, powers and authority of the AMF are clearly and objectively stated" and this principle is broadly implemented (p. 143). Per the same report, the AMF's remit reflects the three objectives of IOSCO: investor protection; fair, efficient, and transparent markets; and reduction of systemic risk. Responsibilities of the AMF include overseeing the protection of funds invested in financial instruments and other investments offered to the public, the disclosure of information to investors, and the proper functioning of the markets. The AMF also participates in European and international forums and works with other home regulators. The IMF report recommends requiring by law the sharing of information between the Banking Commission (Commission Bancaire, or CB) and the AMF.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

CP

As stated in the IMF's 2005 assessment, this principle is broadly implemented. Under the law, the AMF acts as an independent public authority with legal personality and financial autonomy. However, the IMF report notes that the independence of the AMF should be closely monitored to avoid conflict of interests in view of the role of the Ministry of the Economy, Industry and Employment (Ministère de l'Economie, de l'Industrie et de l'Emploi, or MINEFE) with respect to adopting regulations, and initiating policies and procedures.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

FC

This principle is fully implemented, according to the IMF's 2005 assessment. Per the same report, the AMF has the powers to impose specialized taxes (i.e. "user fees") on regulated entities. The IMF report encourages the AMF to "continue to assess how best to deploy its resources between off-site and on-site oversight activities, assure human resources are sufficient to support expanded monitoring powers, and address functions such as review of prospectuses and miss-selling of products through the banking network as well as other investment services providers." (p. 193).

4. The regulator should adopt clear and consistent regulatory processes.

FC

This principle is fully implemented, according to the IMF's 2005 assessment. Per the same report, the AMF "is subject to the general administrative law that applies to public authorities, any particular requirements relative to the conduct of investigations, the granting of visas and licenses, and the sanctioning process" (p. 152 ). It is also bound by legal requirements regarding "matters of professional secrecy and conflicts of interest of members and to restrictions on trading and requirements of professional conduct" (p. 152).

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

FC

This principle is fully implemented, according to the IMF's 2005 assessment. Under the COMOFI, the AMF staff and experts appointed to any consultative commission are subject to professional secrecy requirements and penal sanctions. Per the same report, the AMF is bound by legal requirements regarding "matters of professional secrecy and conflicts of interest of members and to restrictions on trading and requirements of professional conduct" (p. 152). Furthermore, the provisions to avoid conflicts of interest involve disclosure of interests to the Chairman of the AMF. The IMF report encourages the AMF to "continue to assure that conflicts of interest are appropriately addressed at the Board as well as the staff level" (p. 193).

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

According to the IMF's 2005 report, this principle is not applicable to France. There are no self-regulatory organizations in the securities markets, as all regulatory powers are concentrated in governmental bodies.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

See Principle 6.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

FC

According to the IMF's 2005 assessment, this principle is broadly implemented. Both the AMF and the CB "have the power to inspect regulated entities' books and records and premises without prior notice, or evidence of specific misconduct, either in connection with a particular inquiry or on a routine basis" (p. 155). The AMF also has the authority "to monitor the regulated markets and all transactions in French securities executed by financial services providers and has developed an electronic system in order to accomplish this" (p. 155).

9. The regulator should have comprehensive enforcement powers.

FC

This principle is fully implemented, according to the IMF's 2005 assessment. Per the same report, "the enforcement and cooperation powers of the AMF are exemplary" (p. 193). The AMF has broad enforcement powers that apply to all legal and natural persons, including the powers to "seek administrative fines against authorized and unauthorized persons, suspend authorization to do business, require cessation of violations (which can take effect immediately on a provisional basis), seek and seize records and freeze assets (regardless of who is holding them) through court order, and refer misconduct for criminal prosecution" (p. 157).

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

CP

In its 2005 assessment, the IMF notes that this principle is broadly implemented. Per the same report, "the enforcement and cooperation powers of the AMF are exemplary" (p. 193). According to the IMF's 2005 assessment, the AMF's enforcement department is composed of 50 persons, of whom 30 are investigators, and 15 are responsible for market surveillance. Off-site inspections are conducted on a regular basis by the AMF, and on-site inspections are based primarily on risks, review of external audit work, or complaints. The AMF also has a well-designed electronic system for monitoring market activity for insider trading, manipulation and other market abuses. The IMF report recommends developing public statistics to disclose the performance of enforcement and investigation. It further advises evaluating the timeliness of proceedings and the effectiveness of the overall program. Moreover, "the AMF should aggressively pursue overturning recent judiciary interpretations of the doctrine of impartiality that could undermine its capacity to exercise its monitoring and enforcement functions effectively" (p. 193).

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

FC

This principle is fully implemented, according to the IMF's 2005 assessment. Furthermore, "the cooperation powers of the AMF are exemplary" (p. 193). The IMF report notes that the AMF has the authority to share public and nonpublic information with domestic counterparts, including market intermediaries, foreign authorities, and judicial authorities and the Public Prosecutor, without the prior approval by a Minister, attorney or person concerned. Information sharing takes place with respect to "investigation and enforcement, authorizations, licensing, approvals, surveillance matters, client identification, regulated entities and matters subject to its competence, listed companies and companies that go public, market conditions and events, etc." (p. 161).

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

FC

As stated in the IMF's 2005 assessment, this principle is fully implemented. Furthermore, "the cooperation powers of the AMF are exemplary" (p. 193). According to the same report, the scope of information sharing covers both enforcement and surveillance issues. The IMF report encourages the CB and the AMF to "consider working together to articulate further cooperative arrangements with respect to inspections" (p. 193). The AMF has entered into operational ("second generation") MoUs regarding cooperation with the Euronext NV.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

FC

This principle is fully implemented, according to the IMF's 2005 assessment. The IMF report perceives the AMF as being the most competent authority in providing the exchange of information and delivery of assistance to foreign securities regulators. As noted in the IMF's 2005 assessment, the AMF is entitled to conduct investigations at the request of foreign authorities that are its counterpart. Furthermore, it may provide assistance under the following conditions: the foreign regulator carries out similar duties, there is reciprocity (exemption for the European Economic Area), and the foreign regulator applies similar professional secrecy rules as those of the AMF.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

FC

This principle is fully implemented according to the IMF's 2005 assessment. Provisions related to disclosure, set forth in company law (Commercial Code and Civil Code) and in the AMF regulations, require that information be "complete, accurate, precise, and fairly presented" (p. 165). Per the same report, issuers with financial instruments listed on a regulated market are subject to periodic financial disclosure obligations. On the other hand, issuers whose financial instruments are not listed on a regulated market are only subject to the AMF's continuing disclosure regime. Issuers of debt are also subject to periodic and ad hoc disclosure requirements. According to the IMF's 2005 assessment, foreign issuers within France are subject to the same prospectus requirements.

15. Holders of securities in a company should be treated in a fair and equitable manner.

CP

According to the IMF's 2005 assessment, this principle is broadly implemented. The 2005 IMF assessment states that the fair and equal treatment of shareholders is enshrined in company law (Commercial Code and Civil Code) and applicable COB guidance, which were to be integrated into AMF rules at the time of the writing of the IMF assessment. These include the requirements for takeover and allotment procedures and prohibitions on selective disclosures. The IMF assessment notes that "although the AMF does not have direct jurisdiction over corporate organization for example, if a company law provision is not met and is likely to be detrimental to investors' rights, the AMF may ask for a court order to force the issuer to comply with its legal obligations" (p. 167). The IMF report recommends improving shareholder rights, and encourages the AMF to establish a "standard for immediate disclosure to the public of large shareholder and management "insider" transactions" (p. 193).

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

ID

As stated in the IMF's 2005 assessment, this principle is only partly implemented. The National Accounting Council (Conseil National de la Comptabilité, or CNC) has established accounting standards, which are set forth in the Commercial Code, the General Accounting Plan, and the Accounting Regulation Committee's (Comité de la Réglementation Comptable, or CRC) Regulation No. 99-02, requiring true and fair presentation, comparability, and consistency. The standards are used both for prospectuses and ongoing financial reporting. The IMF notes that the accounting principles are moving toward convergence with the International Financial Reporting Standards (IFRSs). Per the same report, "the AMF has strong powers of enforcement with respect to the accounting and auditing of listed companies, including information on auditor's appointment and renewal, explanation of exceptions to accounting statements, and the ability to entertain questions raised in the course of reviews" (p. 169). Furthermore, annual audited statements are mandatory for listed companies. According the IMF report, "the powers of public authorities to oversee audits should be augmented and this is in process" (p. 170). The IMF also encourages the AMF to "assist in the development of robust oversight of auditors and auditing standards" (p. 193). Furthermore, the new Haut Conseil should take into account the views of the AMF with respect to the audit of any public company.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

CP

According to the IMF's 2005 assessment, this principle is broadly implemented. Per the same report, "the scheme for regulation of... CIS covers the product, the manager or operator, the depository or custodian, and the 'eligibility' to operate and to market such schemes" (p. 170). Furthermore, public offerings require authorization from the AMF. The IMF report encourages the AMF to "consider more robust guidance on related party transactions in CIS" (p. 193).

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

FC

This principle is fully implemented according to the IMF's 2005 assessment. The IMF report notes that CIS, under the UCITS Directive, are either structured as open-ended investment companies or as dedicated funds. Other categories of CIS include venture and private equity funds, unlisted real estate investment funds, debt securitization funds, futures funds, and employee investment funds. In its 2005 assessment, the IMF further states that "CIS may not be established without an agreement with a depository and a management company, and the management and the depository must be separate entities" (p. 174) in accordance with French legislation. Per the same report, the CIS structure is characterized by "very specific diversification requirements and restrictions of the level of leverage within the structure, which are subject to review by the AMF and also by the relevant depository" (p. 174). Furthermore, the AMF has special requirements for third party validation of the pricing mechanism. These requirements will be amended following the transposition of the EU Directive on UCITS into French law. However, there is little further information publicly available as to whether this transposition did occur.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

FC

This principle is fully implemented according to the IMF's 2005 assessment. Information that must be provided to CIS subscribers or individuals with managed portfolios is regulated under COB Regulation No. 89-02, as amended in 2000. The IMF report notes that "additional work is ongoing to make the disclosure requirements more specific, especially with respect to the articulation of risk factors, investment policies and the type of fund" (p. 176).

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

CP

According to the IMF's 2005 assessment, this principle is broadly implemented. The frequency of asset valuation reporting ranges from daily for UCITS to semi-annually for unlisted real estate investment funds or funds with other illiquid assets. The IMF notes that interests traded on a regulated market must be marked to market daily. With regards to less liquid interests, methods of valuation must be identified by the CIS. However, there are no specific requirements for correcting pricing errors. The IMF report encourages the AMF to "consider using its legal authority to provide more guidance with respect to suspension of redemptions" (p. 193).

21. Regulation should provide for minimum entry standards for market intermediaries.

CP

According to the IMF's 2005 assessment, this principle is broadly implemented. The COMOFI requires market intermediaries to be licensed, and to provide the required notices under the 1993 Investment Services Directive, which was replaced by the EU Directive No. 2004/39/EC on Markets in Financial Instruments. The IMF report advises both the AMF and the Committee on Representative Offices of Credit Institutions (Comité des Établissements de Crédit et des Entreprises d'Investissement, or CECEI) to "promptly assure that needed licensing information is readily available to the public" (p. 193).

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

EN

As stated in the IMF's 2005 assessment, this principle is only partly implemented. Per the same report, "annual reports or even semi-annual reports may not be sufficient oversight of capital compliance unless augmented by risk-based or other measures for assuring appropriate identification of deteriorations of capital" (p. 181). While the CB is mainly responsible for prudential oversight of investment firms, the AMF is responsible for prudential supervision of asset management companies. The IMF report advises both the AMF and the CB to "assure that adequate provisions exist to detect deteriorating capital situations promptly" (p. 193) in order to allow timely corrective actions. French legislation and regulation with regards to prudential requirements are in line with the European Union Capital Adequacy Directives.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

FC

This principle is fully implemented according to the IMF's 2005 assessment. Per the same report, "the COMOFI requires investment services providers to have appropriate management and internal control systems" (p. 183). Furthermore, "management organization and the existence of an internal control structure is part of the licensing process" (p. 183).

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

FC

This principle is fully implemented according to the IMF's 2005 assessment. The IMF report notes that "in the event that the capital, internal control, and provisions for prudential supervision prove insufficient to prevent the deterioration of a firm, the CB can appoint a provisional administrator or a liquidator, or refer the matter to a court as may be appropriate to the situation" (p. 184). Moreover, the CB has the authority to require corrective actions following investigations, on-site inspections, or formal recommendations. According to the IMF's 2005 assessment, "the combination of these arrangements may in practice prove sufficient to address failures in light of the structure of most firms in France and the predominance of universal banking" (p. 185).

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

FC

As stated in the IMF's 2005 assessment, this principle is fully implemented. Per the same report, regulated markets are recognized by the MINEFE upon recommendation of the AMF, and admitted to the market following compliance with market rules. The IMF report notes that market rules are submitted to the AMF for approval; and amendments must be notified to the AMF and the central bank (Banque de France, or BdF). Furthermore, the approval of a prospectus by the AMF is required prior to listing. At the time of the assessment, the only market operator in France was Euronext Paris, which has four segments: the Bourse de Paris (comprised of the Premier Marché and the Second Marché), the Nouveau Marché for cash, the Matif, and the Monep for derivatives.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

FC

This principle is fully implemented, according to the IMF's 2005 assessment. Per the same report, the AMF "approves regulated market rules and their modifications to determine that they are consistent with its authorization and that they are consistent with the proper functioning of the market" (p. 187). It is also informed on all trading, clearing, settlement and deliveries of products traded on Euronext Paris. The IMF report notes that trading systems can be audited by the AMF at any time. As a special purpose credit institution, Euronext is under the supervision of the CB as well as the AMF. On the other hand, Euroclear France, which acts as the securities settlement system operator and central securities depository, is subject to the oversight of the CB, the AMF and the BdF, as noted in the IMF's 2005 assessment. Euronext exchanges have also concluded a Memorandum of Understanding (MoU) "to assure appropriate exercise of their exchange operational responsibilities and the responsibilities of members to the exchange" (p. 187).

27. Regulation should promote transparency of trading.

FC

According to the IMF's 2005 assessment, this principle is fully implemented. The IMF report notes that "the French system has strict rules for pre-trade and post-trade transparency" (p. 188).

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

FC

This principle is fully implemented according to the IMF's 2005 assessment. The IMF report notes that "market or price manipulation, misleading information, insider trading, front running and other abuses are prohibited by law and also by the regulated market" (p. 189). Per the same report, "AMF investigations that identify potential price manipulation or insider trading may give rise to sanctions by the AMF and must be referred to the Public Prosecutor" (p. 189). Moreover, a number of mechanisms are in place to deter and detect improper practices. The IMF's only recommendation is to maintain "vigilance to assure measures to address risk within clearing brokers is not transmitted to the clearing system" (p. 194).

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

FC

This principle is fully implemented according to the IMF's 2005 assessment. Under the 97-04 Regulation relating to the Management Standards applicable to Investment Firms other than Portfolio Management Companies, the Advisory Committee on Financial Legislation and Regulation (Comité Consultatif pour la Législation et la Réglementation Financières, or CCLRF) superseded the Banking and Financial Regulations Committee (Comité de la Réglementation Bancaire et Financière). Furthermore, the CCLRF extended the large exposure limits of the 93-05 Regulation on Supervising Large Exposures, as well as other risk management requirements to investment firms and credit institutions. Per the same report, the regulations mentioned above "require risk diversification and define large exposures as 10 percent of "own funds" or maximum of 25 percent exposure of own funds to any one counterparty" (p. 189).

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

II

According to the IMF's 2005 report, this principle has not been rated in deference to the CPSS/IOSCO Recommendations. The IMF report notes that the systems for clearing and settlement of securities transactions are subject to regulatory oversight by the AMF, the CECEI, the CB, and the BdF. According to the IMF's 2005 assessment, the arrangements between the oversight authorities for the monitoring of these systems "are innovative ways to address operational risks that originate on a common system where trades are initiated from various access points" (p. 191).