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ACPR 2013 ANNUAL REPORT

The annual report reviews the activity of

the Autorité de contrôle prudentiel et

de résolution and its departments and

provides information about its budget (dues paid

to cover supervision and other main items of

expenditure).

It also presents noteworthy developments in

terms of authorisations and restructurings of

existing firms, arranged by banking and insurance

sector, during the year under review.

A statistical section will be added in

September-October 2013, allowing for current

constraints in production of statistics.

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Contents

Christian Noyer’s editorial, ACPR Chairman and Governor of the Banque de France 4Édouard Fernandez-Bollo’s interview, ACPR Secretary General 8

CHAPTER 1Overview of the ACPR 13

1. Statutory objectives and structure 142. ACPR General Secretariat 253. Activities of the ACPR Supervisory College 304. Introduction of the single supervisory mechanism in the banking sector 37

CHAPTER 2Ensuring the stability of the financial system 41

1. Licences and authorisations 422. Risk exposure of the financial system: 2013 assessment 583. Prudential supervision 664. Resolution of banking crises 92

CHAPTER 3Customer protection in banking and insurance 95

1. The main on-site inspection themes in 2013 962. Questionnaires on implementation of customer protection rules 1003. Processing customer requests 1024. Specific instruments 106

CHAPTER 4Anti-money laundering and counter-terrorist financing 109

1. ACPR supervision 1102. Work on legal instruments related to AML/CTF 112

CHAPTER 5Punishing violations 115

1. Activity of the Sanctions Committee 1162. Other highlights 123

CHAPTER 6Contributing to the development of the international, European and French regulatory framework 125

1. ACPR involvement in European and international bodies 1262. Legislative and regulatory developments at national level 142

CHAPTER 7Budget and performance monitoring 147

1. Budget 1482. Performance monitoring 156

GLOSSARY 166

APPENDIX 176

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CHAPTER 1Overview of the ACPR

ACPR jurisdiction 15

Composition of the ACPR Supervisory College 18

Composition of the Resolution College 20

Composition of the Audit Committee 21

Composition of the Consultative Committee

on Prudential Affairs 21

Composition of the Consultative Committee on Anti-Money Laundering and Counter-Terrorist Financing 22

Composition of the Consultative Committee on Business Practices 23

Composition of the Scientific Consultative Committee 24

Communicating to keep the market regularly informed 27

CHAPTER 2Ensuring the stability of the financial system

Concentration among employee savings scheme account-keepers 46

ACPR opinions on the appointment of statutory auditors and special auditors 51

Mutual insurers governed by Book II of the Mutual Insurance Code and “statutory” risks 55

Interview with Martin Rose and Romain Bernard, Research Directorate 59

Main risks to which the ACPR paid particular attention in 2013 60

Activities of the ACPR’s Scientific Consultative Committee in 2013 62

Interview with Jean-Baptiste Feller of the ACPR Research Directorate on data collection linked to the introduction of the SSM 70

The European Banking Authority’s recommendation of 22 July 2013 71

The new status of finance company 73

European Market Infrastructure Regulation (EMIR) 75

Adapting the regulatory framework to the specific features of crowdfunding 82

The ACPR is strongly committed to the French market’s active preparations for Solvency II 83

The 2013 Solvency II market preparedness survey 84

Q&A with Romain Paserot, head of the Solvency II project at the ACPR 85

Greater focus in 2013 on compliance with filing deadlines for regulatory disclosures 87

Pre-application for use of an internal model and the evaluation framework for the model 89

CHAPTER 3Customer protection in banking and insurance

Unclaimed life insurance policies 99

Monitoring and supervising advertising 101

Action by the ACPR/AMF Joint Unit in 2013 107

CHAPTER 4Anti-money laundering and counter-terrorist financing

Responses to the AML/CTF questionnaire for the banking and life insurance sectors 110

Implementation of AML/CTF obligations by institutions based in overseas departments and territories 111

The work of the Anti-Money Laundering and Counter-Terrorist Financing Consultative Committee in 2013 112

CHAPTER 5Punishing violations

Membership of the Sanctions Committee 117

CHAPTER 6Contributing to the development of the international,European and French regulatory framework

The CRD IV legislative package 128

Work by the ACPR to strengthen AML/CTF at international level 131

The proposed Omnibus II Directive 133

The Sub-Committee on Consumer Protection and Financial Innovation 135

Global systemically important banks 137

Implementation timetable for measures applicable to G-SIIs 138

Netting rules under IFRS and US GAAP 140

CHAPTER 7Budget and performance monitoring

Changes in contributions for the cost of supervision 151

Insert contents

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Christian NoyerACPR Chairman and Governor of the Banque de France

Editorial

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In 2013 the responsibilities of theAutorité de contrôle prudentiel et de résolution (ACPR) were furtherstrengthened with the Banking

Separation and Regulation Act of 26 July, which confers on it new

powers for preventing and managingbanking crises.

This new responsibility entrusted to the ACPR isconsistent with all of its actions to safeguard finan-cial stability and consists in ensuring the continuityof the activities and services of credit institutionswhose failure would have damaging conse-quences for the economy. The implementation ofresolution plans will increase the protection ofdepositors, while minimising the call for publicfunds in the event of a credit institution experienc-ing severe difficulties.

In this respect, a specific Resolution Directoratewas set up within the ACPR, as well as a new Resolution College, which will work, as of 2015,within the framework of the European Single Resolution Mechanism (SRM). The latter is one ofthe three pillars of Banking Union along with acommon system of deposit protection and theSingle Supervisory Mechanism (SSM). Furthermore,new responsibilities have been conferred on theACPR in order to ensure the effective separationof activities; it has also stepped up its powers interms of checking the fit and proper requirementsof senior managers as well as of members ofBoards of Directors and Supervisory Boards inbanking and insurance sector entities.

As expected, 2013 saw a large number of changes to the regulatoryand institutional framework for boththe banking and insurance sectors.

2013 was marked by two major developments:the preparation of the Single Supervisory Mecha-nism, which is expected to become operative inNovember 2014, and the launching of a large-

scale pan-European exercise to assess credit institutions in the SSM area (comprehensive assess-ment). At the same time, in 2013, the ACPR participated in specific data collection operationsaimed at defining and progressively implement-ing the risk assessment system and the supervisoryreview and evaluation process at the level of theSSM.

This was also, for all credit institutions and theACPR, a year of intensive preparations for the newcapital requirements set out in the CapitalRequirements Directive (CRD 4) and the CapitalRequirements Regulation (CRR), which wereadopted on 26 June 2013, allowing the Basel IIIstandards to be implemented in Europe.

In the insurance sector, the final rounds of discussions on the Omnibus II Directive were held.They gave rise to a political agreement at theEuropean Council on 13 November 2013 and theDirective was adopted by the European Parlia-ment on 11 March 2014. Solvency II is thereforeset to enter into force on 1 January 2016.

Lastly, since 23 February 2013, market participantshave had to adapt to the European Market Infra-structure Regulation (EMIR), which mainly coversOTC derivatives.

All of these developments required major effortsby ACPR staff, both at the European and interna-tional levels to reach these agreements, and withinstitutions and entities under its supervision, inorder to provide as much assistance as possiblewith their transition to compliance with these newregulatory arrangements.

In 2013, France’s six main banking groups1

generated an aggregated net banking incomeof EUR 136.5 billion, up 1.1% on 2012. The actionplans implemented by these banks enabledthem to reduce their management costs by 0.8%, and the cost of risk fell by 2.7%.

1. BNP Paribas, Société Générale, Groupe Crédit Agricole, BPCE, Crédit Mutuel group and the Banque Postale.

All in all, these six groups generated a net profitof EUR 18 billion, compared with EUR 8.4 billion in2012. This improved the solvency of these institu-tions, bringing their CRD 4 core capital ratios(common equity tier 1 full CRD 4) to 10% or over.

As regards the 12 main life insurers2, after a yearof net outflows in 2012, 2013 saw a return to netinflows, in the amount of EUR 5.1 billion.

This relatively good performance wasachieved against the backdrop of amacroeconomic environment that

remains difficult and uncertain for thefinancial system as a whole.

Admittedly France returned to slightly positivegrowth in 2013 (0.3% according to INSEE) and theeuro area saw a modest recovery in the secondhalf of the year, after a year and a half of recession, but this recovery remains weak andeuro area inflation is still below its target.

Consequently, the French banking system stillfaces a number of risks related to the weaknessof the economic recovery and the persistentlyhigh unemployment rate that raise the risk of adeterioration in borrower solvency, an increase indefaults on loans and a rise in the cost of risk. Ofcourse credit institutions continue to enjoy veryaccommodative refinancing conditions and,over the year, the Governing Council of the ECBgradually lowered its main refinancing rate from0.75% to 0.25%, its lowest level since the creationof the euro. Banks however could be affected bythe economic environment that remains subduedin the wake of the crisis: in order to compensate

for the loss of some income, households might

have to draw on their savings, thus making

deposit-taking more difficult, at a time when

banks need to secure their funding sources in

order to comply with the new liquidity require-

ments. Lastly, even though the European

sovereign debt market continued to normalise in

2013, the links between banking and sovereign

risks need to be further weakened. The creation of

the Banking Union seeks in particular to address

this crucial objective.

Risks are also present in the insurance sector,mainly related to the low level of long-term interest

rates. If this low interest rate environment proves to

be lasting, insurance companies are likely to be

faced with a fall in their financial income. The

search for higher yield could prompt some insur-

ers to turn to more risky and less predictable asset

classes. Conversely, a sharp rise in interest rates

could trigger shifts from life insurance products

into bank savings products in particular, and could

put insurers in a potentially difficult liquidity

position.

Against this background, the ACPR paid particular

attention to all these risks, through cross-sector

analyses and individual inspections of entities

under its supervision. In the framework of its off-site

inspection programme, the risk profile of almost

1,400 entities subject to ACPR supervision was

carefully assessed in 2013, including 700 in the

banking sector and 694 in the insurance sector.

62. Allianz Vie, Assurance du Crédit Mutuel Vie SA, Aviva Vie, Axa France Vie, Cardif Assurance Vie, CNP Assurances, Generali Vie, Groupama Gan Vie,

La Mondiale Partenaires, Natixis Assurances Partenaires, Prédica, Sogecap. This sample represents around 75% of the market.

Christian NoyerACPR Chairman and Governor of the Banque de France

Editorial

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The ACPR stepped up its surveillance of life insurersto ensure that they maintained the quality of theirinvestment portfolios and that assets remainedwell matched with liabilities.

As regards banks, ongoing supervision teamsfocused on the impact of the new CRD 4 capitaland liquidity requirements and their effects on thedifferent business lines. The ACPR also closelymonitored refinancing structures and credit riskdevelopments. In the run-up to the SSM becom-ing operational, the ACPR continued to coo -perate closely with foreign supervisors in order tobetter understand the risks facing the main international banking groups.

In addition to its ongoing supervision pro-grammes, in 2013 the ACPR conducted 253 on- site inspections in supervised entities, of which 151were banks, and 102 in insurance companies. The thematic inspections in this on-site supervisionprogramme mainly focused on LBO, SME andhome loan financing, as well as the legal risksassociated with local authorities’ “toxic” debt. TheACPR also conducted numerous surveys to reviewthe internal models used by supervised entities.

For both the banking and insurance sectors, manystress tests were carried out in 2013, with a view toanalysing a broader array of scenarios than in thepast. Such exercises will also be conducted in2014 for all major European banks, using themethod jointly established by the European Cen-tral Bank (ECB) and the European Banking Authority(EBA).

Lastly, in the area of business practices and con-sumer protection, particular attention continuedto be paid to compliance with rules on access tobasic banking services, insurance advisory

obligations, and unclaimed life insurance bene-fits. These issues generated considerable activityfor the ACPR, both in terms of ongoing on-site andoff-site inspections, and the initiation of first disciplinary proceedings requiring a ruling fromthe ACPR’s Sanctions Committee.

In many respects, 2013 was a particularly busy year for the ACPR.There is no doubt that between thenow certain arrival of Solvency II on

the one hand, and the work inprogress on the comprehensive

assessment in the run-up to the SSMon the other, 2014 will be equally

challenging.

The implementation of the Banking Union consti-tutes one of the most significant federal break-throughs in Europe since Monetary Union. Itssuccess and effectiveness will largely be deter-mined by the quality of this comprehensiveassessment. This assessment’s overriding aims areto increase the transparency of information avail-able on European banks, guarantee that thesebanks will be completely cleaned up by imple-menting any necessary corrective actions, andultimately enhance the confidence of all stake-holders in a banking system that is sound and fullydedicated to financing the euro area economy.ACPR staff are aware of the magnitude andimportance of this task and are ready and willingto rise to this challenge.

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WHAT WERE THE ACPR’S MAIN ACTIVITIESIN 2013?

As regards the insurance sector, Solvency II was the ACPR's main focus of attention in 2013. In particular, it conducted an impact study onlong-term guarantees and a data collection testexercise, which were necessary to finalise theagreement at the European level. It held regularmeetings to monitor how life insurers were adapt-ing to persistently lower interest rates and paidclose attention to the coverage of regulatedcommitments. The data collection process wasimproved and a project was launched toenhance the reliability of prudential disclosures.

As regards the banking sector, the priority wasto anticipate the impact of the new capital and liquidity requirements set out in the EU legislativepackage (CRD4 + CRR) and their consequenceson the different business areas, while actively participating in the transposition of the provisionsof this package in France. The ACPR closely monitored the impact of economic conditions on banks, analysing both refinancing structuresand credit risk developments. It continued tocooperate closely with foreign supervisors, both inits usual college framework, as well as with a viewto examining, in accordance with internationalrecommendations, the recovery plans of the fivelargest French banking groups.

Furthermore, thanks to the intensive methodolog-ical work that it has carried out since its creationin the area of the supervision of business practices, the ACPR was able to step up itsinspections. Through the latter, it identified casesof failure to ensure access to basic banking services in the banking sector and abnormalarrangements for customer advice and tracingunclaimed policies in life insurance. In 2013,inspections resulted in sanctions for two majorbanks, one insurance broker and one insurancecompany. Moreover, it pursued its discussions withprofessionals with a view to improving their workingmethods in this area, either through one-on-onediscussions using inspection questionnaires or bydrawing up general recommendations.

In 2013, the ACPR clarified its expectationsregarding the gathering customer informationwithin the framework of the duty to provide adviceon life insurance policies.

As regards anti-money laundering (AML) andcounter terrorist financing, inspections focusedon enhancing internal AML risk analysis and mon-itoring systems, which must now take account ofnew cases of reports of suspicions as well as casesof automatic reports. Following combined effortswith the insurance and banking sectors, a jointsupervision questionnaire was drawn up.

Édouard Fernandez-BolloACPR Secretary General

Interview

9


“The ACPR closely monitored the impact of economicconditions on banks, analysing both refinancing structures and credit risk developments.

”

Furthermore, the ACPR actively participated inefforts to enhance the regulatory framework,contributing in particular to the Banking and Reg-ulation Act, the adaptation of the legal frameworkin order to develop crowdfunding, and the estab-lishment of the framework for the banking union,for both supervision and resolution.

These different actions were carried out by ACPRstaff, who demonstrated their professionalism andtheir commitment to serving public interests.

WHAT ARE THE PRIORITIES FOR 2014?

Five main priorities guide the ACPR’s supervisoryactions in 2014.

1. In the insurance sector, the preparation of institutions for Solvency II is a major challenge. Its implementation on 1 January2016 means that both the ACPR and all marketparticipants must speed up their preparationsthat include: a mock ORSA exercise for all insurers, a further Solvency II reporting prepara-tory exercise, governance and preparation ofinternal models and EIOPA stress tests. We have put in place a renewed project modeorganisation and we must increase interactionswith all those involved in implementing thischange.

2. In the banking sector, 2014 is very largely dominated by the comprehensive assess-ment of the balance sheets of France's leading banks, an unprecedented drive tosimultaneously review the quality of over half of their assets, using a methodology fully harmonised in the euro area, and which is tobe followed by an ambitious stress test.

3. In both sectors, supervision continues to focuson the weakest institutions, in particular identify-ing upstream those that could have difficultiesin applying the new prudential regulations: liquidity and leverage rules that will be underreview in the banking sector, the implementa-tion of Solvency II in the insurance sector, and the consequences of the 2013 national inter-professional agreement on the health andprovident insurance market;

4. Business practices remain a key priority for theACPR. As such, it focuses on the oversight oflending practices, bank fees and overdraftrates, and insurance advisory obligations (gathering of know-your-customer information, commission systems that run counter to cus-tomer interests, new distribution methods, etc.).

5. As regards AML, the ACPR will focus on ensuring that the preventive arrangements inplace within groups are effective, including fortheir foreign business.

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Édouard Fernandez-BolloACPR Secretary General

Interview

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WHAT ARE THE MAIN INSTITUTIONAL CHALLENGES THAT THE ACPR WILL HAVETO FACE IN ORDER TO PREPARE FOR THE FUTURE?

2014 is a crucial year for bolstering the APCR andasserting its role at the European and internationallevels:I Actively participating in the establishment of the Single Supervisory Mechanism (SSM) under the auspices of the ECB, which will be vitalfor the future of banking supervision, as well as in the resolution mechanism that is an essentialaddition; I Influencing all developments in both Europe(with levels 2 and 3 of Solvency II) and globally(with the International Association of InsuranceSupervisors, IAIS, and the Financial Stability Board,FSB). A much more comprehensive internationalframework for insurance supervision is being built,which is essential for the French market.

ARE ACPR STAFF SUFFICIENTLY PREPAREDFOR THESE CHANGES?

The ACPR brings together a very wide range ofexpertise under one roof. Over the past years, withthe close assistance of the Banque de France asa whole, the ACPR has strengthened its expertiseby hiring large numbers of new graduates as wellas highly experienced persons from both the

banking and insurance sectors. Moreover, thequality of our staff is recognised at the nationaland international levels, as clearly illustrated by ourcontribution to the training of ECB staff.

I am therefore confident that we are in an excel-lent position to adapt to the changes ahead, andthat is why I have closely involved the managersand employees of the ACPR in the process ofdefining the necessary adaptations of our func-tioning to the new environments. Under thebroader SSM framework, our contribution to bank-ing supervision will be different; we will have toconduct these new types of harmonised supervi-sion together with the full range of tasks that we willhave to roll out next year at the national level forthe separation of banking activities and in thearea of resolution. In this respect, we will have toput in place our national arrangements and pre-pare for the second pillar of banking union.Similarly, the tools and methods used for insurancesupervision will be significantly overhauled.

Given our experience of changes in the past andthe preparatory work in which we were highlyinvolved, we should have a proactive approachto these changes. I am certain that we will be ableto leverage the diversity of our skills and capitaliseon our cross-sectoral approach in order to play ourfull role in enhancing supervision, which is a keyfocus in all our areas of activity.

1. Statutory objectives and structure 142. ACPR General Secretariat 253. Activities of the ACPR Supervisory College 304. Introduction of the single supervisory mechanism

in the banking sector 371

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Overviewof the ACPR


The Autorité de contrôle prudentiel et derésolution (ACPR) is an independentadministrative authority attached to the Banquede France. It is the body responsible forsupervising the banking and insurance sectors in France.

Founded on 9 March 2010, the Autorité decontrôle prudentiel (ACP) was changed by theBanking Separation and Regulation Act of July2013 into the ACPR and entrusted with powers to prevent and manage banking crises.

The ACPR has several decision-making bodies:the Supervisory College, the Resolution Collegeand the Sanctions Committee. To help dischargeits duties, the ACPR relies on the expertise ofseveral consultative committees, an AuditCommittee and a Scientific ConsultativeCommittee.

The ACPR’s operating departments, which areoverseen by the General Secretariat, comprisearound 1,100 employees, who work to ensure the stability of the financial system and customerprotection.

The ACPR’s activities are set to evolve with theintroduction of European’s single supervisorymechanism for the banking sector.

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1.1 STATUTORY OBJECTIVES

A. The ACPR’s main statutory objectives

The ACPR’s statutory objectives areset out in Article L. 612-1 of theMonetary and Financial Code. In July 2013, the ACPR was handednew responsibilities for preventingand resolving banking crises, pursuant to Banking Separation andRegulation Act 2013-672 of 26 July2013.

“The Autorité de contrôle pruden-tiel et de résolution, which is an independent administrativeautho rity, is charged with preserv-ing the stability of the financial system and protecting the cus-tomers, insurance policyholders,members and beneficiaries of thepersons that it supervises”.

It is responsible for: I issuing licences and authorisa-tions as laid down in legislationand regulations; I conducting ongoing supervi-sion of the financial position andoperating conditions of the institu-tions subject to its supervision, including in particular their com-pliance with solvency require-ments and liquidity maintenancerules. The ACPR ensures that insur-ance institutions are in a positionto honour their commitments topolicyholders, members, benefici-aries and reinsured companies atall times, and that they actuallyhonour those commitments inpractice;I supervising compliance withrules designed to protect cus-tomers, whether these rules stemfrom legislation and regulations,codes of conduct approved at therequest of a professional associa-tion or industry best practices thatthe Authority either observes or rec-ommends. The ACPR also checksthat reporting institutions have ade-quate resources and appropriateprocedures in place to complywith these rules. In relation to thisstatutory objective, it cooperateswith the Autorité des marchés financiers (AMF) through an entitycommon to both institutions, theJoint Unit; I supervising the preparationand implementation ofmea-sures to prevent and resolvebanking crises, with a view tosafeguarding financial stability,maintaining the continuity of theactivities, services and opera-tions of institutions whose failurewould have a serious impact on

the economy, protecting depos-itors, and avoiding, or limiting tothe greatest possible extent, anyrecourse to public financial aid;

I ensuring that reporting entitiescomply with the rules govern-ing the procedures for doingbusiness, whether they are oper-ating by themselves or throughsubsidiaries, and with the rulesgoverning acquisitions and equityinvestments.

Cooperating closely with theBanque de France and relevantgovernment agencies, the ACPRrepresents France in the interna-tional and European bodies responsible for supervising theinsurance and banking indus-tries. It thus contributes to achiev-ing financial stability goals within theEuropean Economic Area and topromoting convergence in nationaland European supervisory prac-tices.

To discharge its duties, the ACPRhas, with respect to entities under itsjurisdiction: I supervisory powers; I the power to impose administra-tive enforcement measures;I disciplinary powers. It may also make public any infor-mation that it deems necessary todischarge its duties. The profes-sional secrecy obligations referredto in Article L. 612-17 of the Mone-tary and Financial Code are notbinding on the ACPR.

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Statutory objectives and structure 1

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B. Impact of the BankingRegulation Act on theACPR’s statutory objectives

• On the separation and prohibition of banking activities

The Banking Separation and Regu-lation Act requires certain marketactivities to be ring-fenced within adedicated subsidiary (portion ofproprietary market activities, unse-cured exposures to hedge funds,

and, potentially, a portion of marketmaking). By effecting this separa-tion, the French Banking Act hasplaced some restrictions on the uni-versal banking model, without call-ing the model itself into question.

The ACPR will be responsible for licensing the dedicated subsidiary,for supervising the scope of its busi-ness and that of the rest of thegroup (working with the AMF to

ensure proper separation of marketmaking) and for conduct ing prudential supervision.

The ACPR’s task, to be conductedjointly with the Banque de France,is to provide support for this changein the French financial system, whileensuring that the law is in compli-ance with the European project onbanking separation.

Article L. 612-2 of the Monetary and Financial Code stipu-lates which entities are subject to supervision by the ACPR.

In the banking, payment services and investmentservices sector:

1) credit institutions; 2) investment firms other than portfolio management companies, as well as market operators, clearing housemembers and entities authorised to act as custodians or administrators of financial instruments (referred to inpoints 4° and 5° of Article L. 542-1 of the Monetary andFinancial Code);

3) payment institutions; 4) financial holding companies and mixed financial holding companies;

5) money changers; 6) microcredit associations and foundations (bodies referred to in point 5° of Article L. 511-6 of the Monetaryand Financial Code);

7) companies selected to help create activities or developemployment under a government contract (legal entities referred to in Article L. 313-21-1 of the Monetaryand Financial Code);

8) electronic money institutions; 9) finance companies.

The ACPR may also extend its supervision to any intermediary involved in banking or payment servicestransactions.

The ACPR’s supervision also covers the investment servicessupplied by the entities referred to in points 1) and 2), subject to the AMF’s powers with regard to the supervisionof best practice rules and other professional obligations.

For the purposes of supervising payment institutions andelectronic money institutions, the ACPR may request theopinion of the Banque de France as the entity responsiblefor supervising the proper functioning and security of payment instruments (see Article L. 141-4 of the Monetaryand Financial Code).

In the insurance sector:

1) insurance companies providing direct insurance, referred to in Article L. 310-1 of the Insurance Code;

2) companies with their head offices located in Francethat engage in the reinsurance business;

3) mutual insurance companies and unions governed byBook II of the Mutual Insurance Code, unions managingthe federal guarantee systems and mutual insuranceholding companies;

4) mutual insurance companies and unions referred to inBook I that manage mutual insurance payments andcontracts on behalf of the mutual insurance companiesand unions referred to in Book II, for the sole purposes of Title VI, Book V of the Monetary and Financial Code(obligations concerning anti-money laundering,counter-terrorist financing and prohibited lotteries, gaming and betting);

5) provident institutions, unions and groups governed byTitle III, Book IX of the Social Security Code;

6) group insurance companies and mixed group insurance companies referred to in Article L. 322-1-2 of the Insurance Code;

7) the universal guarantee fund for rental risks referred to inArticle L. 313-20 of the Construction and Housing Code;

8) securitisation vehicles carrying insurance risk referred to in Article L. 310-1-2 of the Insurance Code;

9) all the aforementioned entities operating in Franceunder the freedom of establishment or freedom to provide services.

The ACPR may also extend its supervision to:I any entity that has received a subscription or management mandate from an undertaking engagingin insurance activities; I any entity taking out a group insurance policy; I any entity acting as an insurance or reinsurance intermediary in any way whatsoever;I any entity that intervenes directly or indirectly between a body referred to in point 3) or 4) above and an entitywishing to join or belonging to said body.

ACPR JURISDICTION

• On macroprudential supervisionArticle 10 of the Banking Separationand Regulation Act also gave theBanque de France an explicit mandate to monitor the stability ofthe financial system in partnershipwith the Haut conseil de stabilitéfinancière (HCSF).

The HCSF, which was created bythe Banking Act, replaced the Conseil de régulation financière etdu risque systémique (COREFRIS)while expanding its remit1 to include“supervision of the overall financialsystem” and the definition of“macroprudential policy”. Notably,the HCSF may use several of thetools provided for by the CRD42

and CRR3. Thus, the ACPR Chair-man may take the initiative to:

I impose more stringent capital requirements on banks, either toreflect business cycles (counter-cyclical buffer) or to prevent andmitigate long-term non-cyclicalmacroprudential or systemic riskat national level;Imodify lending terms to limit therisks of excessive credit growth; I seek opinions and recommenda-tions from the European institutionsto prevent financial instability inFrance.

• On banking resolution The Banking Separation and Regu-lation Act assigned the ACPR newpowers and established a specificcollege to perform resolutionduties, which are distinct fromsupervisory tasks.

Accordingly, the ACPR is required to prepare a preventive plan forinstitutions also subject to the obligation to prepare a recoveryplan. This resolution plan containsspecific procedures to apply theresolution measures that could beadopted by the Resolution College.If the ACPR thinks that the institu-tion’s organisation and operationscould hinder the effective imple-

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1. COREFRIS’s tasks included exchanging information, assessing systemic risks, issuing opinions and taking positions.2. Capital Requirements Directive. 3. Capital Requirements Regulation.

I. OVERVIEW OF THE ACPR 1. STATUTORY OBJECTIVES AND STRUCTURE 1.1 Statutory objectives

ACPR action has been strengthenedin the field of the supervision of business practices for bankingproducts.

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mentation of resolution powers, itmay request corrective measuresto be taken.

The ACPR may take the followingresolution measures:I ask the institution to take structuralmeasures: replace senior execu-tives, transfer or dispose of busi-ness lines, use a bridge bank; I require the institution to take lossabsorption measures: issue newshares or other capital instruments,charge losses to shareholders andholders of the lowest-ranked subor-dinated securities;I ask the Deposit Guarantee andResolution Fund to intervene (providing capital, financing orguarantees) on behalf of an insti-tution that is subject to resolutionmeasures. The scope of the fund’sinterventions has been extendedcompared with that of the previ-ous Deposit Guarantee Fund.

• On the protection of consumersof banking and financial services

The Banking Separation and Regu-lation Act supplemented the tasksassigned to the ACPR in this area,giving it greater scope in terms ofsupervising business practices forbanking products. In particular, the ACPR and the other relevantauthorities (AMF and Directiongénérale de le Concurrence, de laConsommation et de la Répressiondes fraudes, DGCCRF) may shareinformation in this area that is help-ful to the discharge of their respec-tive responsibilities. Furthermore,specifically regarding online serv-ices, ACPR inspectors are allowedto use assumed identities.

1.2 STRUCTURE OF THE ACPR

The structure of the ACPR is basedon the different decision-makingand consultative bodies thatenable the Authority to fulfil its statutory objectives. In 2013 a newResolution College was set up pursuant to the provisions of the Act of 26 July 2013.

A. The Supervisory CollegeThe responsibilities entrusted to theACPR are exercised by the Supervi-sory College, which has severalconfigurations depending on theissues being addressed.

It has 19 members and is chairedby the Governor of the Banque deFrance.

The plenary session of the College deals with general super-visory issues concerning the bank-ing and insurance sectors. Itanalyses risks in both sectors withregard to the economic situation. It also makes decisions on theAuthority’s organisational, operatingand budget principles and sets theACPR’s Rules of Procedure. Eachyear, it sets the supervisory priorities.

The Sub-Colleges, one for bank-ing, the other for insurance, each ofwhich has eight members, havejurisdiction over specific mattersand general issues relating to theirrespective sectors.

The Supervisory College meets inrestricted session (also consistingof eight members) to deal with individual issues having a materialimpact on the two sectors or onfinancial stability as a whole, as wellas matters relating to the supervi-sion of financial conglomerates.

Chairman:Christian Noyer

or the designated Deputy Governor, Robert Ophèle

A Vice-Chairman with professional experience in insurance,appointed by the ministers with responsibility for the economy,social security and mutual insurance:Jean-Marie Levaux*, Vice-Chairman of the Autorité

de contrôle prudentiel et de résolution

The other members of the ACPR College are:The Chairman of the Autorité des normes comptables (Frenchnational accounting standards board), † Jérôme Haas

The Chairman of the Autorité des marchés financiers (AMF), Gérard Rameix

The person appointed by the President of the National Assembly, Philippe AubergerThe person appointed by the President of the Senate, Monique Millot-Pernin

Appointed at the recommendation of the Vice-Chairman of the Conseil d’État:Olivier Fouquet, conseiller d’État

Appointed at the recommendation of the Chairman of the Cour de cassation: Francis Assié, conseiller

Appointed at the recommendation of the Chairman of the Cour des comptes:Jean-Philippe Vachia**, conseiller maître

Appointed for their expertise in customer protection or quantitative or actuarial techniques or other areas thathelp the Authority fulfil its statutory objectives:Emmanuel ConstansHélène Rey

Appointed for their expertise in insurance, mutual insurance,provident institutions or reinsurance:Philippe MathouilletDominique ThiryLucien Uzan

1

2

3

12

9

21

22

8

7

196

10

17

18

COMPOSITION OF THE ACPR SUPERVISORY COLLEGE (AT 31 DECEMBER 2013)

* Jean-Marie Levaux was appointed Vice-Chairman of the ACPR on 21 November 2013, replacing Jean-Philippe Thierry, who resigned. He is to be replaced withinthe College by a person with expertise in insurance, mutual insurance, provident institutions or reinsurance.

** Jean-Philippe Vachia, who resigned, was replaced by Christian Babusiaux, who was appointed as a member of the ACPR’s Supervisory College on 6 January 2014.

20

PLENARY SESSION

18

THE ACPR SUPERVISORY COLLEGE

1 4 523

87 91110 12

6

Anne Le Lorier, First Deputy Governor of the Banque de France.Édouard Fernandez-Bollo, ACPR Secretary General.

4

5

RESTRICTED SESSION

Chairman:Christian Noyeror the designated Deputy Governor, Robert Ophèle

Vice-Chairman:Jean-Marie Levaux

Jérôme HaasJean-Philippe Vachia François LemassonChristian PoirierLucien Uzan

BANKING SUB-COLLEGE

Chairman:Christian Noyeror the designated Deputy Governor, Robert Ophèle

Vice-Chairman:Jean-Marie Levaux*

Olivier Fouquet Emmanuel Constans Thierry CosteDominique HoennFrançois LemassonChristian Poirier

19


INSURANCE SUB-COLLEGE

Chairman:Jean-Marie Levaux

Governor or Deputy Governor of the Banque de France:Christian Noyeror Robert Ophèle

Francis AssiéJean-Philippe Vachia Philippe MathouilletDominique ThiryLucien Uzan

Appointed for their expertise in banking, paymentservices or investment services:Thierry CosteDominique HoennFrançois LemassonChristian Poirier

The Director General of the Treasury, Ramon Fernandez,or his or her representative, Delphine d’Amarzit, or Corso Bavagnoli sits on the Supervisory College inall its configurations, and the Director of the SocialSecurity administration or his or her representative sitson the Insurance Sub-College or other configurationsdealing with entities governed by the Mutual InsuranceCode or the Social Security Code. While they do nothave a vote, they are entitled to request that matters bedeliberated a second time.

14

13

15

16

11

1514 1613

191817

222120

B. The Resolution CollegeThe Resolution College was estab-lished by Banking Separation andRegulation Act 2013-672 of 26 July2013. It is chaired by the Governorof the Banque de France, ChristianNoyer, and has six members. TheResolution College is tasked withsupervising the preparation andimplementation of measures toprevent and resolve banking crises.It held its first meeting in November2013. The structure of the ResolutionDirectorate is detailed in point 4 ofChapter 2.

20

The Governor of the Banque de France or his representative, Chairman:Christian Noyer

The Director General of the Treasury, Ramon Fernandez, or his or her representative: Delphine d’Amarzit orCorso Bavagnoli

The Chairman of the AMF or his or her representative:M. Gérard Rameix

The Deputy Governor appointed by the Governor of the Banque de France or his or her representative:Robert Ophèle

The Chairman of the Commercial, Financial and EconomicChamber of the Cour de cassation Raymond Espel, or hisrepresentative Yves Gérard

The Chairman of the Management Board of the Deposit Insurance and Resolution Fund, or his or her representative:Thierry Dissaux

1

4

6

2

3

5

COMPOSITION OF THE RESOLUTION COLLEGE (AT 31 DECEMBER 2013)

I. OVERVIEW OF THE ACPR 1. STATUTORY OBJECTIVES AND STRUCTURE 1.2 Structure of the ACPR

5

1

2

34

6

Dominique Laboureix, Director of the Resolution.7

7

21


D. The consultative commit-tees and the ScientificConsultative Committee

The ACPR’s Supervisory Collegerelies on several consultative

committees to provide guidanceon specific topics. The Consultative Committee onPrudential Affairs is tasked with giving its opinion prior to adoption

on ACPR instructions relating to pru-dential filings by reporting institutions.Draft versions of explanatory noticesand guides are also referred to thecommittee.

C. The Audit Committee The Audit Committee is tasked withensuring that the ACPR’s resourcesare used appropriately. As a con-sultative body, the committee givesprior opinions on the following: I the ACPR’s preliminary budget,before it is adopted by the Super-visory College;I the budget outturn report for theprevious year; I the rebi l l ing agreements forresources and services providedby the Banque de France, beforethey are approved.

Lucien Uzan, Chairman

Jean-Philippe Vachia, conseiller maître at the Cour des comptesJérôme Haas, Chairman of the Autorité des normes comptablesThierry CosteMonique Millot-Pernin

COMPOSITION OF THE AUDIT COMMITTEE (AT 31 DECEMBER 2013)

I Dominique Thiry, ChairmanI Dominique Hoenn, Vice-Chairman

Members appointed from entities reporting to the ACPR:Insurance sector Banking sectorI Violaine Conti, Axa I Francis Canterini*, Crédit AgricoleI Cédric Cornu, Pro BTP I Benoît Catherine, ExaneI Nicolas Eyt, Sogécap I Hedwige Nuyens, BNP ParibasI Maud Petit, Covéa I Catherine Meritet, Société Générale

I Éric Spielrein, RCI Banque

The following professional associations are also represented on the committee:

Caisse des dépôts et consignations also appoints a representative.

* Francis Canterini ceased to participate in the work of the Consultative Committee on Prudential Affairs on 14 March 2014.

COMPOSITION OF THE CONSULTATIVE COMMITTEE ON PRUDENTIAL AFFAIRS (AT 31 DECEMBER 2013)

Insurance sectorI Le Centre technique des institutions de prévoyance (CTIP)I La Fédération française des sociétés d’assurances (FFSA)I La Fédération nationale de la mutualitéfrançaise (FNMF)I Le Groupement des entreprises mutuellesd’assurance (GEMA)

Banking sectorI L’Association des sociétés financières (ASF)I L’Association française des marchés financiers (AMAFI)I La Fédération bancaire française (FBF)

The Consultative Committee on Anti-Money Laundering and Counter-Terrorist Financing istasked with giving its opinion on draft versions of instruc-tions, guidelines and other ACPR documents dealing

with the prevention of money laundering and terroristfinancing (details of the committee’s activities in 2013can be found in Chapter 4).

22

I Francis Assié, ChairmanI François Lemasson, Vice-Chairman

COMPOSITION OF THE CONSULTATIVE COMMITTEE ON ANTI-MONEYLAUNDERING AND COUNTER-TERRORIST FINANCING(AT 31 DECEMBER 2013)

Five members appointed from entities reporting tothe ACPR

Insurance sector I Gaël Buard, Natixis AssurancesI Philippe Giraudel, GroupamaI Nadine Mathieu-Lapert, Axa FranceI Paul-Henri Mezin, Malakoff Médéric groupI Catherine Petapermal, La France Mutualiste

Eight members appointed from entities reportingto the ACPR

Banking sector I Alain Breuillin, Bank Audi Saradar FranceI Raoul d’Estaintot, Caisse fédérale de Crédit mutuelI Catherine Frenzel, ExaneI Édouard Leveau-Vallier, HSBC FranceI Jacques Piccioloni, BNCI Henri Quintard, BNP ParibasI Luc Retail, la Banque PostaleI Grégory Torrez, Banque Accord

Insurance sector I Le Centre technique des institutions de prévoyance (CTIP)I La Fédération française des sociétés d’assurances (FFSA)I La Fédération nationale indépendante des mutuelles (FNIM)I La Fédération nationale de la mutualitéfrançaise (FNMF)I Le Groupement des entreprises mutuelles d’assurance (GEMA)I La Chambre syndicale des courtiers d’assurances (CSCA)

Banking sector I L’Association française des établissements de paiement et de monnaie électronique(AFEPAME)I L’Association française des sociétés financières(ASF)I L’Association française des marchés financiers(AMAFI)I La Fédération bancaire française (FBF)

The following professional associations are also represented on the committee

Caisse des dépôts et consignations also appoints a representative.


23


The Consultative Committee on Business Practicesgives an opinion on draft recommendations fallingwithin its areas of expertise, goes deeper into issues

relating to business practices identified by the ACPRand gathers information and suggestions from its mem-bers on customer protection.

I Emmanuel Constans, ChairmanI Jean-Marie Levaux, Vice-Chairman

Five members are chosen for their expertise acquired by participating in associations represent-ing personal or business customers, savers’ associations, charities operating in this area and theconsumer institute, INC. I Jean Berthon, Chairman of FAIDER I Pierre Cernesson, Confédération nationale des associations familiales catholiquesI Olivier Gayraud, Consommation Logement et Cadre de vieI Hervé Mondange, legal specialist at AFOCI Romain Girard, Fédération nationale Familles rurales

Four members are chosen for their expertise acquired within a credit institution, an insuranceinstitution or an industry group:I Pierre Bocquet, FBFI Alain Lasseron*, ASFI Christophe Ollivier, FNMF I Philippe Poiget, FFSA

Two members are chosen for their expertise acquired within an insurance intermediary, a banking and payment services intermediary or an industry group:I Philippe de Robert, Fédération nationale des agents généraux d’assuranceI Sophie Ho Thong, Association professionnelle des intermédiaires en crédits

One member is chosen for her experience in representing the staff of entities reporting to the ACPR:I Raphaëlle Bertholon, SNE CGC

One member is chosen for his academic work on banking and insurance issues:I Pierre-Grégoire Marly, senior professor of law

One member is chosen for his expertise acquired in monitoring these issues in the media:I Jean-François Filliatre, editor-in-chief, Mieux vivre votre argent

* Karine Rumayor (ASF) replaced Alain Lasseron (ASF) on 12 March 2014.

COMPOSITION OF THE CONSULTATIVE COMMITTEE ON BUSINESS PRACTICES (AT 31 DECEMBER 2013)

The duties of the Scientific Consultative Committeeare to promote synergies between financial researchand prudential supervision and to keep abreast of

developments liable to affect the banking and insurance sectors (details of the committee’s activities in 2013 can be found in point 2 of Chapter 2).

24

I Hélène Rey, Chair I Philippe Mathouillet, Vice-Chairman

I Laurent Clerc, Banque de France, economistI Antoine Frachot, Director General, Groupe des Écoles nationales d’économie et de statistiqueI Christian Gollier, professor, Université Toulouse II Christian Gourieroux, professor, ENSAE and University of TorontoI Guillaume Leroy, consulting actuary, Institut des actuairesI Didier Marteau, professor, ESCP EuropeI Kevin O’Rourke, professor, Oxford University (All Souls College) I David Thesmar, professor, HECI Philippe Trainar, chief economist and special adviser to the chairman, SCORI Philippe Weil, professor, Université libre de Bruxelles and Institut d'études politiques de Paris

COMPOSITION OF THE SCIENTIFIC CONSULTATIVE COMMITTEE (AT 31 DECEMBER 2013)

E. The Sanctions Committee Details of the composition and activities of the ACPR’s Sanctions Committee are provided in Chapter 5.

The ACPR, 53 rue de Châteaudun,Paris.


25


2.1 OPERATING PROCEDURES

The General Secretariat overseesthe ACPR’s operational depart-ments. It is run and organised by

the Secretary General named byorder of the Minister for the Econ-omy, on the proposal of the ACPRChairman. Édouard Fernandez-Bollo was appointed ACPR Secre-tary General by an order dated 23January 2014 to replace Danièle

Nouy.4 He is assisted by First DeputySecretary General SandrineLemery, and three other DeputySecretaries General: FabricePesin, Frédéric Visnovsky and,since 13 February 2014, PatrickMontagner.

1

2

3

4

ACPR General Secretariat 2

4. At the end of 2013, Danièle Nouy was appointed to chair the supervisory board of the single supervisory mechanism at the European CentralBank.

Following restructuring, whichresulted in some staff being reassigned to shared departmentswith the Banque de France, theACPR General Secretariat had1,060 employees at end-2013.

The ACPR is an independentauthority attached to the Banquede France. It thus benefits from synergies with the central bank’sother functions and from itsresources. The Banque de Franceemploys all the ACPR’s staff. TheACPR has its own budget, which isan annex to the central bank’s

budget. The ACPR may use theBanque de France’s resources,which are then invoiced to it by theBanque de France.

The Banque de France collectsreporting institutions’ contributions tosupervisory costs and transfersthem in full to the ACPR. Exception-ally, the central bank may also top up these contributions withadditional allocations.

2.2 ACPR STAFF

• Wide-ranging skills to ensurethat the ACPR can meet all of itsstatutory objectives

After expanding swiftly between2010 and 2012, the headcount ofthe ACPR General Secretariat wasmore stable in 2013, reflecting twodevelopments: the relative share of support services (humanresources, training, financial controland budgeting, premises and facil-ity management, communication,IT resources and systems manage-

41

23

26

“In 2013, the ACPR pursued andstepped up its training efforts to support new staff members and maintain expertise within ACPRdepartments against a backdrop of substantial regulatory change.

Delphine Marnhier,IT, methods and HumanRessources.

”

ment) was reduced from 14% to11% of total headcount betweenend-2012 and end-2013; mean-while, supervisory and cross-discipli-nary activities (legal, research,international) were stepped up.Continued efforts to bolster keyfunctions should enable the Author-ity to get ready for the changesarising from coming regulatorydevelopments (CRD 4 for banks in2014, Solvency II for insurance in2016) and organisational develop-ments (introduction of the singlesupervisory mechanism for banks inEurope from November 2014).

Other areas saw their shares staymuch the same, with just over two-third of employees assignedto ongoing and on-site supervi-sion of reporting institutions onan individual basis, monitoring ofbusiness practices and licensingand authorisation. Furthermore,the Resolution Directorate wasgradually set up to handle prepa-rations for the work done by the

Resolution College on preventiveand resolution measures, as applicable. Meanwhile, 18% ofemployees are assigned tomacroprudential supervision,international work on preparingregulations, legal activities andother cross-cutting activities (includ-ing in particular methodologicalwork).

At end-2013, 92% of the GeneralSecretariat ’s employees weretenured staffmembers or on privatecontracts, 6% were civil servantsand 2% were employed underfixed-term contracts.

• Special attention was paid totraining initiativesThe Authority held monthly wel-come sessions and ran inductioncourses for new recruits. In additionto initial training, the emphasis wasplaced on training to prepare forthe entry into force of the new Basel III and Solvency II regulations,as well as on supporting the intro-

duction of the single supervisorymechanism (expanded range ofEnglish training courses).

The ACPR also continued its man-agement training drive, providingcourses for newly-appointed andseasoned managers.

39%

BREAKDOWN OF THE WORKFORCE

15%7%

7%

18%

11%2%

• Banking sector supervision• Insurance sector supervision• Supervision of business practices• Licensing• Cross-functional activities (legal and international affairs, research)

• Support activities (HR, training, IT, financial control)

• General Secretariat

I. OVERVIEW OF THE ACPR 2. ACPR GENERAL SECRETARIAT 2.2 ACPR staff

27


The ACPR publishes a variety of documents aimed atkeeping the market, economists and academics informedof its work.

I A widely distributed bi-monthly review aimed at bankingand insurance professionals, La Revue de l’Autorité decontrôle prudentiel et de résolution reports on theACPR’s activities and regulatory developments affectingthe financial sector;

I The ACPR publishes its research in a review titledAnalyses et Synthèses, which contains analysis andcomment on research carried out into risk in the bankingand insurance sectors; 14 issues were published in 2013;

I Débats économiques et financiers consist of articlesthat present the views of their authors and do notnecessarily reflect the ACPR’s position. They are intendedto foster discussion on banking and insuranceeconomics, regulation and prudential policy; 9 issueswere published in 2013.

The list of these publications is annexed to this report.

ACPR conferences The ACPR regularly organises conferences to reach out to the market. These events are highlights on the calendarand offer an opportunity to dialogue with professionals onkey issues related to their business. ACPR senior directorsand representatives attend the conferences to respond to questions from participants.

In 2013, several events were organised:

I a conference on 14 June at la Maison du Barreau on thenew challenges associated with the European BankingUnion and the transition from Solvency I to Solvency II;

I an international academic conference on 14 and 15October at the auditorium of the Banque de France on“Risk Taking in Financial Institutions, Regulation and theReal Economy”;

I a conference on 13 November at Palais Brongniart onthe supervision of business practices in insurance andbanking and the introduction of the single supervisorymechanism;

I a conference on 12 December at the auditorium of theBanque de France entitled “Solvency II, preparing for2016”.

ACPR seminars The Authority organises research seminars. These consistedof the following in 2013:

I on 6 June, Larry Wall (Federal Reserve Bank of Atlanta) on “Incentive Compensation, Accounting Discretion andBank Capital”;

I on 23 July, Edward Simpson Prescott (Federal ReserveBank of Richmond) on “An Experimental Analysis ofContingent Capital with Market-Price Triggers”.

Since June 2013, these seminars have been conducted as part of the ACPR’s research chair on Regulation andSystemic Risk, whose main tasks are to organise researchactivities, foster relations between the academic worldand the ACPR and build an outward-looking centre fordiscussion and proposals on the management of systemicrisk.

The chair organised 5 seminars in 2013:

I on 2 July, Céline Grislain-Letremy (INSEE-CREST andUniversité Paris-Dauphine) presented on “NaturalDisasters: Exposure and Underinsurance”;

I on 3 September, Christophe Pérignon (HEC Paris)presented on “CoMargin”;

I on 1 October, Henri Fraisse (ACPR) and David Thesmar(HEC Paris and CEPR) presented on “The Real Effects ofBank Capital Requirements”;

I on 5 November, Serge Darolles (Université Paris-Dauphineand CREST) presented on “Survival of Hedge Funds: Frailtyversus Contagion”;

I on 3 December, Antoinette Schoar (MassachusettsInstitute of Technology) presented on “House Prices,Collateral and Self-Employment”.

ACPR websitesThe ACPR has two distinct websites.

I The ACPR’s main website, www.acpr.banque-france.fr,contains all the regulations, reviews, research and otherdocuments pertaining to or published by the ACPR.

I The website of the Joint Unit with the AMF (AssuranceBanque Épargne Info Service), www.abe-infoservice.fr, is a space that is intended to provide the public withinformation on rights and procedures relating to banking,insurance and financial investment.

COMMUNICATING TO KEEP THE MARKET REGULARLY INFORMED

”

ACPR GENERAL SECRETARIAT (AT 1 FEBRUARY 2013)

DELEGATION CHARGED WITH THE ON-SITE INSPECTION OF CREDIT

INSTITUTIONS AND INVESTMENT FIRMS

Representative: Thierry MergenDeputy: Matthieu Leclercq

I On-Site Inspection Teams and Risk Modelling Control Unit

28

SUPERVISION OF MUTUAL INSTITUTIONS AND INVESTMENT FIRMS

Director: Patrick AmisDeputy: François-Louis Michaud

I Mutual Banks Division 1: Perrine KaltwasserI Mutual Banks Division 2: Muriel TiessetI Independent Credit Institutions, Private Banking & Banks from Monaco: Isabelle Barroux-RehbachI Investment firms division: Christophe Reynaud

SUPERVISION OF GENERAL AND SPECIALISED CREDIT INSTITUTIONS

Director: Bertrand PeyretDeputies: Sébastien Clanet

Violaine ClercI Large Banks Division: Anne LecuyerI Foreign Banks Division: Laure QuinceyI Mortgage, Consumer Finance and Municipalities Division: SophieBéranger-LachandI Leasing, Factoring and SME Financing DivisionJérôme Chevy

LEGAL AFFAIRS

Director: Henry de GanayDeputies: Didier Israël

Anne-Marie Moulin

Board Services: Marie-Françoise Baras

I Institutional Affairs and Public Law division: Jean-Gaspard d’Ailhaud de BrisisI Business and Private Law Division:David RevelinI AML and Internal Control Division

RESEARCH DIRECTORATE

Director: Olivier de BandtDeputies: Anne-Sophie Borie-Tessier

Dominique Durant

I Actuarial Research and Simulation Division: Henri FraisseI Statistical Studies and Publications Division: Laëtitia MeneauI Cross-Sectoral Risk Analysis Division

INTERNATIONAL AFFAIRS DIRECTORATE

Director: Philippe RichardDeputies: Nicolas Peligry

Olivier Prato

I Banking International Division: PhilippeBillardI Insurance International Division I Accounting Affairs Division Ludovic Lebrun

AUTHORISATION, LICENSING AND REGULATION

Director: Jean-Claude HuyssenDeputy: Nathalie Beaudemoulin

I Financial Regulation Division: Gilles PetitI Banks and Investment Firms Division:Jacqueline Thepaut-FabianiI Specialized Procedures and InstitutionsDivision: Muriel RigaudI Insurance Institutions Division: Martine Procureur

SUPERVISION OF BUSINESS PRACTICES

Director: Olivier FlicheDeputy: Barbara Souverain-Dez

I Oversight of Contracts & Risks Division:Hélène ArveillerI Intermediaries Supervision Division:Maryvonne MaryI Consumer Information & ComplaintsDivision:Isabelle Le Moullec-PatatI Coordination Division: Christine Decubre

Communication: Geneviève Marc

RESOLUTION DIRECTORATE

Director: Dominique LaboureixDeputy: Gaëtan Viallard

GENERAL SECRETARIAT OF THE AUTORITÉ DE CONTRÔLE PRUDENTIEL ET DE RÉSOLUTION

Secretary GeneralÉdouard Fernandez-Bollo

First Deputy Secretary General Sandrine Lemery

Deputies Secretaries General Fabrice Pesin

Frédéric Visnovsky

Resilience: Alain Dequier

IT, METHODS AND HUMAN RESOURCES

Director: François BarnierDeputy: Jean-Marc Serrot

I Human Resources Division: Vincent TeurcqI Standards, Methods, Organisation and Training Division: Clémentine VilcocqI Operational Support, Functional andApplication Management DivisionFreddy Latchimy

FINANCIAL AFFAIRS

Director: Michel BordDeputy: Marie-Astrid Larcher

I Financial Management: Armand CarréeI Property and General Services: OlivierLe Guennec

INSURANCE SUPERVISION – DIRECTORATE 1

Director: Paul CoulombDeputy: Claire Bourdon

I Brigade 1 I Brigade 2: Philippe SourlasI Brigade 3: Jean-Philippe BarjonI Brigade 4: Flor Gabriel

INSURANCE SUPERVISION – DIRECTORATE 2

Director: Patrick Montagner*Deputy: Evelyne Massé

I Brigade 5: Eric MolinaI Brigade 6: Jacky MochelI Brigade 7: Didier PouillouxI Brigade 8: Émilie Quéma

CROSS-FUNCTIONAL AND SPECIALISEDSUPERVISION

Director: Romain PaserotDeputy: Grégoire Vuarlot

I Internal Models Unit I Supervision of AML procedures:Patrick GarrousteI On-Site Inspection Team of Insuranceinstitutions I Specialized On-site Inspection Division:Thierry Auran

I Sanctions Committee: Jean-ManuelClemmer

* Patrick Montagner was appointed Deputy Secretary General on 13 February 2014.

29


THE MANAGEMENT BOARD OF THE ACPR

From left to right:Back row: Thierry Mergen, François Barnier, Olivier Fliche, Dominique Laboureix,Henry de Ganay, Romain Paserot, Michel Bord, Patrick Amis, Olivier de Bandt.Front row: Jean-Claude Huyssen, Bertrand Peyret, Philippe Richard, Paul Coulomb.

3.1 DECISIONS ON GENERAL ISSUES

The ACPR Supervisory Collegeadopted a number of decisions ongeneral issues, in particular to clarifythe information that must be submitted to it, after consultinginterested parties. These decisionsare published in the ACPR’s officialregister, available through its website at www.acpr.banque-france.fr

Furthermore, at the request of theFédération bancaire française(FBF), the College approved for thefirst time, pursuant to the provisions

of Article L. 612-29-1 of the Mone-tary and Financial Code, twocodes of conduct. These codescover information about totalmonthly banking fees and autho-rised overdraft amounts provided inbanking statements, and the for-mat of brochures detailing bankfees, with a standard summary andfee listing. These codes were pub-lished in the Official Journal, makingthem mandatory for FBF members.

In addition, in preparation for theentry into force on 1 January 2014of the provisions of CRD 4 and itsimplementing regulation (EU Regu-lation 575/2013 of 26 June 2013 onprudential requirements for creditinstitutions and investment firms,also known as the CRR), the Super-visory College established domes-tic implementation procedures forthe general options provided for inthe CRR and coming under theACPR’s jurisdiction. This decision waspublished in the ACPR’s official register.

30

Activities of the ACPR Supervisory College3

decisions in 2013, mainly consisting of:I 442 decisions on individual situationsI 29 decisions on general issues I 14 decisions on the organisation of the ACPRand its General Secretariat I 17 other decisions 6

502The ACPR Supervisory Collegehanded down

5. Not including decisions taken by the Chair of the College on licences and authorisations under delegated powers. 6. Including transmission of information or opinions of other authorities and approvals of reports or documents with publication.

5 These decisions included:

91 administrative enforcement measures orother binding measures of a similar nature

18 injunctions concerning capital adequacyrequirements

8 decisions to initiate disciplinary proceedings, including one proceedings that was closed on procedural grounds


Décision n° 2013-C-110 Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) 648/2013

INSTRUCTIONSInstruction n° 2013-I-01 amending Instruction 2009-01 of 19 June 2009 on the introduction of the unified financial reporting

systemInstruction n° 2013-I-02 creating Schedule C22 on supervision of profit-sharingInstruction n° 2013-I-03 creating Schedule C23 on minimum guaranteed rates Instruction n° 2013-I-04 creating Schedule C26 on monitoring Class 26 agreementsInstruction n° 2013-I-05 creating Schedule C24 on loss reserves for future claims that have not yet materialisedInstruction n° 2013-I-06 amending Instruction 2011-I-14 of 29 September 2011 on the supervision of risks to home loans in

FranceInstruction n° 2013-I-07 amending Instruction 2009-01 of 19 June 2009 on the introduction of the unified financial reporting

systemInstruction n° 2013-I-08 on required disclosures under point VI of Article L. 561-3 and point III of Article D. 561-3-1 of the Mone-

tary and Financial CodeInstruction n° 2013-I-09 on the forms for licence applications, agent disclosures, notification under the freedom of establish-

ment and the freedom to provide services, notification of use of an agent or distributor in a MemberState of the European Union or in another State party to the European Economic Area Agreement, forelectronic money institutions

Instruction n° 2013-I-10 on information about money changers’ anti-money laundering and counter-terrorist financing systemsInstruction n° 2013-I-11 amending Instruction 2010-06 on the introduction of the unified financial reporting system for payment

institutionsInstruction n° 2013-I-12 amending Instruction 2009-01 of 19 June 2009 on the introduction of the unified financial reporting

systemInstruction n° 2013-I-13 on the forms for reporting a credit institution licence exemption for the provision of banking payment

services, reporting an electronic money institution licence exemption for the issue and management ofelectronic money, and reporting a payment institution licence exemption for the provision of paymentservices

Instruction n° 2013-I-14 amending Instruction 2009-01 of 19 June 2009 on the introduction of the unified financial reportingsystem

Instruction n° 2013-I-15 on monitoring flows in relation to life insurance policiesInstruction n° 2013-I-16 on the communication by certain reporting institutions of their international Legal Identity Identifier to

the ACPRInstruction n° 2013-I-17 amending Instruction 2011-I-08 on commitments linked to international banking activitiesInstruction n° 2013-I-18 on applications to approve programmes of unsecured loans by insurance companies

GUIDELINESGuidelines on the concept of politically exposed persons (PEPs) (version including update of legal and regulatory provisions at 12 November 2013) Guidelines on the concept of equivalent third countries (version including update of legal and regulatory provisions at 12 November 2013)

SECTOR ENFORCEMENT PRINCIPLESSector enforcement principles on the beneficial owners of collective investment schemesSector enforcement principles on correspondent banking

NOTICEProcedures for calculating the 2013 solvency ratio

POSITIONPosition 2013-P-01 on application of Regulation 97-02 to intermediation in banking transactions and payment services

RECOMMENDATION Recommandation 2013-R-017 on gathering customer information in the framework of the duty to provide advice on life insurance

policies

CODES OF CONDUCT APPROVEDCode of conduct on information about total monthly banking fees and authorised overdraft amounts provided in banking statementsCode of conduct on the format of brochures detailing bank fees, with a standard summary and fee listingSupervisory

DECISION ON GENERAL ISSUES IMPLEMENTING EUROPEAN PROVISIONS

31

DECISIONS ON GENERAL ISSUES PUBLISHED IN 2013

7. Recommendation made by the Supervisory College in late 2012 and published in early 2013.

3.2 INDIVIDUAL DECISIONS

Issues relating to individual entitiesare examined by the sectoral Sub-Colleges and the Supervi-sor y Col lege meet ing inrestricted session. They relate inparticular to licensing applicationsand, for institutions that arealready l icensed, to applica-tions for changes of situation,authorisations and waivers providedfor by the regulations, as well as tosupervisory follow-up action,which may include injunctions,administrative enforcement meas-ures or sanction proceedings, asthe case may be.

In 2013, the Supervisory Collegeadopted a total of 442 measuresaffecting individual institutions.

A. Licences and authorisations

Institutions wishing to carry on bank-ing or insurance activities must submit a licensing application tothe ACPR. Pursuing an unlicensedbusiness may result in criminalpenalties.

Pursuant to Article L. 612-2 of theMonetary and Financial Code,when an institution is issued with a

licence, it acquires a status thatbrings it under the ACPR’s scope ofsupervision. Generally speaking, theCollege pays particularly closeattention to the quality of licensingapplications, which are often coupled with commitments or conditions. To ensure better publicdisclosure and customer protec-tion, Article L. 612-21 of the Mone-tary and Financial Code empowersthe Authority to draw up and publisha list of licensed entities. This list ispublished in the Licences andAuthorisations section of theACPR’s website. See Chapter 2for more information about licens-ing and authorisation activities.

The College examined a largenumber of activities subject toauthorisation in 2013. Any amend-ment to or extension of a licenceissued by the College must bereferred to it, and it can also with-draw licences. Accordingly, theCollege withdrew the licence of apayment institution that no longercomplied with its requirements.

Regulations also stipulate thatreporting institutions must obtainauthorisation from the College tocarry out certain transactions or useinternal approaches for calculatingregulatory ratios. The College canalso authorise reporting institutionsto apply alternative methods forcalculating management ratiosunder certain conditions providedfor by the laws and regulations, orgrant temporary waivers.

B. Supervision The College is charged with setting supervisory priorities, bothfor its main focal areas and for theresources allocated to them. The special organisational arrange-ments for these tasks are theresponsibility of the Secretary General. In this regard, the Collegereviews the findings of individualinspections carried out in the previous year as well as generalissues of financial stability, whichinform its thinking.

Also, in the course of the year, theCollege regularly makes majordecisions concerning institutions inthe banking and insurance sectors,based on supervisory findings andfollowing a procedure that ensuresthat all sides of each case areheard.

C. Administrative enforcement measures

The ACPR Supervisory Collegeadopted 98 final decisions in 2013(109 including renewals of previ-ously adopted measures).

The College issued 18 injunctionsrequiring credit institutions to holdcapital in excess of the minimumamount laid down in regulations orto adjust the level of the require-ments that it had imposed on insti-tutions. In addition, the Collegerequired five credit institutions totake measures within a specifiedtime to bring their procedures intoline with the recommendations andprinciples published by the European Banking Authority (EBA)and the European Securities and

32

I. OVERVIEW OF THE ACPR 3. ACTIVITIES OF THE ACPR SUPERVISORY COLLEGE 3.2 Individual decisions

33


Markets Authority (ESMA) on contri-butions to market indices. Further-more. The College instructed oneinsurer whose registered offices are outside France to bring policiesmarketed in France into compli-ance with the provisions of the Insurance Code.

The ACPR continued to step up itsuse of cease-and-desist orders tocorrect breaches of mandatoryprovisions (a power which the College has delegated to theChairman – see delegation decision 2010-10 of 12 April 2010,as amended, published in the Official Journal). In all, 18 measures

were imposed in 2013, while a further 5 were initiated. Thesemeasures related to prudentialratios (liquidity, solvency, largeexposures), compliance with internal control rules and anti-money laundering and counter-terrorist financing (AML/CTF).

The College required three institutions to submit recovery programmes (Article L. 612-32 ofthe Monetary and Financial Code)and instructed two insurers to submit short-term funding plans(Article R. 323-3 of the InsuranceCode) for its approval. The Collegedid not require any safeguarding

programmes (Article R. 510-4 of theMutual Insurance Code) or restruc-turing programmes (Article R. 931-5-2 of the Social Security Code) tobe submitted in 2013. It placedone mutual insurer under specialsupervision, in view of its situation.

The College also issued three setsof measures to limit or prohibitactivities, and in two cases,imposed a ban on the free dis-posal of some or all assets, with theaim of either protecting customersor preventing the institution’s finan-cial position from deteriorating.

The ACPR General Secretariathad 1,060 employees at end-2013.

Pursuant to Article L. 612-1-II of theMonetary and Financial Code, theACPR published the measuresimposed on two insurers. The ACPRissued one decision against Com-pagnie Nantaise d’assurancesmaritimes et terrestres, instructing itto review its investment policy,which was chiefly concentrated onproperty and hence non-compliantwith the provisions of the InsuranceCode on compliance by insurerswith the speciality rule, resulting inthe company’s failure to meet itsregulated commitments. This deci-sion was the subject of a noticepublished on 22 October 2013 inthe Authority’s official register. TheCollege also informed the publicthrough press releases issued on 18 October and 16 December

2013 that Teucer Gestion Privéehad been banned from acceptinginsurance premiums.

In addition, to make its actionsmore effective, the ACPR is entitledto use its powers in combinationwhenever it considers that the rem-edy it is targeting would be betterachieved by doing so.

Thus, in 2013, in an effort to restoretheir financial positions, the Collegeimposed bans on two insurers onfreely disposing of some or allassets, combined, in one case, witha request for a short-term fundingplan and, in the other case, with thedecision to place the entity underprovisional administration.

In the case of another insurer, theCollege decided, after rejectingthe recovery programme submit-ted to it, to place the entity underspecial supervision.

One investment firm, after beingplaced under provisional adminis-tration, was the subject of protec-tive measures.

D. Initiation of disciplinaryproceedings and follow-up

The Supervisory College initiatedseven disciplinary proceedings in2013, plus one disciplinary pro-ceeding that was closed on proce-dural grounds, and referred thesecases to the Sanctions Committee.The proceedings that were openedin 2013 covered breaches of inter-nal control and/or AML/CTF rulesand breaches of prudential regu-lations. The College also referredthree cases to the Sanctions Committee relating to breaches ofprovisions on customer protectionconcerning access to bankingservices and unclaimed life insurance policies.

34

I. OVERVIEW OF THE ACPR 3. ACTIVITIES OF THE ACPR SUPERVISORY COLLEGE 3.2 Individual decisions

I Placement under special supervision

I Limitation or temporary prohibition of certain activities

I Suspension, restriction or temporary prohibition of the freedisposal of some or all of the supervised entity’s assets

I Order to suspend or limit the payment of surrender values, theright to execute arbitrage transactions, the payment of policyloans or the right of opt-out

I Transfer, without consultation, of all or part of a portfolio ofinsurance contracts or mutual insurance payments, and of allor part of a portfolio of loans or deposits of a credit institution

I Prohibition or limitation on the dividend payments toshareholders or returns on membership shares

I Suspension of one or more senior executives

I Suspension of persons referred to in Article L. 612-23-1 (seniorexecutives, members of the board of directors or supervisoryboard or any other body performing equivalent functions,members of the management board), where they no longermeet the fitness and propriety, competence and experiencecriteria required by their position and where such steps areurgently required to meet the needs of sound and prudentmanagement

I Limitation or suspension of the execution of certaintransactions by a person whose actions could affect financialstability and in certain emergency situations provided forunder European provisions

35


The ACPR monitors institutions’responses to the measures itadopts, including action to rectifybreaches that have been the subject of sanctions or administra-tive enforcement measures suchas cease-and-desist orders. This process ensures that notedbreaches are rectified andincludes on-site inspection wherenecessary. Monitoring arrange-ments for certain administrative

enforcement measures, such asrecovery programmes and specialsupervision, are laid down in theMonetary and Financial Code. If it is found that the institution is notin compliance with its statutoryand/or regulatory obligations,despite the measures adopted bythe ACPR, the Supervisory Collegewill review the specific situation ofthe entity in question, which maylead it to initiate disciplinary

proceedings. Similarly, the Collegemay be asked to examine evi-dence of further serious breachesby a previously sanctioned entity.

In 2013, no disciplinary proceed-ings were opened as a result of follow-up on measures adopted by the College.

ENFORCEMENT MEASURES PROTECTIVE MEASURES

I Warnings

I Cease-and-desist orders

I Recovery programmes

- Protective measures

I Appointment of a provisionaladministrator

36

PARLIAMENTARY HEARINGS ATTENDED BY THE ACPR IN 2013

DATE TOPIC REQUESTED BY ACPR REPRESENTATIVE

15 January 2013 Banking Separation andRegulation Bill

Senate Finance Committee Édouard Fernandez-Bollo, ACPRDeputy Secretary General


National Assembly Finance,Mainstream Economy and BudgetControl Committee

Christian Noyer, Governor of the Banque de France, ACPRChairman, and Danièle Nouy,ACPR Secretary General


Senate Finance Committee(panel discussion)

Édouard Fernandez-Bollo, ACPRDeputy Secretary General

20 February2013

Resolution and management of bank failures

Senate Finance Committee(panel discussion)

Frédéric Visnovsky, ACPR DeputySecretary General

27 February2013

Banking Separation andRegulation Bill

Senate Economic AffairsCommittee


1er March 2013 Banking Separation andRegulation Bill

Senate Finance Committee Édouard Fernandez-Bollo, ACPRDeputy Secretary General

21 may 2013 Measures to combat tax havens Information taskforce, NationalAssembly Foreign AffairsCommittee


23 may 2013 Draft European regulation onbenchmarks, notably Libor andEuribor, and advances in the USAand UK

Richard Yung, Senate EuropeanAffairs Committee

Danièle Nouy, ACPR SecretaryGeneral, and Frédéric Visnovsky,ACPR Deputy Secretary General

30 may 2013 Consumer Bill National Assembly FinanceCommittee

Fabrice Pesin, ACPR DeputySecretary General

30 may 2013 Bill on the prevention of tax fraudand major economic andfinancial crime

National Assembly Finance,Mainstream Economy and BudgetControl Committee


9 July 2013 Role of banks and financialparticipants in financial evasion,the tax impact on economicbalances, and the effectivenessof preventive legislative, legal andadministrative arrangements

Senate Enquiry Committee Christian Noyer, Governor of theBanque de France, ACPRChairman

9 July 2013 Role of banks and financialparticipants in financial evasion,the tax impact on economicbalances, and the effectivenessof preventive legislative, legal andadministrative arrangements

Senate Enquiry Committee Danièle Nouy, ACPR SecretaryGeneral

23 July 2013 Bill on the social and community-based economy (mutual andprovidential certificates)

Senate Finance Committee Cyril Roux, ACPR First DeputySecretary General

20 september2013

Unclaimed Assets Bill National Assembly Finance,Mainstream Economy and BudgetControl Committee

Fabrice Pesin, ACPR DeputySecretary General

37


The introduction of the single supervisorymechanism, under

the auspices of the European Cen-tral Bank (ECB), will result in mate-rial changes to the ACPR’sprudential oversight of the bank-ing sector. These changes, whichwill not affect activities that havenot been transferred to the ECB(sanction decisions, AML, supervi-sion of investment firms and busi-ness practices, etc.) will primarily,although not exclusively, affectsupervisory activities.

Accordingly, supervision of majorbanks (specifically, 13 groups inFrance accounting for around 95%of the domestic banking system’stotal assets) will be carried out byJoint Supervisory Teams (JSTs),which will be set up gradually in thefirst half of 2014 so that they are fullyoperational by 4 November 2014when the regulation on the SingleSupervisory Mechanism (SSM)comes into force. The JSTs, whichwill be managed by ECB coordina-tors, will include staff from the ECBas well as personnel from thenational authorities, which will continue to perform first-levelchecks and risk analyses andremain the point of contact forbanks, notably for the purposes ofreceiving prudential and financialdata.

Similar changes are ahead for on-site inspections. In other words,while on-site inspections will beindependent of ongoing supervi-sion, as is currently the case inFrance, the programmes of activityfor on-site inspection teams will becentrally established and coordi-nated.

Beyond these organisationalchanges, the introduction of theSSM will bring adjustments to working methods, which will bedefined by a supervisory manual tobe applied uniformly by all euroarea national authorities. The manual, which the ACPR was heav-ily involved in preparing, supple-mented by the frameworkregulation, organises the supervi-sory tasks within the SSM and spec-ifies the central/local distribution ofroles. It also defines the methodol-ogy for the risk assessment system.

The manual does not cover supervisory activities only, however.It encompasses cross-cutting activ-ities, such as involvement in thedevelopment of international regulations, analyses, licensing andauthorisation, and legal aspects,which will also be covered by thefuture federal system set up by theSSM. Thus, while remaining active in their respective areas, ACPR directorates involved in the mech-anism will have a portion of theirwork coordinated by, and increas-ingly collaborate with, the ECB.

Overall, the ACPR is looking forwardto a busy year in 2014. Highlightswill include European projectsaimed at strengthening supervisorystandards and practices across thesingle market. A member of thesupervisory board and representedin the technical groups set up over2012 to support the ECB’s prepara-tions, the ACPR wants to be an influential player in the new mechanism.

Introduction of the single supervisory mechanism in the banking sector

4

January 8th: The ACP published a

recommendation ongathering customerinformation applicable to the

marketing of life insurance

policies.

This document was the fruit of

work done in conjunction with

the Autorité des marchés

financiers (AMF), which also

published a position

applicable to the marketing of

financial instruments.

April 22nd: The ACP prepared

an initial assessment of itswork on post mortemrevaluation clauses in lifeinsurance policies. As part of inspecting unclaimed life

insurance policies, it analysed

the post mortem revaluation

clauses of 61 policies

marketed by around 40

insurers.

May29th: Chairman Christian

Noyer and Vice-Chairman

Jean-Philippe Thierry presented

the ACP’s third annual reportto the press.

June 14th: The ACP organised

a conference at Maison du

Barreau. The morning was

devoted to the newchallenges facing theEuropean Union. Theafternoon session, introduced

by Vice-Chairman Jean-

Philippe Thierry, was titled

“Solvency I to Solvency II”.

26th: The ACP SanctionsCommittee disciplined UBSFrance, issuing a reprimand

and imposing a EUR 10 million

fine.

July9th: For the first time,

the ACP approved codes of conduct concerningmarketing and customer

protection.

26th: Banking Separationand Regulation Act 2013-672

was published in the Official

Journal. It assigned new

powers to the Authority on

preventing and resolving

banking crises. The Autoritéde contrôle prudentielbecame the Autorité de contrôle prudentiel et de résolution (ACPR).

September30th: The ACPR and the

AMF launched a publicconsultation oncrowdfunding.

38

Highlights2013

39


October14th: Sandrine Lemery was

made ACPR Deputy Secretary

General before being

appointed First DeputySecretary General on 2 January 2014.

23rd: The European Central

Bank (ECB) launched a

comprehensive assessmentof credit institutions prior to

assuming its role as supervisor

(risk assessment, asset quality

review and stress tests for the

main banks). The ACPR was

heavily involved in the

exercise, which concerned

13 French banking groups.

November13th: I The ACPR organised aconference for professionalsthat explored two topics:supervision of businesspractices and theintroduction of the singlesupervisory mechanism.Christian Noyer, ACPRChairman, introduced theevent, which attractedaround 500 participants – a record number.

I The European Parliament,Council and Commissionreached an agreement onthe Omnibus II Directive aspart of trialogue discussions.The Solvency II rules comeinto effect on 1 January2016.

25th: Jean-Marie Levauxwas appointed Vice-Chairman of the ACPR to

replace Jean-Philippe Thierry,

who resigned.

December12th: The ACPR organised

a conference under theheading of “Solvency II,preparing for 2016” at the

auditorium of the Banque de

France. Jean-Marie Levaux,

ACPR Vice-Chairman,

introduced the event, which

was attended by around

250 professionals.

16th: Danièle Nouy,ACPR Secretary General, was

appointed to chair thesupervisory board of thesingle supervisory mechanism

at the European Central Bank.

Édouard Fernandez-Bollobecame ACPR Secretary

General in January 2014.

Entrance to the ACPR: 53 rue de Châteaudun, Paris 9th.

1. Licences and authorisations 422. Risk exposure of the financial system: 2013 assessment 583. Prudential supervision 664. Resolution of banking crises 92

40

2

41


The ACPR works to maintain the stability of the financial system. It licenses entitiesoperating in the banking and insurancesectors and conducts ongoing supervision of reporting entities.

For this, the ACPR relies on several divisionstasked with licensing and supervising banksand insurers; it also draws on research toanalyse risks that may affect the financialsector as a whole.

In 2013, the ACPR was assigned powers to prevent and resolve banking crises. A specific division was set up to perform this new role.

of the financial system the stability

Ensuring

Asubstantial propor-tion of the decisionsmade by the ACPR

Supervisory College, both in restrict -ed sessions and through the Banking and Insurance Sub-Col-leges, deals with licensing andauthorisation applications. In addi-tion, the College Chairman makesother decisions using his delegatedpowers.

The ACPR’s Licensing, Authorisa-tion and Regulation Divisionexam ined a total of 968 applica-tions from the banking and insurance sectors, consisting of602 licensing and authorisation applications and 366 senior management appointments.

Applications for licences, licenceextensions, changes of ownership,asset transfers and restructuringrequire close scrutiny in coopera-tion with the ACPR’s supervisiondepartments. Such applicationswere the subject of 353 meetingswith institutions during the year.

As well as dealing with these appli-cations, the ACPR gives its opinionon proposed appointments of statutory auditors by institutionssupervised by the ACPR (except forcertain types of organisations listedin the Monetary and FinancialCode) (see inset p.51). A total of989 opinions were issued in 2013(566 in the banking sector and 423in the insurance sector).

1.1 BANKING SECTOR

A. Developments in thebanking and financialsector

The trend towards concentration in the banking sector, which wasobserved in previous years, contin -ued in 2013. The small number ofnew institutions created was no -ticeably lower than the number oflicence withdrawals, as bankinggroups streamlined and rational -ised their organisations.

There was rationalisation amonginvestment services providers (ISPs)as well, particularly in securities brokerage and employee savings.Meanwhile, control of certain market infrastructures changedacross borders.

The number of payment institutionsand electronic money institutionsdid not change greatly, but themany applications submitted in2013 are likely to result in the li -censing of new entities in 2014. The number of payment institutionagents increased sharply, with sustained growth expected tocontinue in 2014.

42

Licences and authorisations

licensing and authorisation decisions in 2013 I of which 502 concerned the banking sector I and 100 concerned the insurance sector

602Licensing and authorisation statistics

8

8. This includes the 428 decisions taken by the Chair of the Supervisory College on licensing and authorisation under delegated powers.

1

43


B. Highlights

LICENCES

The ACPR College issued a licenceto Banque publique d’investisse-ment (BPI), which was createdunder Act 2012-1559 of 31 De -c ember 2012 from the merger of OSEO, Fonds stratégique d’inves-tissement and CDC Entreprises. BPI’sestablishment forms part of thepublic authorities’ broader reform ofthe framework for financing theeconomy. The aim is to have afinancial institution that is dedicatedto providing equity and bank fi -nancing for micro-, small- andmedium-sized enterprises and mid-tier firms. The holding company,Bpifrance, which has financial holding company status, owns twosubsidiaries: Bpifrance Finance-ment, a credit institution dedicatedt o b u s i n e s s f i n a n c i n g , a n d Bpifrance Investissement, an equitycapital specialist not supervised bythe ACPR.

Working towards the goal of en -suring long-term refinancing for itsmortgage and secured credit portfolio, Banque Postale wasauthorised by the ACPR College tocreate Banque Postale Home LoanSFH, a subsidiary with home financecompany status (as defined by Articles L. 515-34 and following ofthe Monetary and Financial Code).

The new entity will finance loans tothe parent company through issuesof bonds backed by residential pro-perty loans.

The French branch of Exim Bank, apublicly-owned Chinese bank specialised in export credit, waslicensed in 2013. The branch’smain business will be to providefinancing and guarantees to Chinese industrial exporters andinternational buyers of Chinesecapital goods. Exim Bank is the thirdChinese banking office to be set upin France, after Bank of China Limit -ed, which was established in 1985,and International and CommercialBank of China (ICBC), which hasdone business in France as theEuropean branch of a Luxembourgbank since November 2010.

Pursuant to European provisions onthe introduction of a system for trading greenhouse gas emissionallowances in the European Union,BNP Paribas was authorised to takepart in spot allowance auctions onbehalf of its clients.

OWNERSHIP CHANGES

Changes in major shareholdingssubject to the authorisation ofthe ACPR College included thefollowing in 2013:I changes in ownership leading to

a change in control: • Banque Postale acquired Banque

Privée Européenne from CréditMutuel Arkéa, which gave it anentity specialised in private bank -ing,

• General Motors Financial Com-pany Inc. acquired GMACBanque from Ally Financial Inc.Group, allowing it to regaincontrol, which it lost in 2006, overits European customer and deal -er financing division,

• control of Sogama was transfer-red from Caisse des dépôts etconsignations to Bpifrance Finan-cement as part of the mergerthat led to the creation of the Bpifrance Group;

I acquisitions by majority share -holders of minority shareholders’stakes:

• Fiducial Financial Services, a non-bank group, acquired thestake held by Banque Palatine(BPCE Group) in Banque Fiducial,becoming the sole shareholder,

• Financière IDAT, the holding com-pany of the Oddo Group, ac -quired from Allianz, an insurancegroup, its 20% stake in Oddo & Cie, a bank.

WITHDRAWALS OF LICENCES

The ACPR College withdrewseveral licences as bankinggroups streamlined their organi-sations by merging businesses withparent companies: I Cogéra SA, which specialises in

financing sales networks for mobileequipment, was taken over by its parent company, Diac (RCIBanque-Renault group);I Banque Française, a bank pro -

viding investment services andauthorised to act as a custodyaccount-keeper, was taken over byBanque Fédérale Mutualiste; I Batiroc Normandie, a financial

company specialised in propertyleases, was taken over by Bail ImmoNord, which was already in chargeof its administrative management; I Réunibail, a financial company

specialised in providing equipmentleasing services to business andretail clients in Réunion andMayotte, was taken over by Sociétéréunionnaise de financement(SOREFI);

I Expanso was taken over by Caissed’épargne et de prévoyance Aquitaine Poitou-Charentes;I Compagnie de banques interna-

tionales de Paris (CBIP) was takenover by Attijariwafa Bank Europe; I Eurofactor was taken over by Crédit

Agricole Leasing & Factoring.

Génécal and Généfimmo, twoSociété Générale group financialcompanies licensed to financelease transactions, applied to havetheir licences withdrawn becausetheir regulated activities had beendormant for several years.

Several licences were withdrawnas firms changed their businessand/or geographical focus:I Cofitem-Cofimur, a financial

company specialised in propertyleasing, applied to have itslicence withdrawn because itwanted to concentrate on its coreproperty management business;

I the licences of ING Lease FranceSA, a financial company special -ised in leasing, and ING RealEstate Finance, a financial com-pany specialised in professionalreal estate financing, were with-drawn as part of the reorganisa-tion of the ING group, which ledthe group to continue operating inFrance through the Europeanbranch of ING Bank NV, a Dutchbank; I Banco do Brasil, which was li -

censed as a non-EEA bankbranch, applied to have itslicence withdrawn as part of theinternational restructuring of thegroup, which opted to pursue itsdevelopment in Europe through anetwork of European branches(including one in France) basedout of a fully-chartered bank li -censed in Austria;I GE Commercial Distr ibution

Finance SA applied to have itslicence withdrawn as part of the

44

“Applications to withdraw licencesin 2013 essentially reflected an overall push among bankinggroups to streamline their organisations and refocus their business.

Marjorie Limon,Licensing, Authorisationand Regulation Division.

”

II. ENSURING THE STABILITY OF THE FINANCIAL SYSTEM 1. LICENCES AND AUTHORISATIONS

1.1 Banking sector

45


process of concentrating all ofthe General Electric group’s inven-tory and receivables financingactivities in the UK;I one ISP was also affected by steps

to refocus activity outside France.JB Drax Honoré, an investmentfirm, applied to have its licencewithdrawn after all its business ac -tivities were transferred to JB DraxHonoré (UK) Limited, its London-based sister company, reflectingthe fact that the ISP’s core busi-ness had been moved to the UK.The company will continue to pro-vide investment services in Francethrough a European branch.

As they refocused their business,some credit institutions appliedeither to narrow the scope oftheir ISP licence (Banque Moné-taire et Financière BMF) or to relinquish ISP status (Francetel, Atti-jariwafa Bank Europe, Caisse deBretagne de Crédit Mutuel Agri-cole).

As part of the orderly resolution planfor the Dexia group approved bythe European Commission, DexiaBail, having terminated its regu -lated banking and financial activi-ties (leasing for local authorities),applied to have its licence with-drawn, which became effectivewith the business’s sale to the Sofi-mar group, a finance leasing spe-cialist. Investment firm Bil Finance,which was licensed in June 2012 aspart of Dexia group’s restructuring,applied to have its licence with-drawn when its business assets were

sold to DSF Markets, another invest-ment firm. Caution Grainol, amutual guarantee company spe-cialised in providing guarantees forcereals traders in France, appliedto have its licence withdrawn owingto the definitive termination of itsbusiness following the adoption oflegislative provisions that removedthe requirement for the institution tobe involved in providing guaran-tees for cereals traders.

As in 2012, the number of finan-cial companies declined. Follow -ing transposition into national law ofthe Fourth Capital RequirementsDirective (CRD 4), financial compa-nies have been allowed since 1November 2013, for a 12-monthperiod, to opt for finance companystatus. At 31 December 2013, theACPR College had examined andaccepted three applications totake this option.

The number of banking institu-tions in Monaco fell too, with twocredit institutions (Bank Audi Sam-Audi Saradar Group and Monacré-dit) having their licences withdrawn.In an effort to rationalise its organi-sation, the Coutts group applied tohave its Monaco branch, previouslypart of its UK-based bank and lending specialist, attached to itsSwiss subsidiary, which is primarilyfocused on private banking. Inregulatory terms, this organisationalchange led to a new licence as aMonaco branch authorised to per-form custody account-keeping,along with a licence withdrawal.

The changes provided the oppor-tunity for the group to expand theprogramme of operations of itsMonaco offices to align them withthe Swiss subsidiary’s programme.

In a push to expand the line-up ofservices offered to customers,Caceis Bank France and Bourso-rama, two banks providinginvestment services, applied tothe ACPR College to have theirlicences extended, in the first caseto include the investment service ofthird-party order execution and inthe second to include the invest-ment service of proprietary trading.

Crédit municipal de Nice wasauthorised to expand its deposit-taking capacity by offering custom -ers time deposits.

C. Cross-border transac-tions involving marketinfrastructures

In the market infrastructure sector,2012 featured a change in the indi-rect control of the Paris clearinghouse, LCH.Clearnet SA, which wastaken over by the London StockExchange Group (LSE Group). Thedeal became effective in early2013, following changes in theregulatory and prudential frame-work for clearing houses owing toEMIR9 implementation.

The ACPR College authorised thechange in indirect control of Euro-next Paris SA, the credit institutionresponsible for operating regulatedmarkets in Paris, which was transfer-

9. European Market Infrastructure Regulation.

red to International ContinentalExchange (ICE), a US group spe -cialising in the management of trading platforms, particularly forderivative financial products. Euro-next Paris SA, which has twin creditinstitution and market operator sta-tus, began discussing the possibilityof withdrawing its banking licence,given that European regulatorydevelopments have changed credit institution status to make itmandatory to both receive repay -able funds from the public andgrant loans.

D. Investment firms Very few investment firms werecreated in 2013. The ACPR Col-lege approved the conversion ofFundquest France, a portfoliomanagement company, into aninvestment firm so that it could offerthe service of investment advice aspart of the reorganisation of theBNP Paribas group’s asset manage-ment business line.

Meanwhile, investment firm Dubly-Douilhet SA applied to be con -verted into a portfolio management company.

Equitim, a specialist in financialengineering, was licensed as aninvestment firm to enable it to provide the investment services of non-guaranteed placement,investment advice and orderreception and transmission for thirdparties in relation to debt securities,CIS units and forward financial instruments.

46

In 2013, there was a trend towards concentrationamong the entities that keep the accounts ofemployee savings schemes, seemingly driven byefforts to unlock economies of scale:

I Fédéris Épargne Salariale, an investment firmand subsidiary of Malakoff-Médéric, aninsurance and providential group, was sold toBNP Paribas, which integrated the provider’sactivities within its employee savings schememanagement department, leading to thewithdrawal of Fédéris’s licence.

I Humanis and CNP Assurances, two insuranceand providential groups, combined their custodyaccount-keeping activities for employee savingsschemes. The merger led to the creation of a new investment firm called Inter Expansion-Fongepar, which took over the businesses ofInterfi, an investment firm, and Inter Expansion, a portfolio management company, bothbelonging to the Humanis group, and of CNPgroup investment firm Fongepar, which wasabsorbed by the new licensed institution andwhose licence was therefore withdrawn.

CONCENTRATION AMONG EMPLOYEE SAVINGSSCHEME ACCOUNT-KEEPERS


1.1 Banking sector

47


Kepler Capital Markets, an invest-ment firm focused on institutionalequity brokerage, was authorised totake control of CA Cheuvreux SA, aCrédit Agricole group subsidiaryspecialised in the same sector. Thisacquisition, which was followed bythe withdrawal of the acquiredinvestment firm’s licence at the endof 2013, reflects the trend amongsecurities brokers to reorganiseagainst a backdrop of muted acti-vity on financial markets.

E. Payment institutions andelectronic money institutions

Four years after the transpositioninto French law of the Payment Services Directive, 19 payment institutions had been licensed by end-2013. Two licences wereissued in 2013, of which onebecame definitive (Financière desPaiements Électroniques). However,many applications were submittedat the end of the year and shouldgo through during 2014. The forth-coming adoption of crowdfundinglegislation should also result in newprojects (see inset p.82).

Of these 19 payment institutions,eight used agents, whose numbergreatly increased in 2013 (462compared with 164 one year earlier). As it stepped up marketingfor its Nickel accounts, La Finan-cière des Paiements Électroniquesworked to expand quickly byappointing tobacconists to act asits agents, with the total numberrising to 134 by end-2013.

Most licensed institutions offer amore or less extensive range ofpayment services to a diverse

roster of professional, business andindividual customers. However, sixinstitutions specialise exclusively infund remittance.

An extension was granted to BNCSA to provide credit transfer services(payment service 3° c) in connec-tion with a new range of servicesoffered to French cross-border workers who work in Switzerland.

The ACPR also withdrew the licenceof MoneyGram France, which wasexclusively providing fund remit-tance services under financialcompany status.

With the publication of Act 2013-100 of 28 January 2013 imple -menting various provisions toamend legislation to accommo-date European Union law on economic and financial matters,France transposed the SecondElectronic Money Directive (Direc-tive 2009/110/EC of 16 September2009). The law created a newstand-alone category of electronicmoney issuer, and the first licenceunder the new category was issued

by the ACPR Supervisory College atits meeting in December 2013. Pursuant to the new law, three insti-tutions, S-Money, Ticket Surf Interna-tional and W-HA, which werepreviously licensed as financialcompanies and whose business islimited to the issuance and man -agement of electronic money, weredeemed to have been licensed aselectronic money institutions since30 January 2013.

In September 2013, the ACPR withdrew the licence of Expay, acompany that was carrying on thebusiness of electronic moneyissuance while being licensed as afinancial company.

Furthermore, with regard to the criteria for an exemption from therequirement to be licensed as apayment institution established bythe Monetary and Financial Codeand following Act 2013-100 of 28 January 2013 on the criteria foran exemption from the require-ment to be licensed as an electro-nic money institution, Royal CaninFrance and Colibri were exempted

from the requirement to be li -censed as payment institutions,while SIG LILLE was exempted fromthe requirement to be licensed asan electronic money institution (the criteria are the same for both categories of institution). Société deDéveloppement et d’Exploitationpar le Web de Ze Kids Store (SDZE)received a double exemption,relieving it of the need to be li -censed as a payment institution or an electronic money institution. The ACPR College granted a dou-ble exemption because the com-

pany conducts its payment andelectronic money issuance serviceswithin a single business model usingthe same web platform. Overall, byend-2013, 26 companies wereexempted from the requirement tobe licensed as payment and/orelectronic money institutions.

F. Money changers Three years after the completion at end-2011 of the authorisationregime set up as part of thescheme created by Order 2009-104 of 30 January 2009 applicableto money changers, the number ofauthorised professionals remained

stable. There were 14 new authori-sations in 2013 and eight with -drawals, with one license withdrawnautomat ical ly by the ACPRbecause the entity had not beendoing business for more than sixmonths. At end-2013, 176 institu-tions were authorised to do busi-ness, compared with 173 in 2012.

G. Use of the Europeanpassport

The ACPR received passport notifi-cations from institutions headquar-tered in other EEA states andexamined passport applicationsfrom French institutions.

48

602 licensing and authorisationdecisions were made in 2013.


1.1 Banking sector

49


EEA INSTITUTIONS OPERATING IN FRANCE

• Under the freedom of establishment

In 2013, the ACPR was informedabout the establishment of fivebranches of credit institutions, ofwhich two from Luxembourg.Meanwhile, two operations wereclosed, bringing the number ofbranches to 65 at end-2013.

The number of branches of invest-ment firms fell from 49 to 45, asthree branches were opened andseven were closed, of which sixwere British. Of these, five continueto do business under the freedomto provide services in France.

Three new branches of paymentinstitutions from Germany and theUK (two) were set up in France, bringing the total number to seven(six of which are from the UK).

The ACPR received a third notifica-tion from an electronic money institution (EMI), from Luxembourg,that it was using a distributor. In all,two British EMIs and one Luxem-bourg EMI are covered by this typeof passport.

The ACPR also received 55 notifi-cations about modifications tobranches.

Since transposition of Directive2007/64/EC in 2009, European payment institutions have beenable to use agents based inFrance. At 31 December 2012,5,310 agents were declared by

seven institutions, six from the UKand one from Ireland, of which55% were attributable to the Irishentity. In 2013, the ACPR receivednotifications for 1,175 new agents.For the first time, the Irish institutionreduced its network of agents inFrance, terminating the mandatesof 1,466 agents, while 655 newones were reported, thus reducingthe share of these agents in thetotal number of agents from 55%to 33%. Processing agent notifica-tions from new payment institutionsoften entails many exchanges withthe home country authorities toobtain the information needed toensure that the institutions and theiragents are in compliance withFrance’s AML/CTF regulations.

• Under the freedom to provideservices (FPS)

The ACPR received 611 FPS notifi-cations, including 436 new notifica-tions and 175 closures. The volumeof notifications under the FPS inFrance is growing steadily, withinvestment firms – mostly from theUK – accounting for 70% of thetotal.

FRENCH INSTITUTIONS OPERATINGIN OTHER EEA MEMBER STATES

• Under the freedom of establish-ment

Three investment firms and one cre-dit institution notified the ACPR oftheir intention to open a branch inthe EEA (in Sweden, Italy and the UKfor the investment firms; in Italy forthe credit institution). After checksthat the administrative structuresand financial position of the appli-

cant institutions were commensu-rate with the proposed plans, thedossiers were submitted for a deci-sion to the ACPR Chairman (actingon delegation from the College). A further 37 notifications concern -ing changes to existing brancheswere also transmitted.

At 31 December 2013, in otherEEA states, 135 branches of creditinstitutions and 22 branches ofinvestment firms were established.

In 2013, the ACPR registered oneagent and passed on notificationto the host authority with a view toallowing the payment institution inquestion to supply payment services in another EEA state via thisagent. At end-2013, two paymentinstitutions were using agents inother EEA states, with one using 49 agents and the other usingseven.

• Freedom to provide servicesWhen Croatia entered the EEA in2013, two credit institutions andone payment institution gave noti-fication of their intention to do busi-ness there.

A further 12 credit institutions, 11 investment firms and three payment institutions submitted FPSnotifications to the ACPR.

At 31 December 2013, 217 institu-tions were operating in other EEAstates under the FPS (156 credit institutions, 54 investment firms andseven payment institutions).

50

Changes in the number of credit institutions, investment firms, payment institutions and electronic money institutions in France and credit institutions in Monaco

2012 2013 Change(number)

LICENSED CREDIT INSTITUTIONS IN FRANCE

Institutions licensed for all banking activities 303 302 -1

Banks 193 192 -1of which branches of institutions having their registered offices in third countries (21) (22) (+1)

Mutual and cooperative banks 92 92 0

Municipal credit banks 18 18 -

Financial companies 266 247 -19

Specialist financial institutions 3 3 -

SUB-TOTAL 572 552 -20

Branches of EEA credit institutions operating under the freedom of establishment 62 65 +3

TOTAL FRANCE 634 617 -17

Licensed credit institutions in Monaco

TOTAL Monaco 25 23 -2

TOTAL FRANCE AND MONACO 659 640 -19

INVESTMENT FIRMS

Investment firms licensed by the ACPR 93 91 -2

Branches of investment firms operating under the freedom of establishment 49 45 -4

TOTAL 142 136 -6

PAYMENT INSTITUTIONS

Payment institutions licensed by the ACPR 17 19 +2

Branches of payment institutions operating under the freedom of establishment 4 7 +3

TOTAL 21 26 +5

ELECTRONIC MONEY INSTITUTIONS

Electronic money institutions licensed by the ACPR - 3 -

Branches of electronic money institutions operating under the freedom of establishment - - -

TOTAL - 3 -


1.1 Banking sector

51


The ACPR is asked to give an opinion prior to the appointment of statutory auditors10 to entitiesunder its supervision11. It also issues opinions on the appointment of special auditors to mortgagecredit institutions and home loan companies.

When preparing its opinion, the ACPR makes surethat statutory auditors and special auditors havethe experience, skills and independencenecessary to perform the proposed duties.Experience is assessed with regard to the size and nature of the business of the reporting entityproposing the appointment. Training undertakenby statutory auditors is also taken into account.

When processing an application for a prioropinion, the ACPR takes account of informationon the proposed statutory auditor provided to itby the authorities with which it shares information.Thus, if the reporting institution issues securitiesadmitted to trading on a regulated market, theACPR asks the AMF for its observations on theproposed appointment. The ACPR may alsocontact the National Auditors’ Oversight Board(Haut Conseil du commissariat aux comptes,H3C).

In 2013, the ACPR reviewed 989 applicationsfor opinions on the appointment of statutoryauditors (566 applications for opinions relating toreporting entities from the banking and financialsector and 423 applications for opinions relating

to insurers). In the case of 13 applications, theAuthority asked for additional information from thestatutory auditors or reporting entities. Requestsfor additional information covered the followingareas:I compliance with the provisions on taskdistribution where audits were to be done byseveral auditors (this applied to fiveapplications);I the experience of the proposed auditors or theorganisation and procedures put in place byauditors (this applied to eight applications).

On 1 December 2013, the procedure for applyingfor an opinion on the appointment of statutoryauditors went paperless. Reporting entities mustnow electronically file the documents referred toin ACPR Instruction 2012-I-01. The procedures formaking an application to the ACPR are set out inthe accompanying memo for the paperlesssubmission of an application for an opinion onthe appointment of statutory auditors, which isavailable on the ACPR’s website under Licencesand Authorisations. Professional associations, theNational Institute of Statutory Auditors(Compagnie nationale des commissaires auxcomptes) and reporting entities whose statutoryauditors’ appointments were expiring at 31 December 2013 were informed about theintroduction of the new filing procedure.

ACPR OPINIONS ON THE APPOINTMENT OF STATUTORY AUDITORS AND SPECIAL AUDITORS

10. Appointment or renewal of appointment of statutory auditors, change of natural person or addition of co-signatory performing duties in thename of a firm of statutory auditors.

11. Some exceptions are provided for in Article L. 612-43 of the Monetary and Financial Code.

1.2 INSURANCE SECTOR

In 2013, in the insurance sector,the ACPR made 228 licensingand authorisation decisions .

As in 2012, most decisions (54) related to organisations governed

by the Mutual Insurance Code anddealt with mergers or transfers ofportfolios (25) and transfer agree-ments (14). Decisions relating toundertakings governed by the In -surance Code, other than changesin senior executives (37), coveredmergers or transfers of portfolios

(20), ownership changes (4), andlicence applications and exten-sions (4). Ten decisions related toorganisations governed by theSocial Security Code, including thelicence for B2V, a new providentinstitution.

52

A. Insurance firms

MEASURES TO STREAMLINEORGANISATIONS

With a view to combining its busi-ness to business to customers acti-vities, which covers products forindividual end clients that are distri-buted through business partnerssuch as private companies, inter-governmental and non-govern-mental organisations, the Allianzgroup set up Allianz WorldwideCare SA, a French-based com-pany, to handle its internationalhealth insurance products. As partof this, the group applied for a

licence, which will be followed in2014 by an application to approvethe transfer of the internationalhealth insurance contract portfoliosof Allianz Vie, Allianz IARD and AWCLtd, Allianz’s existing Irish subsidiary,to the new entity.

The Axa group undertook restruc -turing measures as part of prepa -rations for the entry into force ofSolvency II, merging Axa Caraïbes,which was entirely owned by AxaFrance IARD, with its parent com-pany. Operating in Martinique,Guadeloupe and Guyane, AxaCaraïbes chiefly sold auto and

personal and professional propertyinsurance, with a smaller business innatural disaster insurance.

To rationalise its legal organisation,the Natixis group merged its threelife and combined insurance companies: Assurances BanquePopulaire Vie (ABP Vie), which soldindividual non-unit linked life in -surance policies, Natixis AssurancesPartenaires (NAP), a combined insurance company specialised inloan insurance, and Vitalia Vie, afirm in run-off mode.

12. Société de groupe d’assurance mutuelle: group mutual insurance company. 13. Union mutualiste de groupe: mutual insurance group holding company.


1.2 Insurance sector

Nature of decision Insurance Social Security Mutual TotalCode Code Insurance Code

Licence application/extension 4 1 6 11

Transfer 10 4 4 18

Transfer/merger 10 4 21 35

Ownership change 4 0 0 4

Affiliation with SGAM12 or UMG13 4 0 0 4

Licence lapsed/withdrawn 3 0 9 12

Risk transfer agreement 0 0 14 14

Change in senior executives 128 - - 128

Other 2 0 0 2

TOTAL 165 9 54 228

53


The Aviva group transferred Eurofil’sportfolio to Aviva Insurances, itsretail property & casualty subsidiary.Eurofil was exclusively devoted tothe direct sale of these products,primarily in the auto sector.

The Covéa group continued theprocess of streamlining its opera-ting organisation that began in2012, by setting up a holding com-pany called Covéa Coopérationsto hold Covéa group companies,by having ABP IARD report directlyto the holding company and byspreading its ownership evenly be -tween the group’s three divisions(MMA, AM-GMP and MAAP).

Covéa strengthened its group pro-vidential and health insurance posi-tioning through the addition of SMI,a mutual insurer, to SGAM Covéa,following that of APGIS in 2011.

Mutex Union (formerly UNPMF) wassupposed to gradually transfer itsbusiness to Mutex SA, the companythat already reinsured it in full andwith which it operated under anextended management delega-tion arrangement. The introductionof the ANI agreement14 and itsimpact on the group providentialmarket prompted Mutex SA to stepup the transfer process, which hadbeen conducted since 2012 on amutually agreed basis at policyrenewal, and request applicationof a transfer procedure as providedfor in Article L. 324-1 of the Insur -ance Code to finalise the processbefore end-2013.

REORGANISATIONS

To get its organisation ready for theentry into force of Solvency II, AllianzGlobal Corporate & SpecialtyFrance (AGCS France) transferredits operating activities to Allianz Global Corporate & Specialty AG(AGCS AG), a German company, byway of a merger. The internationalcorporate and specialty activities ofthe Allianz group have now beenplaced under the responsi bility of aEuropean company, AGCS SE.

To optimise capital allocation in thelead-up to Solvency II, Metlife, a USgroup, elected to set up its Euro-pean bridgehead in Ireland, towhich it transferred all of its Euro-pean portfolios, except for portfo-lios sold to non-group companies.Accordingly, it transferred MetlifeSA’s portfolio of retirement savingspolicies to SMA Vie BTP (Frenchentity in the SMA BTP group), and

the remainder of its providentialbusiness, including loan insuranceactivities, to Metlife Europe Ltd (MEL)and Metlife Europe Insurance Ltd(MEIL), two Irish firms that will operate via two French branches,as part of the merger with MEL.

LICENCE EXTENSIONS

Some companies applied forlicence extensions to supplementtheir existing product line-ups anddifferentiate themselves from thecompetition.

Garantie Assistance, an insurancecompany specialised in assistanceinsurance that markets technicaland medical assistance servicesworldwide, obtained a licenceextension for Class 2 (sickness) andClass 16 (miscellaneous financialloss) insurance and for the motorvehicle sub-class a of Class 3 (landvehicles).

14. National interprofessional agreement of 11 January 2013 on competitiveness and job protection.

Groupama Protection Juridique,which specialises in legal protec-tion, obtained a licence extensionto issue insurance covered by sub-classes j (other financial loss – non-trading) – and k (other forms offinancial loss) of Class 16 (miscella-neous financial loss).

RESTRUCTURING MEASURES

Since the 1990s, some mutual insurers had been providing theirmembers with enhanced benefitsunder special agreements (conven -tionnements). Several rulings by theCour de cassation called this coverage into question in the caseof mutual insurers governed by theMutual Insurance Code. MGEN andMGEN Filia therefore created a

public limited company with aboard of directors, called COMGEN,to provide the coverage associa-ted with these enhanced benefits.

The partnership agreement be -tween the Humanis and Apicilgroups paved the way for the merger of Intervie and Apicil Assurances, a combined insurancecompany entirely owned by ApicilPrévoyance. The resulting companyis specialised in savings. Ancillarytransfers to various parts of the Apicil and Humanis groups werecarried out as part of the drive tospecialise.

The Malakoff Médéric group soldthe savings portfolio of MédéricÉpargne, a public limited companycreated in 2003 by the MalakoffMédéric and Aviva groups to market savings policies to MalakoffMédéric group participants andbeneficiaries, to Optimum Vie SA, a100%-owned subsidiary of Cana-dian group Optimum that special -ises in life insurance. Since thepartnership with Aviva was woundup in 2010, keeping on MédéricÉpargne no longer made strategicsense for Malakoff Médéric.Meanwhile, the move enabled theOptimum group’s subsidiary toattain the critical mass needed fora profitable savings business.

54



The ACPR61, rue Taitbout Paris.

55


BRANCHES OF NON-EEACOMPANIES

The French branch of New India, anIndian company, and the Frenchbranch of La Suisse Compagnieanonyme d’assurances générales,a Swiss firm, applied to have theirlicences withdrawn, or conductedbusiness transfers to that end andinitiated dissolution procedures,which reduced the number ofbranches of non-EEA companieslicensed in France from six to four.

B. Provident institutions Two provident institutions, IPGM andKlesia Prévoyance, merged. IPGMwas the head of the Mornay group,which merged in 2012 with theD&O and FMP groups to create theKlesia group. Klesia Prévoyance(called Orepa Prévoyance until2012) was associated with the D&Ogroup before the Klesia group wasformed.

A highlight in the sector of providentinstitutions (PIs) governed by theSocial Security Code was the crea-tion of B2V Prévoyance. B2V, anemployee benefits and supple-mentary retirement group, whichalready comprised a joint govern -ing association as well as AGIRCand ARRCO supplementary retire-ment institutions, wanted to havethe two pillars of activity that makeup employee benefits and supple-mentary retirement groups (pur-suant to the Agreement of 8 July2009), namely supplementary retirement and personal insurance.The Allianz group is one of the mainmember firms and provided the

funds needed to set up the new institution, allowing it to enter into astrategic partnership with a jointly-governed entity under the NationalInterprofessional Agreement (ANI)and prepare for forecast devel -opments in group benefits foremployees.

C. Mutual insurers governedby Book II of the MutualInsurance Code

Several mutual insurers obtainedClass 20 and 21 licences, allowingthem to include death, weddingand birth coverage in their policies.In many cases, as with MutuelleNationale des Fonctionnaires desCollectivités Territoriales (MNFCT)

and Mutuelle de France Plus, thiscoverage was already included inthe policies, but the risk was borneby a partner. Accordingly, theseapplications were prompted by adesire to carry this risk directly.

Not all applications for licenceextens ions were successfu l. Reasons for unsuccessful applica-tions included insufficient capital,incomplete application packages,or inadequate technical and administrative resources.

Following a publication by the ACPR stating thatmutual insurers governed by Book II of the MutualInsurance Code may not bear “statutory” risks, inother words, they may not cover local authoritiesagainst “providential-type” risks affectingemployees that they have to insure, several insurersconsidered setting up public limited companies tobe able to continue this business. This raised thequestion of the appropriate class of licence for thiskind of activity, since the insured party is not theone that is directly affected by the risk. However,since the trigger for coverage is occurrence of a risk of this type, meaning that in practice theactivity is managed like a providential activity, theACPR confirmed that Class 1, 2, 20 and 21 licenceswould be appropriate.

MUTUAL INSURERS GOVERNED BY BOOK IIOF THE MUTUAL INSURANCE CODE AND“STATUTORY” RISKS

CONTINUED CONCENTRATIONAMONG MUTUAL INSURERSGOVERNED BY BOOK II OF THEMUTUAL INSURANCE CODE

Mergers between mutual insur -ers continued in 2013, althoughthe trend, which has been inplace for many years, eased offsomewhat. Certain organisationsstill find it difficult to meet the fullrange of economic and regulatoryrequirements, and some choose tomerge for this reason.

Following 21 such mergers in 2013,there were 599 mutual insurancec o m p a n i e s i n o p e r a t i o n a t 31 December 2013, 203 of whichhad larger partners assuming theirrisks.

As part of Decree 2011-733 of 27 June 2011 specifying the licens -ing requirements for federal gua-rantee systems and the operatingrules of the guarantee fund, theFrench mutual insurance federalguarantee system applied for andobtained a licence to operate.

• Main mergers Mutual insurers SMAR and MNAMmerged and created a newmutual insurance company, Harmonie Fonction Publique, whichwas licensed for Classes 1, 2 and20. The new entity then joined UMGHarmonie Mutuelle and is intendedto act as the civil service arm of theHarmonie group.

Mutual insurers de l’Étang, Viazimut,SMT, des Territoriaux de la Ville duHavre and Thiers Mutualité transferred their portfolios ofcontracts by way of a merger toHarmonie Mutuelle. These mergerswere undertaken in response toageing insured populations, fallingcontributions and tougher regula-tory requirements in the insurancesector.

• Licences withdrawn at the ACPR’s initiative

Following preliminary proceedingsinitiated in 2012, the ACPR withdrewone licence and wound up twomutual insurers because they hadno insurance activity or members orhad not held an annual generalmeeting for more than two years.

Lastly, in 2013, efforts were resumedto establish a European Mutual Statute (EMS) that would notablyremove barriers to cross-bordercooperation. Consequently, afterconsultation with the Parliament,the European Commission orga -nised an impact study to assess theappropriateness of such a statute in July 2013.

D. Use of the European passport

EEA COMPANIES OPERATING IN FRANCE


The ACPR received seven notifica-tions in 2013 (Allianz Global Corpo-rate & Specialty AG, BTA InsuranceCompany Limited, Elite InsuranceCompany Limited, Euler HermesEurope SA, Metlife Europe Insur -ance Limited, Metlife Europe Lim -

ited, UPS International InsuranceLimited).

At 31 December 2013, 82 EEAundertakings had a branch in France (64 non-l ife, 12 l ife, 4 combined and 2 multi-class).


The ACPR received 76 notificationsin 2013, 21% more than in 2012.

At 31 December 2013, 1,090 EEAundertak ings were authorisedto operate in France under the FPS,including 184 branches.

56



57


FRENCH UNDERTAKINGSOPERATING IN OTHER EEACOUNTRIES


In 2013, the ACPR received twonotifications (AGA International, Harmonie Mutuelle).

At 31 December 2013, 107 Frenchcompanies had a branch in another EEA country.


The ACPR received 57 notificationsin 2013, mainly involving Allianz Vie,Axa Corporate Solutions, AGA Inter-national, Axa France IARD, AxeriaIARD, CFDP Assurances, ImperioAssurances et Capitalisations, andCaisse régionale d’assurances

mutuelles agricoles d’OC (Grou-pama OC).

The 89% decline in the number of notifications compared with2012 is attributable to Coface’sconversion of European subsi d iariesinto branches in 2012. Cofaceaccounted for 418 out of 516 notifications in 2012.

At 31 December 2013, Frenchundertakings had 1,707 authorisa-tions to operate in other EEA coun-tries under the FPS (including 706 through EEA branches).

After Croatia entered the EuropeanUnion on 1 July 2013, five notifica-tions were received under the FPS from French undertakings

operating in other EEA states (AxaCorporate Solutions Assurance,Coface, Euler Hermes France, AxaFrance IARD, AGA International)while the ACPR received two notifi-cations from EEA companies operating in France (Basler Osigu-ranje Zagreb d.d., Generali Osigu-ranje d.d.).

PORTFOLIO TRANSFERS

In 2013, 18 portfolio transfers between EEA countries and twoportfolio transfers from EEA countries to French companies (UBS Inter -national Life Limited to Swisslife Assurance et Patrimoine, ASELebensverzekeringen to Mutac)were published in the Official Journal, and mainly involved Irishand UK companies.

NUMBER OF INSURANCE INSTITUTIONS 31/12/2012 31/12/2013 Change(number)

Life and combined insurance companies 102 97 -5

of which combined 40 38 -2

Non-life insurance companies 216 212 -4

TOTAL INSURANCE UNDERTAKINGS 318 309 -9

Reinsurance companies 16 16 -

Branches from non-EU countries 5 4 -1

GOVERNED BY THE INSURANCE CODE 339 329 -10

Provident institutions 49 46 -3

GOVERNED BY THE SOCIAL SECURITY CODE 49 46 -3

Mutual insurers governed by Book II of the Mutual Insurance Code 630 599 -31

of which companies backed by larger partners 202 203 +1

GOVERNED BY THE MUTUAL INSURANCE CODE 630 599 -31

TOTAL LICENSED UNDERTAKINGS AND UNDERTAKINGS NOT REQUIRING A LICENCE 1 018 974 -44

Changes in the number of insurance institutions

AAfter six quarters ofrecession (between2012 and the begin-

ning of 2013), the euro areaembarked on a timid recoveryfrom the second quarter of 2013,although performances variedacross countries: while GDP growthwas slightly positive in Germany(0.5%)15 and France (0.3%)16

in 2013, Italy and Spain still expe-rienced recession17. The recoveryremained fragile, against a back-drop of fiscal measures madenecessary by the need to curbgovernment deficits and, in theeuro area, below-target inflation.Moreover, the announcement bythe US Federal Reserve System(Fed) on phasing-out quantitativeeasing contingent on economicperformances could trigger anincrease in long-term rates andcreate uncertainty about financingfor emerging countries, eventhough they are growing at a briskerpace than advanced economies.

In this setting, French banks contin -ued to be affected by several risks: i) revenue decline connectedwith reduced credit distributionowing to relatively flat demand,although there was some growth inthe second and third quarters of2013 in the home loan segment; ii) a deterioration in borrower solvency resulting from persistentlyhigh unemployment in the case of households and slack demand forbusinesses; iii) pressure on deposit-taking, with some customers tapping into savings to offset lostincome or to cope with increasedtax pressure.

Insurers seemed less affected bythe downturn. Cumulative net flowsinto life insurance returned to positive territory in 2013 thanks tosharp growth at the beginning ofthe year (coinciding with thesecond increase in the ceiling forregulated passbooks), with gains onequity markets prompting new flows

into unit-linked products and reduced switching into non-unit linked products. On the asset side,however, insurers are exposed tothe worsening credit position ofsecurities issuers and to a suddenrise in interest rates.

To better identify the impact of cy -clical factors on banks and insur ers,the ACPR conducted several top-down stress testing exercises in2013 using internally developedmodels. These tests involved themain institutions, and the methodo-logies were published18.

Special effort was made to roundout the internal stress testing toolkitto be able to analyse a widervariety of scenarios and expandthe spectrum of potentially stressedportfolios. From a methodologicalperspective, the ACPR’s top-downstress tests used two scenarios – abaseline scenario and a stressedscenario – that were calibrated in

58

Risk exposure of the financial system: 2013 assessment2

• 14 studies were published in Analyses et Synthèses, • and 9 in Débats économiques et financiers. • The ACPR also organised 1 international academic conference; it contributed to 5 Banque de France working papers.

The ACPR performs cross-functional analyses and stress tests,some of which it posts on its website. In 2013:

15. Source: Destatis, Federal Statistics Office.16. Source: INSEE.17. With negative growth rates of 1.8% and 1.2% respectively in 2013 according to Eurostat.18. Analyses et Synthèses No. 11, “Stress tests sur le système bancaire et les organismes d’assurance en France”, January 2013 and

Débats économiques et financiers No. 2, “Mise en œuvre des stress tests sur les crédits aux entreprises”, March 2013.


close collaboration with Banque de France macroeconomic fore -casting units. In practice, the twoexercises were based around thefollowing components: stress onasset returns, stress on retail portfo-lios, stress on corporate portfolioswith a focus on large exposures,stress on sovereign exposures, aswell as a network stress testconducted at European level.These exercises are intended to expand the ACPR’s scope ofsupervision.

Furthermore, the ACPR took part inpreparing the methodology forthe future European stress tests,which were initially scheduled forsummer 2013 but which were pushed back and will follow thebalance sheet assessment by theEuropean Central Bank (ECB) in thefirst half of 2014, ahead of the entryinto effect of the single supervisorymechanism (SSM).

For insurers, analyses are underwayon the ten-year impact of highinflows and outflows and on theeffects of a prolonged period oflow interest rates, prior to stress testing in spring 2014 coordinatedby the European Insurance andOc cupational Pensions Authority(EIOPA).

Risk exposure of the financial system: 2013 assessment

INTERVIEW WITH MARTIN ROSE AND ROMAIN BERNARD, RESEARCH DIRECTORATE

A new cross-cutting measurement of insurance riskindicators to position institutions compared withundertakings in the same line of business.

The ACPR Research Directorate has conducted aproject into vulnerability indicators in insurance.Can you briefly describe it?

The goal is to take a systematic approach to using theprudential data provided to the supervisory authority by insurers over recent years. We began by creating a management tool for the insurance supervisor, makingit possible to easily position an institution relative to themarket in a quantile-by-quantile analysis across a largenumber of indicators.

We then wanted to analyse all thesedata to highlight a handful of keyindicators whose level would alertobservers to an entity’s vulnerability.History tells us that insurer failuresare extremely rare. In general,struggling institutions are taken in hand at an early stage, eitherthrough corrective measures by the supervisory authority, or wherenecessary, through support fromanother entity. The ACPR has a comprehensive history ofsupervisory measures taken

in response to individual situations of vulnerability. The examination of these individual cases will be cross-referenced with the database of indicators tohighlight the determinants of a vulnerability situation ininsurance. Ultimately, it may be possible to use this modelto anticipate and prevent potential failures at the earliestpossible stage. Naturally, this approach offers a supplementary analytical angle to support ongoing,in-depth supervision of individual undertakings by the inspection teams.

Will the Solvency II rules affect the project?

Solvency II will bring a change in the referenceframework, and obviously the methods for analysingprudential filings before and after its application will bevery different. So we have to get ready now, learning thelessons from the Solvency I framework to inform newangles of approach under Solvency II. We will not havethe same historical data as presently, but the new datawill be more detailed and precise because, through therisk-based approach, they will do a better job of capturing the risks borne by insurers.

59

Martin Rose, Research Directorate.

Romain Bernard, Research Directorate.

2.1 INTERACTION BETWEENSOVEREIGN AND BANKING RISKS

In 2013, the situation on the sovereign debt market in Europecontinued to normalise, particu-larly among countries hardest hit by the financial crisis. Sovereign yieldsstabilised at levels well below those

seen at the peak of the crisis in2011, as investor fears faded, nota-bly thanks to assertive measures bythe ECB, including the Very LongTerm Refinancing Operations(VLTROs) at end-2011 and early2012, President Mario Draghi’sannouncement on Outright Mone-tary Transactions (OMTs) in August2012, and the capital exercise carried out in June 2012 by the

European Banking Authority tostrengthen the capital of Europe’sbanks.

The countries viewed as being mostat risk saw their spreads ease tomore sustainable levels, of around4% for Spanish and Italian 10-yearyields and slightly below that for Ire-land, which moved out of specula-tive grade at the beginning of

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RISK FOCAL POINTS IN 2013Persistent deterioration I Credit demand for banksin macroeconomic conditions I Banks’ intermediation margin

I Banks’ risk-related costsI Household savings (deposits with banks, inflows to life insurance)

Interaction between sovereign I Proportion of sovereign debt and banking risks in the portfolios of banks and insurers

I Introduction of the three pillars of the SSM

Uncertainty over bank refinancing I Change in refinancing structuresI Repayment of financing provided by theEuropean Central BankI Loans / deposits ratioI Coverage of short-term financing needs throughcash reserves I Medium- and long-term financing plans I Refinancing costs

Risks associated with persistently low interest rates I Potential strategies for seeking returns fromalternative sources, which could give rise to risksthat are not sufficiently well controlled I Impact of a rapid rise in interest rates onsurrenders of life insurance policies

Risk of a property market correction I Changes in borrower solvency I Continued caution in lending criteriaI Competitive intensity (debt consolidation)I Lending margins

MAIN RISKS TO WHICH THE ACPR PAID PARTICULAR ATTENTION IN 2013

II. ENSURING THE STABILITY OF THE FINANCIAL SYSTEM 2. RISK EXPOSURE OF THE FINANCIAL SYSTEM: 2013 ASSESSMENT

2.1 Interaction between sovereign and banking risks

2014. Despite easing sharply, yieldson Portuguese sovereign bonds settled at elevated levels of around6%.

The sharp reduction in sovereign riskwas accompanied in 2013 byongoing coordinated efforts byEuropean authorities to reducebanking risk.I The ECB cut its main refinancing

rate twice, from 0.75% to 0.25%,and committed itself to main -taining its fixed-rate full allotmentprocedure until at least July 2015.I The European Banking Authority

(EBA) continued to work to pro-mote transparency in bankbalance sheets, particularlythrough its transparency exercisein June 2013, which followedpublications as part of the 2011stress tests and the 2012 capitalexercise, and which included asection on sovereign exposures.

The decision to set up an interven-tion fund for European banks (Euro-pean Stability Mechanism, ESM),coupled with the SSM, put a stop tocontagion between banking andsovereign risks.

The SSM will begin operating inNovember 2014 following aperiod of intense preparation bynational supervisors and the ECBand the prior assessment ofbanks whose supervision will betransferred to the Europeansupervisor. The comprehensiveassessment of the quality of banking assets should furtherstrengthen confidence in the positions of affected banks byremoving any remaining grey areason institutions’ balance sheets. A resolution mechanism (notablydefining the rules of participation forprivate creditors) and a singledeposit guarantee fund will com-plete the arrangements, ensuringthat states and taxpayers are nolonger called on every time to pro-vide funds to bail out strugglingbanks.

2.2 UNCERTAINTY OVERBANK REFINANCING

After falling back sharply in 2012,risk aversion on the interbank mar-ket, evidenced by the spread be -tween three-month and overnightinterest rates, held steady at lowlevels in 2013 (see chart below),reflecting the continued impact ofmeasures adopted by the ECB atend-2011 and over 2012. Withuncertainty over the calibration ofthe liquidity coverage ratio (LCR)dispelled following the Basel Com-mittee meeting in January 2013(expanded list of liquid assets, re -duced weightings for corporatedeposits not meeting the opera -tional criterion, etc.) also helped torelieve the pressure. Even so, theshare of interbank resources con -tinued to shrink rapidly, maintaininga virtually constant rate of declinesince the beginning of the crisis.

0

50

100

150

200

July 07

Oct. 07

Jan. 08

Apr. 08

July 08

Oct. 08

Jan. 09

Apr. 09

July 09

Oct. 09

Jan. 10

Apr. 10

July 10

Oct. 10

Jan. 11

Apr. 11

July 11

Oct. 11

Jan. 12

Apr. 12

July 12

Oct. 12

Jan. 13

Jan. 14

Apr. 13

July 13

Oct. 13

SPREAD BETWEEN THE EURIBOR 3M AND THE OVERNIGHT INDEXEDSWAP (OIS) RATE ON THE EUROPEAN INTERBANK MARKET

61


Source: Bloomberg

Basis points

ACPR Scientific Consultative Committee metthree times in 2013, focusing mainly on the followingtopics:

I development of advanced vulnerability indicators:the committee pursued work done in 2012 on thistopic in banking and is now endeavouring todevelop similar indicators for insurance;

I internal models for insurance: Solvency IIrequirements in this area; methodological problemsinvolved in validating internal models (e.g. marketrisk dependence structure);

I stress tests in the insurance sector, with ACPRpreparing long-term stress tests for life insurance;

I review of scholarly articles produced by the ACPR on bank regulations and performance: prudentialregulations and bank financing costs, the effect ofbanks’ capitalisation on return on equity; structuralrequirements in terms of adjusting French banks’business models under Basel III, multi-factoreconomic capital model;

I reinsurance and life insurance sectors in France;

I identification of sources of vulnerability in thefinancial system.

The Scientific Consultative Committee alsoundertook several other initiatives.

The ACPR research chair was established in early 2013(see point 2 of Chapter 1). The chair’s main tasks areto organise research activities, foster relationsbetween the academic world and the ACPR, anddevelop an outward-looking centre for discussion andproposals on the management of systemic risk.

Discussion topics explore macroprudential issues from microprudential bases (funding liquidity, creditdistribution, systemic ratings). In June 2013, the chairbegan organising monthly research seminars open tooutside participants. The seven seminars organised in2013 provided an opportunity to have a conversationabout questions of regulation and systemic risk forbanks and insurers.

In addition, the ACPR organised an internationalacademic conference on 14 and 15 October 2013,entitled “Risk taking in financial institutions, regulationand the real economy”. Starting from the observationthat the recent financial crisis has led to theimplementation of more stringent regulations forcapital, liquidity and the structure of financialinstitutions, the conference brought togetheracademics, economists and specialists in bankingsupervision to examine the potential consequences of these regulations for risk taking and financing of the real economy.

ACTIVITIES OF THE ACPR’S SCIENTIFIC CONSULTATIVE COMMITTEE IN 2013

In this setting, attention focused onmeasures to bolster the solvencyand reduce the debt of the mainFrench banking groups, which mayreceive a fresh influx of deposits bynon-financial agents – their primarysource of funds since June 2009.The change in loan/deposit ratios incustomer transactions is a key element, as is the groups’ use of the

deposits of US money market funds,which are highly volatile, as illus -trated by their massive withdrawalat the height of the euro area sov -ereign debt crisis in summer 2011.

Meanwhile, conditions normalised,supporting the implementation of medium- and long-term bank refinancing programmes and

providing a favourable setting forfinancial institutions to make earlyrepayments on some of the fundsobtained from the ECB under theDecember 2011 and February2012 VLTROs while building upsizeable cash reserves (centralbank deposits and eligible assets),which are increasingly exceedingtheir short-term refinancing needs.

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2.2 Uncertainty over bank refinancing

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2.3 RISKS ASSOCIATEDWITH PERSISTENTLYLOW INTEREST RATES

With French sovereign bond yieldsreaching an all-time low at the endof 2012, some economists are pre-dicting that interest rates couldremain low for a long period. Inprinciple, persistently low interestrates are bad for the insurancesector, and particularly life insurance, since liabilities gen -erally have longer maturities thanassets (except during crises). Inthe fixed income segment, ma -turing securities therefore have tobe reinvested in lower-earninginvestments. This gives insurers anincentive to adjust their investmentpolicies to maintain their returns, byswitching into riskier transactions,potentially including high-riskbonds, but also swaps, loan gua-rantees and direct credit subscrip-tion. In this regard, the ACPR takesspecial care to ensure that insurershave appropriate risk-analysis skillsbefore engaging in transactionsoutside their traditional scope ofbusiness. In addition to impactinginsurers’ investment policies, endur -ingly low interest rates also affectproduct line-ups, making unit-linkedcontracts relatively more appeal -ing. These effects vary, however,depending on institutions’ asset/lia-bility management strategies,which may evolve with the changein the prudential framework from2016.

To some degree, lower investmentreturns may feed through to therates paid out to policyholders. Thelikelihood of this may however belimited by the existence of guaran-teed rates and fierce competitionbetween market participants andwith other savings products. Main-taining excessively low returnswould expose insurers to an in -creased risk of policy surrender.

Setting aside guaranteed rates, alow-rate environment raises ques-tions for the profitability of the in -surance business, both among lifeand non-life insurers, for which ahigh return on assets may make upfor low prices.

In the banking sector also, a lowinterest rate environment, com -bined with the need to movetowards more stable sources of funding, is not without conse-quence for the profitability of creditinstitutions.

The ACPR will continue to give spe-cial attention to the impact of lowinterest rates on the banking andinsurance sectors. In particular, theAuthority has launched an internalstress testing exercise to measureinsurers’ resilience to a prolongedperiod of low interest rates.

64

19. At 30 September 2013, home loans accounted for around 37% of lending to customers in mainland France.20. Source: INSEE.21. According to Pamfili Antipa and Rémy Lecat (“Bulle immobilière” et politique d’octroi de crédits, 2013), prices were 21% overvalued in the

third quarter of 2012.22. Source: Conseil général de l’environnement et du développement durable (General Council for the Environment and Sustainable

Development/CGEDD), according to the Directorate General of Public Finance (DGFiP) (MEDOC) and notarial databases.23. Source: INSEE.

2.4 RISK OF A PROPERTYMARKET CORRECTION

With the financial crisis, the non-stoprise in residential property prices inFrance over 12 or so years gaveway to more mixed developments.The significant proportion of homeloans on the balance sheets ofFrench banks19 raises questionsabout the possibility of a marketreversal and its impact on Frenchfinancial institutions. While a soft landing appears to be the mostlikely scenario, this situation still hasto be monitored.

Several indicators point to a reversalon the market, which was deprivedin 2012 of major support factors,including more restrictive require-ments for zero-rate loans and re -duced tax incentives for buy-to-letinvestments:I after a first slide between the

fourth quarter of 2008 and thefourth quarter of 2009 and despitecontrasting quarterly results, pricesfor existing homes in Francebegan falling again from thesecond quarter of 2012, giving up1.4% between September 2012and September 2013)20; lately,this trend has spread to Paris(down 2.1% over the same

period); however, according tovarious studies, residential houseprices are still overvalued21; I the number of transactions in the

existing homes segment, whichhad returned to its pre-crisis levelat the beginning of 2012, begancontracting once more in July2012, falling by 10.4% betweenSeptember 2012 and September201322. Meanwhile, the numberof housing starts began fallingagain in 2012, shrinking by 22%between September 2012 andSeptember 201323.

“Losses on French banks’ portfolios of home loans remain under control,but the ACPR continues to monitor thisarea closely.

Emmanuel Point, Research Directorate. ”


2.4 Risk of a property market correction

65


In this setting, despite the persis-tently low level of interest rates, newhome loans remained below pre-crisis levels. In addition, the relativelysustained increase in new homeloans over the recent period(14.7%24 between September 2012and September 2013) mainlyreflects strong growth in externaldebt consolidation, whose share inmonthly flows of new credit hasexceeded 20% since May 2013;excluding external debt consolida-tion, annual new loans fell by 2.7%between September 2012 andSeptember 2013.

While for now the quality of Frenchbanks’ exposure to the sectorappears relatively insensitive tomarket changes, continuing unfa-vourable macroeconomic condi-tions could adversely affect someborrowers’ solvency and trigger anincrease in defaults on home loanswhich, for the time being, aremodest relative both to other cus-tomer loan categories and to othercountries. In addition, some trendscall for caution on future develop-ments in terms of the quality ofFrench banks’ loan portfolios. Inparticular, the sharp rebound inexternal debt consolidation ob -served in 2013, which reflects both

persistently low interest rates butalso stiffer competition betweenbanks to attract deposits, shouldnot result in the underpricing of credit risk.

Furthermore, while on-site in -spections conducted by theACPR in 2013 on the theme ofhome loan financing at a largenumber of French credit institu-tions generally revealed thatbanks were addressing riskmanagement more effectivelyand tightening lending terms,there was room in some cases toimprove risk management andinternal control systems.

24. Source: Banque de France.

With the financial crisis, the non-stop rise in residential property prices in France over 12 or so years gave way to more mixeddevelopments.

The ACPR supervisescompliance with legis-lation and regulations

by reporting institutions. The ACPR’sapproach combines off-site andon-site inspections with the aim ofconducting detailed, in-depth analysis of the activities of super -vised institutions.

The ACPR Supervisory Collegedetermines the supervisory priorities each year based onproposals from the GeneralSecretariat. These priorities reflectthe findings of analyses conducted

over the previous year and factorsthat seem set to affect the environ-ment in which institutions operate(economic conditions, regulatorydevelopments). To organise theirinspections and ensure access tosegment information, solvencycomparisons and projections andthe results of stress tests for reportingentities, the divisions responsible forsupervision also draw on analysesby the Research Directorate. Thesupervisory priorities are used toprepare an annual inspection pro-gramme of ongoing supervisionand on-site inspections, which is

designed to ensure oversight of theactivities and risks of reporting enti-ties, as well as of the risks to whichthey expose the financial system.The inspection programme maychange over the year dependingon needs.

3.1 BANKING SECTOR

The ACPR supervises credit institu-tions and investment firms throughtwo divis ions responsible forongoing supervision, each of whichis split into four departments that

66

Prudential supervision 3on-site inspections either in progressor completed as part of the 2013inspection programme253

• of which 151 concerned the banking sector • and 102 concerned the insurance sector

reporting entities hadtheir risk profiles assessed in 20131,394

• of which 700 were in the banking sector• and 694 in the insurance sector

colleges of supervisors were set upfor groups where the ACPR is theconsolidating supervisor29

• of which 14 were in the banking sector• and 15 in the insurance sector

action letters sent out in theyear on the basis of reports176

• of which 68 to reporting entities in the banking sector• and 108 to insurance institutions

67


specialise in different types of insti-tution, and one on-site inspectionunit, which is part of the General Inspectorate of the Banque deFrance.

In 2013, supervisory activities wereused to continue preparations forthe entry into force of CRD 4, parti-cularly as regards the impact of thenew capital and liquidity require-ments and their effects on differentbusiness l ines. The super visor ydepartments were very active insupervising the effects of the crisis,both in terms of monitoring refi -nancing structures and analysingdevelopments in credit risk. TheACPR pursued its intense coopera-tion with foreign supervisors, bothwithin the usual framework of thesupervisory colleges but also in aneffort to finalise recovery plans withfive large banking groups (in linewith international recommen -d ations).

Ongoing supervision wasconducted over the year to assessand monitor the nature of andchange in the risk exposure of institutions and the quality of theirinternal control systems. Thesesupervisory activities drew on in-depth analyses of the qualitativeand quantitative prudential, finan-cial and accounting disclosuresthat institutions are required to pro-vide periodically or on request.These analyses are the subject of exchanges and discussionsthroughout the year with the seniorofficers of reporting institutions(senior managers, chief financial

officers, heads of business lines, riskmonitoring, periodic and per -m anent control, etc.). Some 1,200meetings and 30 on-site visits (lasting between one and two days)were organised in 2013.

The ACPR assesses institutions’ riskprofiles using a proprietary metho-dology called ORAP 2. This analysesall the risks to which institutions areexposed, in accordance with thenature, scale and complexity of theactivities undertaken, as well as thequality of internal control mecha-nisms. At least annually, and quar-terly if warranted by the institution’srisk profile, the ORAP assessmentincorporates the results fromongoing supervision and on-site inspections.

Depending on the results of its ana-lysis, the ACPR may require institu-tions to comply with additionalcapital requirements that exceed

minimum regulator y standards (Pillar 2 measures). This is the case,in particular, for all major Frenchbanking groups.The ACPR continued to pay specialattention to these groups through astructured programme of “en -hanced supervision” meetings. Theapproach is organised accordingto the main functions (finance, riskmanagement, etc.) and businesslines of reporting institutions(domestic retail banking, interna -tional retail banking, investmentbanking, etc.), or by geographicalarea or legal entity, where thesewarrant specific monitoring. Thesemeetings enable in-depth discus-sions to be held with the seniormanagers of institutions. The ACPR’sassessment of the overall risk profileof these groups is shared each year with their senior managers,decision-making bodies and statutory auditors.

Prudential supervision The ACPR’s approach combinesoff-site and on-site inspections withthe aim of conducting detailed,in-depth analysis of the activitiesof supervised institutions.

Foreign credit institutions doing busi-ness in France are also subject tospecific supervision within the col-leges of supervisors, which performthe joint risk assessments requiredunder European banking regula-tions. In response to the recom-mendations by the G20 andFinancial Stability Board (FSB), theACPR also organises, for the mainFrench banking groups with aninternational presence, crisis mana-gement groups (see below), whichprovide a forum for discussing therecovery plans that it requires insti-tutions to establish to be able tocope with different types of shock.

Ongoing supervision is roundedout by inspections of institutions.Typically lasting several months,these inspections are used toconduct an in-depth analysis ofrisks and the quality of risk manage-ment systems, and also to verify theaccuracy of regulatory reporting. A key focus of these inspections isthe internal models that institutionsdevelop and wish to use to measure capital adequacy requi-rements in relation to their opera -tional, credit and market risk.

The on-site inspection pro-gramme consists of two types ofinspections. The first type is generalinspections, which cover all of theinspected institution’s activities.These inspections focus on smalland medium-sized institutions forwhich areas of concern have beenflagged by the ongoing supervisionunit but that have been the subjectof an overall inspection. Thesecond type is thematic inspec-tions, which primarily concern largegroups and focus on certain activi-ties or business lines. They are oftencarried out across several bankinggroups (in which case they areknown as cross-functional inspec-tions) and covered regulatoryarrangements and issues related to the effects of the crisis on the banking sector.

In 2013, the ACPR began severalthematic inspections on credit riskin sectors that are potentially ex -posed to the crisis: LBO financing,SME financing and home lending.Thematic inspections also ad -dressed legal risks connected withlocal authorities’ toxic loans andrisks relating to contributions to market indices.

The ACPR conducted numerousinspections to review internalmodels, checking measurementof market and counterparty riskon market transactions, differentcomponents of credit risk andoperational-risk modelling.

In 2013, the ACPR also performedits first inspection on EMIR applica-tion at one clearing house and thefirst two inspections of payment institutions.

A large proportion of inspectionsfocused on ensuring that institutionshad taken the corrective measuresrequested by the ACPR followingprevious inspections.

On-site inspections covered thevarious types of activities per -formed by French and foreign spe-cialised institutions with credit institu - tions or investment firm status.

Inspections at the main financialinstitutions prompted inspectors toextend their work by carrying outinspections of foreign operations,notably to ensure proper applica-tion of risk monitoring and supervi-sory procedures.

On-site inspections were con -ducted in close coordination withongoing supervision departments,which prepared follow-up mea-sures for reports and monitored thesteps taken by institutions.

68

II. ENSURING THE STABILITY OF THE FINANCIAL SYSTEM 3. PRUDENTIAL SUPERVISION

3.1 Banking sector

69


A. European comprehensiveassessment

The European Regulation of 15 October 2013, which entrustedthe ECB with direct supervision of128 European banks, also requiresthe ECB to conduct a comprehen-sive assessment of the banks underdirect super vision, including abalance sheet assessment, beforethe SSM enters into force on 1 November 2014.

Because of its scale (13 Frenchbanking groups are involved) andscope (all banking assets held inbanking and trading books), theassessment is an unprecedentedexercise, both for the banks them-selves and for the ACPR. Cognizantof the challenges, French banksare totally involved and engagedin the assessment, which is takingthe form of a series of technical

and managerial challenges to bemet in a tight timeframe.

The main objectives of this large-scale exercise are to promotetransparency, by enhancing thequality of the available informationon the position of banks, consoli-date the banking sector by identi-fy ing and implementing thenecessary corrective actions, andstrengthen confidence, by reas-suring stakeholders that banks arefundamentally sound and credible.

Operational leadership for theassessment is being provided bythe ECB with direct support from thenational competent authorities ofthe countries participating in SSM.Accordingly, ACPR departmentswere heavily involved in, and de -voted considerable resources to,these efforts. To ensure successful

completion, internal governancestructures were set up (steeringcommittee, operational projectmanagement, quality assurance)mirroring those created at ECBlevel. In addition to assessing grouprisk profiles, a task that was con -ducted jointly with the ECB and thenational competent authoritiesfrom the second quarter of 2014using data collected by the ACPRfrom the banks, the ACPR also tookcharge of the second componentof the comprehensive assessment,namely the asset quality review,which demanded considerableresources.

The timetable for the exercise istight. It began in November 2013with the launch of phase 1 on port-folio selection, which ended in February 2014 with the ECB in -forming each national authority of

“The assessment comprises three comple-mentary pillars: an assessment of bankrisk profiles, an asset quality review andstress tests. It was officially launched bythe ECB on 23 October 2013 and beganon 1 November 2013. Following theassessment, at end-October 2014, theECB will share the results and giverecommendations on the supervisorymeasures that need to be implementedby banks.

”Florian Narring, Banking Supervision Division.

the list of portfolios selected perbank. The objective was to encom-pass the most s ignif icant asset portfolios, accounting for at least50% of the bank’s weighted assetsand representing a potential risk of under-valuation or under-provi -sioning.

This phase was immediately fol -lowed by the actual asset reviewphase, which will run to 1 August2014 (review of accounting proce-dures and policies, validation ofdata integrity, sampling and analy-

sis of selected assets, collateral,guarantees and collective provi -sioning models). Several thousandcredit files will be reviewed. Thenational competent authorities willapply a common methodologyprepared by the ECB, giving allbanks in all countries assurancethat fair rules will be applied. Theresults of the review will be takeninto account when the stress testsare carried out.

The third component of the com-prehensive assessment, thestress tests, will begin in June2014. The exercise will beconducted by the ECB for the128 banks in the SSM, in closecoordination with the EBA, whichdetermined the key parameters.The minimum capital thresholdsselected for the two scenarios(baseline and stressed) are 8% and5.5% respectively of CommonEquity Tier One (CET 1).

INTERVIEW WITH JEAN-BAPTISTE FELLER OF THE ACPRRESEARCH DIRECTORATE ON DATA COLLECTION LINKED TO THE INTRODUCTION OF THE SSM

Does the introduction of the single supervisory mechanismrequire specific data collection arrangements?

The period between now and November 2014, when the ECBtakes up its new role as banking supervisor, will feature intensepreparations. Current data collection arrangements for the RiskAssessment System (RAS) and the Supervisory Review andEvaluation Process (SREP) form an important part of the overallassessment of the European banking system, dovetailing with the comprehensive assessment of bank balance sheets. A pilotexercise was conducted in November and December 2013 tocollect various data from the institutions that will be subject todirect ECB supervision, to gain an even clearer understanding of the risk profiles of Europe’s main banks. An initial data serieswas sent to the ECB before the summer based on informationcollected by the supervisor.

What role is the ACPR playing in this data collection?

The ACPR was in charge of organising the second pilot exerciseand will play the same role in the 2014 collection campaign. As part of this, 13 large French banks, all of which will be directlysupervised under the SSM, were contacted. They were asked to provide a considerable amount of data, since more than3,000 variables were collected and used in particular to coverareas of risk that are comparatively unexplored in the existingdata, including many variables relating to liquidity and interestrate risk. Moreover, this major undertaking had to be carried outin a short space of time. However, good communicationsbetween the ACPR and the banks and with the ECB ensured thatthe process was successfully completed. This work will besupplemented with new data collections, which may be adjustedto cover smaller institutions. Furthermore, more efforts still need tobe made to enhance quality, with a view to making the analysesconducted by the SSM even more effective.

Jean-Baptiste Fel ler, Research Directorate.

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3.1 Banking sector

71


B. Preparations for the introduction of CRD 4

In 2013, the French banking sec-tor continued to prepare for thenew rules under the Basel IIIaccords, whose provisions weremade applicable from 1 January2014 by the Regulation of the Euro-pean Parliament and of the Coun-cil of 26 June 2013 (CapitalRequirements Regulation – CRR)and the new version of the CapitalRequirements Directive (CRD 4). Themain changes resulting from theseprovisions include the introductionof a more restrictive definition ofcapital, tougher requirementsunder the solvency ratio, the intro-duction of two new liquidity ratios – a 30-day Liquidity Coverage Ratio(LCR) and a one-year Net StableFunding Ratio (NSFR) – plus a lever -age ratio, defined as the ”capitalmeasure” (numerator) divided bythe “exposure measure” (denomi-nator) (see Chapter 6 p.126).

Accordingly, in 2013, the ACPRcontinued to hold regular updateswith the main French bankinggroups on their individual trajecto-ries in terms of the CRR solvencyratios and the LCR. Monitoring wascarried out through Basel III quanti-tative impact studies (QIS), regularinterviews and ad hoc data collec-tion from institutions.

On solvency, as from 1 January2014, all the main French bankinggroups had CET 1 ratios, as definedby the CRR, that were well abovethe requirement at that date (4%).The individual trajectories reflectmeasures taken to bolster solvency,

notably through earnings retentionb u t a l s o t h r o u g h c o n t i n u e dbalance sheet adjustments. To -gether, these measures haveenabled the main French banks to meet the requirements set byEBA (see inset below).

In December 2011, EBA issued a recommendation calling for banks to comply with a Core Tier One (CT 1) ratio of 9% from 30 June 2012.The ratio includes an impact reflecting the difference between thebook and market values of European sovereign debt held in portfoliosat 30 September 2011. The four main French banking groupsconcerned by EBA’s exercise (BNPP, Société Générale, BPCE and CréditAgricole), along with Crédit Mutuel, as required by an injunction, havebeen in compliance with the recommendation since 31 March 2012.

Owing to CRR’s entry into force at 1 January 2014, and insofar as,during the “transitional” phase, capital requirements under the CRRmay be less restrictive than those of the December 2011recommendation, on 22 July 2013 EBA adopted a newrecommendation on preserving capital, which replaced the previousrecommendation.

The new recommendation calls for the maintenance of a nominal floorof capital at least equal to that required at 30 June 2012 to complywith the terms of the December 2011 recommendation (i.e. theamount at 30 June 2012 of CT 1 needed to cover 9% of risk-weightedassets and the sovereign cushion). It was imposed through aninjunction on the BNPP, Société Générale, BPCE, Crédit Agricole andCrédit Mutuel groups, and they all comply with the requirement.

THE EUROPEAN BANKING AUTHORITY’S RECOMMENDATION OF 22 JULY 2013

In terms of liquidity, the financingstructure of French banks continuedto evolve to adjust to the require-ments of the LCR, which will comeinto force in 2015 following anobservation period. French banksestablished strategies to reduceand regulate the financing needsof different business lines andstrengthen the portfolios of liquidassets included in the LCR numera-tor. The ACPR will continue to payclose attention to these develop-ments during the observationperiod, particularly using the newharmonised European regulatoryreporting schedules that institutionswill have to file from 31 March 2014under EBA’s technical standards.

Besides, CRD 4 has modified thedefinition of the French bankingsector. Credit institutions now com-prise legal entities whose business isto receive repayable funds fromthe public and to grant credits,whereas French banking regula-tions previously defined them aslegal entities that received depositsfrom the public or that granted cre-dits. As a result, credit institutionsincluded financial companies thatgranted credits but did not collectdeposits from the public. As part oftransposing the directive, specifictransition arrangements were esta-blished for financial companies.

Article 34 of Executive Order 2013-544 of 27 June 2013 on credit insti-tutions and finance companiesstates that from 1 January 2014financial companies are consideredto be licensed as specialised creditinstitutions (application of the prin-ciple of continuity with regard totheir current status). As credit institu-tions, specialised credit institutionswill be subject to all CRD 4 and CRRprovisions.

However, Article 34 of the aboveExecutive Order allows financialc o m p a n i e s t o o p t, b e t w e e n

1 October 2013 and 1 October2014, to be licensed as a financecompany (see inset below).Finance companies will be sub-ject to a specific prudential framework established by theOrder of 23 December 2013.Essentially, finance companies willbe subject to CRD 4 and CRR rules,but with some adjustments toaccommodate their specific characteristics (LCR and leverageratio exemptions).

Furthermore, the CRD 4 and CRRlegislative package contains a

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3.1 Banking sector

73


number of national options and discretions to allow general mea-sures to be tailored to the specificfeatures of each national marketand to enable individual measuresto be adjusted to the specific characteristics of each institution orgroup. As regards individual mea-

sures, the individual decisions takenby the ACPR before 1 January 2014based on existing regulatory provi-sions are not called into questionand will continue to apply. Con -cerning the new individual options(introduced by CRD 4 and CRR),the ACPR began discussions with

institutions on their potential intro -duction, which will review a case-by-case review by the ACPRSupervisory College.

In France, leasing, factoring and guarantee activitieshave traditionally been subject to prudential regulation,whether or not the entities that engage in these kinds of business receive deposits from the public. Until 2013,most of these entities had financial company status,which was a legal sub-category of credit institution status.Accordingly, they were supervised by the ACPR on thebasis of the same prudential rules as credit institutions.

CRD 4, which has applied under French law since 1 January 2014, adopted a more restrictive definition forcredit institutions than that previously used in France,stating that credit institutions grant credit and receiverepayable funds from the public. This definition thereforeexcludes entities that grant credit but do not receiverepayable funds from the public. To ensure continuedprudential regulation of all entities under ACPRsupervision ahead of the entry into force of CRD 4,several amendments were made to the Monetary andFinancial Code and prudential rules in 2013.

The status of finance company, created by ExecutiveOrder 2013-544 of 27 June 2013, came into effect on1 January 2014. The Monetary and Financial Codedefines finance companies (Article L. 511-1) as “legalentities that grant credit in the regular course ofbusiness and on their own account”, but that, unlikecredit institutions, do not receive “repayable funds from

the public”. Entities that currently have a banking licenceand that do not receive repayable funds from the publicmay opt for this status under a simplified procedure ifthey apply before 1 October 2014. Because of this status,finance companies may neither take part in central bankmonetary policy operations, nor receive a Europeanpassport under the freedom of establishment.

The Order of 23 December 2013 created a prudentialregime equivalent in terms of solvency to thatestablished for credit institutions by EU Regulation575/2013 of the European Parliament and of theCouncil of 26 June 2013 (CRR). The Order refers directlyto the CRR, taking up its provisions while including somespecific measures to accommodate the peculiarities offinance companies in terms of their capital composition(for example, the guarantee funds of mutual guaranteecompanies). The equivalency of these rules with those ofthe CRR will make it possible to weight the commitmentsto these institutions like those of banks for the purpose ofdetermining credit risk and recognising their guaranteesas risk mitigation techniques. These entities will also besubject to Regulation 97-02 on internal control and to therules on monitoring and managing liquidity risk providedfor by the Order of 5 May 2009.

THE NEW STATUS OF FINANCE COMPANY

C. Monitoring institutions’refinancing structures

In 2013, following heavy strain in theaftermath of the European sov -ereign debt crisis, there was furtherconfirmation of the return to morenormal operating conditions on theinterbank market that had beenobserved since the second half of2012 (see point 2 of this chapter).

But the situation remains fragile,given deflationary pressures inEurope and the importance tofinancial stability of continuedaccommodative monetary poli-cies, as illustrated by the stress following the Federal Reserve’sannouncement in May 2013 that itmight taper its asset purchases.Consequently, building on measures taken at the height ofthe crisis, the ACPR closely moni-tored the funding profile and refinancing conditions of Frenchbanking groups, especially thelargest ones. This led to numerousmeetings in 2013 with bank trea -surers and the heads of asset/liability management. As in 2011and 2012, special attention waspaid to maturity transformation bythese entities, notably in terms of asset and liability maturities.Pursuing the approach taken in2008 and 2009 and then reinstatedin the second half of 2011, the two

divisions responsible for bankingsupervision organised enhancedmonitoring measures in partnershipwith the treasurers of the largegroups.

The ACPR also continued to receiveregular management informationto supplement regulatory disclo-sures, which it used to refine its analysis of the refinancing structuresand conditions of the leadingFrench banking groups and im-prove dialogue with bank staff.

The main indicators monitoredincluded the change in theamount and cost of short-term re -financing, banks’ ability to reachtheir medium- and long-term refinancing targets, the liquidity ratioand liquidity gaps, notably in USD,and the size of their liquid assetreserves. Continuing work begun in2012, studies were also carried outto assess the effects of a down-grade in short- and long-term creditratings.

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3.1 Banking sector

To meet the targets set in 2009 at the G20 Pittsburgh Summit, the European Parliament and Council adopted theEuropean Market Infrastructure Regulation (EMIR) of 4 July2012 on over-the-counter (OTC) derivatives, clearing houses(central counterparties) and trade repositories. EMIR wassupplemented by Commission Delegated Regulations148/2013 to 153/2013, which were published in the OfficialJournal of the European Union on 23 February 2013.

EMIR applies to all types of OTC derivatives and affectsfinancial corporations, such as banks and insurers, that usederivative contracts, as well as non-financial corporationsthat hold large positions in these kinds of instruments. A section of the regulation also applies to centralcounterparties, which, by interposing themselves betweentwo counterparties to a trade, seek to ensure that the failureof one market participant does not cause other participantsto fail, threatening the entire financial system.

Three main objectives

I Increase transparencyTransactions in OTC derivative products carried out in the European Union will have to be reported to traderepositories to which supervisory authorities will haveaccess.

I Reduce counterparty riskStandardised OTC derivatives (which meet pre-agreedeligibility criteria, such as a high level of liquidity) will berequired to be cleared by central counterparties. However,non-financial corporations that use derivatives to hedgerisks linked to their business activities (according to ESMA)are exempt from the obligation. In the case of ineligiblecontracts, which do not have to be cleared by a centralcounterparty, risk management techniques must be applied(e.g. posting of collateral).In view of the risks that they will be required to bear, centralcounterparties will be subject to strict rules of conduct andharmonised organisational and prudential requirements(rules on internal governance, audits, increased capitalrequirements, appropriate margin calls, etc.).

I Reduce operational riskMarket participants will be required to measure, controland mitigate operational risk, notably through electronicconfirmation.

EMIR provisions

The main EMIR provisions are as follows:

I Requirement to clear OTC derivatives declared eligible by ESMA

The regulation establishes the principle of the requirementto clear any OTC derivative deemed eligible by theEuropean Securities and Market Authority (ESMA) at duly

authorised central counterparties. This obligation will applyto any counterparty to a trade in an OTC derivative, subjectto exemptions for intragroup transactions, pension fundsand, under certain circumstances, non-financial counter-parties. The expanded use of central counterparties hasmade it necessary to introduce a harmonised legalframework to ensure that these clearing houses comply with the strict requirements laid down by EMIR in terms of capital, organisation and rules of conduct. Owing toimplementation of the eligibility procedure for derivativecontracts by ESMA, the definition of asset classes subject to the central clearing obligation will be provided in thesecond half of 2014 through an ESMA technical standard.

I Risk management procedures for non-cleared OTCderivatives

Counterparties to a non-cleared contract will have toestablish systems to measure and control operational andcounterparty risk. These systems, which are set down in thetechnical standards, include:• confirmation of contract terms within time periods definedby the technical standards;

• formalised robust, resilient and auditable processes to reconcile portfolios, manage risk, quickly identify and resolve disputes (and report them to the competentauthority) and monitor the value of outstanding contracts;

• marking-to-market the value of outstanding contracts on a daily basis, or if market conditions prevent marking-to-market, using models to determine value;

• timely, accurate and appropriately segregated exchangeof collateral.

I Obligation to report trades in derivative contracts The provisions on reporting to trade repositories, whichcame into effect on 12 February 2014, concern allcounterparties and derivatives, including listed derivatives.The regulation states that counterparties and clearinghouses must ensure that all contracts entered into, modifiedor terminated must be reported to a trade repositoryregistered with or recognised by ESMA. Technical standardsgive details of the required disclosures.

Entry into force of EMIR provisions

Banking Separation and Regulation Act 2013-672 of 26 July2013 assigned responsibilities between the ACPR and theAMF as regards application of EMIR. The following tablesummarises the timetable for the entry into force of each of the EMIR provisions, indicating the supervisory mandateassigned to the ACPR.

The ACPR and the AMF are working together closely on theoperational implementation of EMIR provisions.

EUROPEAN MARKET INFRASTRUCTURE REGULATION (EMIR)


75

76

ACPR / AMF distribution of responsibilities under EMIR

EMIR requirement

Affected institutions Supervisory tasksPure credit Investment services Portfolio Non-financialinstitutions providers that are not management counterparties Ex ante A posteriori

and insurance portfolio management companiescompanies companies

Obligation to clear through a central counterparty

Compliance with obligation to centrally clear AMF – Supervision 2015

Exemptions from obligation to centrally clear

Processing exemption notifications for intragroup transactions ACPR AMF Non objection Supervision March 2014(centralised risk control)

Major shareholding notifications AMF Registration 15 March 2013

Contracts not cleared by a central counterparty

Contract confirmation and valuation ACPR ACPR/AMF AMF Supervision 15 March 2013

Portfolio reconciliation and compression, dispute management 15 Sept. 2013

Collateral requirements 1 Dec. 2015

Reporting of number of unconfirmed transactions AMF n.a. Enregistrement 15 March 2013

Disclosure of significant disputes 15 Sept. 2013

Calculation of initial margin* Validation of internal models 2015

Exemption for intragroup transactions from collateral requirements Supervision (centralisedAuthorisation risk control,

restrictions on liquidity transfer) 2015

Obligation to report to trade repositories

Reporting obligation AMF Supervision 12 Febr. 2014


3.1 Banking sector

ACPR ACPR/AMF AMF Supervision

AMF Registration

ACPR AMF

Not applicable.

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EMIR requirement

Affected institutions Supervisory tasksPure credit Investment services Portfolio Non-financialinstitutions providers that are not management counterparties Ex ante A posteriori

and insurance portfolio management companiescompanies companies

Obligation to clear through a central counterparty

Compliance with obligation to centrally clear AMF – Supervision 2015

Exemptions from obligation to centrally clear

Processing exemption notifications for intragroup transactions ACPR AMF Non objection Supervision March 2014(centralised risk control)

Major shareholding notifications AMF Registration 15 March 2013

Contracts not cleared by a central counterparty

Contract confirmation and valuation ACPR ACPR/AMF AMF Supervision 15 March 2013

Portfolio reconciliation and compression, dispute management 15 Sept. 2013

Collateral requirements 1 Dec. 2015

Reporting of number of unconfirmed transactions AMF n.a. Enregistrement 15 March 2013

Disclosure of significant disputes 15 Sept. 2013

Calculation of initial margin* Validation of internal models 2015

Exemption for intragroup transactions from collateral requirements Supervision (centralisedAuthorisation risk control,

restrictions on liquidity transfer) 2015

Obligation to report to trade repositories

Reporting obligation AMF Supervision 12 Febr. 2014

ACPR ACPR/AMF AMF Supervision

AMF Registration

AMF

Applicable

AMF

AMF

D. International organisation of supervision and crisis management

As part of cooperation betweennational supervisors, in 2013 theACPR coordinated 14 supervi-sory colleges for banking groupsfor which it is the consolidatingsupervisor in Europe. These col-leges are tasked with promotinginformation exchange and greatercoordination between the authori-ties that supervise entities be -longing to the groups in question.The work done within these bodieshas particular importance for bank -ing groups that have developedsignificant international businesses– BNP Paribas, Société Généraleand Crédit Agricole – and foreshad -ows the centralised coordination of supervision of major Europeanbanking groups that will begin whenthe SSM is created in November2014.

The colleges paid special attentionto a number of cross-cutting issues,including adjustments to largebanks’ business plans to cope withchanges in the international economic environment, closemonitoring of risk exposures andrefinancing procedures, andincreased work in preparation forCRD 4 implementation.I With financial conditions still chal-

lenging in Europe, information-sharing was stepped up, not onlyduring face-to-face meetings ofthe colleges attended by the

senior managers and representa-tives of affected groups, but alsothrough numerous ad hoc con -ference calls and updates ondedicated extranets administeredby the ACPR covering changes in institutions’ financial positions or riskprofiles. The most widely discussedtopics included strategic guide-lines in relation to adjustmentplans, solvency and liquidity trajectories in the lead-up to Basel III, and developments in therefinancing structures of Frenchbanking groups.I Within the colleges of European

supervisors, which were madecompulsor y at end-2010 by CRD 2 for groups with a subsidiaryin another European Union coun-try, the ACPR coordinated theupdates of annual joint decisionson the financial positions and riskprofiles of banking groups andtheir European subsidiaries, andon capital requirements in view ofthe potential application of Pillar 2capital requirements to the indivi-dual entities of banking groupsand on a consolidated level.I The ACPR pursued efforts to coor-

dinate activity programmes andsupervisory activities within “corecolleges”, involving foreign super-visors of significant non-EU subsi-diaries or branches of theaffected banking groups. In addi-tion to the plenary meetings of thecolleges, workshops were orga -nised on topics of common inter -est, including the assessment ofinternal credit and operational riskmodels, and the review of risktypes specific to certain sectors,such as property lending or con -sumer credit.

The ACPR also continued to takepart in 20 or so colleges in its capa-city as the supervisor of a subsidiaryof a European banking group.

Furthermore, in cooperation withthe Banque de France, theAuthority extended its workwithin the crisis managementgroups (CMGs) established insummer 2011 to discuss andenhance Recovery and ResolutionPlans (RRPs) drawn up in advanceby large cross-border bankinggroups (BNP Paribas, Société Géné-rale, Crédit Agricole, Crédit Mutueland BPCE) to cope with crisis situa-tions. In 2013, the ACPR organisedseveral full meetings of the CMGs,as well as technical meetings withaffected supervisory authorities andcentral banks, to talk about im -proving the RRPs.

In 2013, based on the initial draftsof the recovery plans prepared in2012, the ACPR pursued its bila-teral discussions with institutionsthrough a comparative assess-ment of the plans, which wasused to highlight best practices.These exchanges paved the way to look more closely at internalgovernance issues peculiar to theplans and to encourage the banking groups to expand andupdate their plans on a number ofspecific points, including analysingstress scenarios, providing moredetails on underlying assumptions,increasing the number and frequency of reviews of warningindicators, clarifying thresholds, and broadening and diversifyingavailable recovery options.

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3.1 Banking sector

79


Efforts to prepare “resolution plan”components also progressed signi-ficantly: the goal here is to providethe competent authorities with theinformation needed to ensure theorderly resolution of banking groupsin the event of a crisis. Thanks to aprolonged and iterative discussionprocess between institutions andauthorities, French institutions madesignificant headway in analysingfunctions considered critical to theoperation of markets and econo-mies, understanding financial andoperational interdependencies(intragroup transactions, informa-tion systems, market infrastructures,essential services, etc.) and identi-fying obstacles to orderly resolution.

E. Analysis of internalapproaches for calculating capitaladequacy

REGULATORY FRAMEWORK

Under the Order of 20 February2007 on capital requirements forcredit institutions and investmentfirms, the ACPR can authorise these institutions to use internalapproaches to calculate theircapital adequacy requirements for credit risk, market risk and ope-rational risk.

With effect from 1 January 2014, allthese provisions are covered by theCRR, which governs the prudentialrequirements applicable to creditinstitutions and investment firmsand which takes precedence overFrench law because it appliesdirectly to the Member States of theEuropean Union.

The CRR also takes up the provisionsof Directive 2010/76/EU (CRD 3),whereby credit institutions autho -rised to use an internal model to compute capital adequacyrequirements for market risk arerequired, effective 31 December2011, to compute additional capital requirements using threeadditional risk indicators: i) theincremental risk charge, whichmeasures default and rating mi -gration risk on trading portfolio positions (excluding the correlationtrading portfolio) over and abovethe default risk already taken intoaccount for value-at-risk calcula-tions; ii) the comprehensive riskmeasure, which measures default,rating migration and market risks onthe correlation trading portfolio;

and iii) stressed value-at-risk, whichindicates the potential loss over aten-day period with a 99% confi-dence level, based on historicaldata over a continuous one-yearperiod representing an acute crisisfor the institution.

Subject to ACPR authorisation, theCRR also permits the use of internalmodels for two additional expo-sures, namely counterparty risk (viathe Effective Expected PositiveExposure model), and the risk ofcredit valuation adjustment for derivatives held by institutions.

If the institution has subsidiaries holding licences in other jurisdic-tions, the analysis is carried out inclose collaboration with the localcompetent authority, particularly inthe European Union, where CRD 4and the CRR provide for a jointdecision making process.

Banks are constantly developingthese internal approaches, makingchanges not only to the way theymodel risks but also to their opera-tional implementation or the scope

across which they are applied. In -struction 2011-I-10 of 15 June 2011on monitoring internal models usedto calculate capital requirementsstipulated that institutions authorisedto use internal models to calculatetheir capital requirements shouldsubmit an annual report to theACPR detailing any extensions orchanges made to those models.Going forward, these provisionshave been written into an EBA tech-nical standard, currently under validation.

SUPERVISION

In practice, internal approachesare analysed as part of the ACPR’songoing activity. For major banking

groups, this analysis represents asubstantial proportion of the work of the Authority’s supervisory staff,which relies heavily on people witha specialised profile.

The ACPR’s ongoing supervisionstaff make an initial analysis of anyplans to roll out, change or improveinternal models, on the basis ofdocumentation submitted by insti-tutions and meetings with their staff.Ongoing supervision staff alsoconduct on-site visits to deepentheir knowledge of the organisa-tional structures and workingmethods of teams responsible fordeveloping and governing in -ternal approaches. Working with

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3.1 Banking sector

81


the legal department and the on-site inspectors, they preparedecisions to authorise the internalapproaches submitted to the ACPRfor assessment, and they monitorthe way in which the institutions takeany corrective actions the Authoritymight request.

At the same time, additional on-siteinspections are carried out at banksto assess the suitability and per -f ormance of their models. As in previous years, a significant pro -portion of these inspections wereaimed at assessing authorisationapplications submitted to the ACPRCollege and calibrating requestsfor corrective action and safetymargins. Other ex-post inspectionswere carried out to check thatrequested corrective action hadbeen properly implemented.

The ACPR also contributes activelyto European and international workto assess whether the results pro -duced by internal models are uniform and comparable.

F. Monitoring the development of businessby new reporting entities

PAYMENT INSTITUTIONS AND THE NEW STATUS OF ELECTRONICMONEY INSTITUTION

The status of payment institutionsarises from the entry into force on 1 November 2009 of the Frenchtransposition of European Directive2007/64/EC of 13 November 2007relating to payment services in thedomestic market. Article L. 522-1 ofthe Monetary and Financial Code

defines a payment institution as alegal entity, other than a credit institution, licensed to provide thepayment services detailed in ArticleL. 314-1 of the code.

With the transposition in 2013 ofDirective 2009/110/EC on elec -tronic money (EMD2), this originalcategory was expanded by theintroduction of a new, autono-mous status for electronic moneyinstitutions (EMIs), which areseparate from credit institu-tions25. EMIs are now authorised tocarry on an activity separate fromthe banking business, namelyissuance and management ofelectronic money. Institutions li -censed as EMIs are now permittednot only to issue and manage elec-tronic money but also to provide payment services. A streamlinedEMI status is to be introduced forinstitutions issuing less than 5 millioneuros in electronic money. As aquid pro quo, streamlined EMIs willbe unable to provide payment services or carry on a cross-borderbusiness using a European pass -port.

EMD2 was transposed in Franceby Act 2013-100 of 28 January2013 containing various provisionsto ensure the compliance ofFrench law with European law oneconomic and financial matters.The statute contains interim provi-sions applicable to existing financecompanies having a businessconfined to electronic moneyissuance and management.

The ACPR ensures that payment institutions and electronicmoney institutions comply withthe regulatory provisions appli-cable to them. In the event of abreach, the Authority may issuesanctions, just as it does for its otherreporting entities and, whereappropriate, may withdraw an insti-tution’s licence as a matter ofcourse if the conditions are no lon-ger respected. Electronic moneyinstitutions are subject to a specificset of prudential rules appropriateto their business, particularly interms of capital adequacy. As is thecase with credit institutions, supervi-sory activities consist in examiningthe regulatory and prudential state-ments submitted by the institutionson a periodic basis and on ana -lysing their annual internal controlreports.

The risk profile of these institutions isanalysed by assessing the level,composition and sustainability oftheir capital base, the level andregularity of their results, their stan-dards of internal control and thequality of their AMF/CTF system.Close attention is also paid to theway in which institutions protect thefunds they receive for paymentoperations, either by opening asegregation account with a creditinstitution or by taking out insurance.

When carrying out inspections, theACPR places special importanceon ensuring that institutions main-tain a sufficient level of equity,especially when they are buildingup their business. This is important

25. The first electronic money directive, EMD1, was transposed in France in 2002. This led to the creation of a sub-category of finance companieswith a business related to issuance and management of electronic money. At the time, this activity was an integral part of the banking business.

because they have to financesometimes substantial investments.In addition, the ACPR makes surethat institutions comply with therules on ring-fencing monies received from the public.

MICROCREDIT ORGANISATIONS

Since 2010, the ACPR has been responsible for supervising not-for-profit organisations operatingin the microcredit sector (underArticle L. 612-2-I of the Monetary

and Financial Code). It pays parti-cular attention to compliance withthe regulatory and prudential pro-visions of the Monetary and Finan-cial Code (Articles R. 518-61 etseq). Its powers in this area werebroadened by Decree 2012-471 of11 April 2012, which transferred thepower to authorise microcreditorganisations from a committeeunder the auspices of the Ministerfor the Economy to the ACPR.

The Authority currently supervisestwo not-for-profits, Association pourle droit à l’initiative économique(Adie) and Créa-Sol. For this purpose, it examines ad hoc finan-cial documents covering the orga-nisations’ activities and financialstructure, and it analyses theirannual internal control reports.

82

Crowdfunding is the practice of raising funds from alarge number of people, usually through an internetplatform, to finance a creative, artistic or entre -preneurial project. However, there is no legaldefinition of crowdfunding. It can take severalforms, such as a loan with or without interest, a donation with our without an in-kind or financialconsideration, or purchases of equity or debtsecurities. These different types of funding are all likely to come under the remit of the ACPR.Investment services and securities issuance are also under the remit of the AMF.

The ACPR and the AMF wanted to clarify theregulatory framework for crowdfunding in order to make it clearer and more readily understand -able for practitioners and the general public.Accordingly, on 14 May 2013, the authoritiespublished two guides, one for professionals, theother for the public, setting out the rules applicableto crowdfunding operations.

In parallel, since the existing legal framework does not specifically address this new method offinancing, the ACPR and the AMF were charged bythe relevant ministers to make proposals for takingthe framework forward. Based on these proposals,the Ministry of the Economy and Finance, incoordination with the ACPR and the AMF, launchedin late 2013 a public consultation on crowdfunding.The consultation covered the amendments to bemade to the legislative and regulatory sections ofthe Monetary and Financial Code, the AMF GeneralRegulation, and the joint ACPR-AMF policy onplacing without a firm commitment basis, in order to foster the development of crowdfunding whilemaking it safe for investors.

As a result of this work, preparations for anappropriate framework got underway in early 2014.The European Commission, the EBA and ESMA arealso discussing and debating regulation ofcrowdfunding.

ADAPTING THE REGULATORY FRAMEWORK TO THE SPECIFIC FEATURES OF CROWDFUNDING


3.1 Banking sector

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3.2 INSURANCE SECTOR

A. Market preparations for Solvency II

HORIZON 2016

At the end of 2013, a year marked by the impact assess-ment for the Long-Term Guar -antees Package and theresumption of trialogue discus-sions, an agreement on OmnibusII confirmed that Solvency IIwould take effect on 1 January2016. In consequence, the timeta-ble is tight at European level, sincethe wording has yet to be finalised,and also for national supervisors,who will have until 1 April 2015 totranspose the directive into dom -estic law. From then on, the autho-risation requests provided for inSolvency II can be referred tosupervisors, which will also have to implement future technical standards.

To harmonise preparations at Euro-pean level, EIOPA has publishedpreparatory guidelines for national

authorities, applicable from 1 Jan -uary 2014. The ACPR commentedon these procedures in a replydated 20 December 2013.

NUMEROUS EXERCISESCONDUCTED IN AN UNCERTAINENVIRONMENT

• Assessing market readiness,and the pilot project on filingprudential disclosures

Almost 450 institutions participatedin the 2013 preparedness survey, a

qualitative questionnaire sent outby the ACPR annually for the pastthree years. The latest responsesshow a better level of readiness in2013 on all aspects of the directive.

The ACPR has supported the EIOPA initiative, which consists in publishingmeasures on the stable parts of the future regime in order to encourageinsurance and reinsurance institutions to prepare for Solvency IIbetween 2014 and 2016. The areas concerned are reporting,governance, the Own Risk and Solvency Assessment (ORSA) and pre-application procedures for “internal models”. The ACPR examinedall EIOPA’s preparatory guidelines, published 31 October 2013, todetermine which of them could be implemented during this interimperiod. In light of this analysis, the authority concluded that it couldcomply with most of the guidelines; moreover, it resolved to conductearly preparatory exercises in 2014 on reporting and ORSA.

Owing to time constraints on the legislative agenda, the ACPR is unableto comply formally with the preparatory guidelines on governance.Even so, it is calling on the entire French market to prepare actively forthis key pillar of Solvency II, which interacts strongly with the two otherpillars. It will carefully monitor the preparations being made by institutions and groups in 2014 and 2015.

THE ACPR IS STRONGLY COMMITTED TO THE FRENCH MARKET’S ACTIVE PREPARATIONS FOR SOLVENCY II

84

Concerning Pillar 1 (quantitative requirements), on which institutions report the most progress, the share ofrespondents believing they have completed more than half the workload increased from 76% in 2012 to 91% in 2013. While this increase also applies to Pillar 2, work relating to the filing of information with the ACPR (Pillar 3)is advancing the most. The proportion of institutions saying they have completed more than half of this work rosefrom 9% in 2012 to 41% in 2013.

The level of preparedness is also increasingly uniform between different types of insurer. On the qualitativerequirements, more than three quarters of respondents said they had identified the individuals or departmentsthat would be responsible for key functions26. Work streams related to internal control are also well advanced,with 87% of the market declaring that over half the work on this issue has been completed.

That said, the survey highlights areas in which more work has to be done. Most notably, this includes investmentpolicy: only 60% of respondents say they have started thinking about the prudent-person principle, even though it is the cornerstone of asset management under Solvency II. Internal organisation is another key area for improvement; another is ORSA preparation, on which only 29% of respondents say they have completed more than half of workload.

THE 2013 SOLVENCY II MARKET PREPAREDNESS SURVEY

76%

2012

SHARE OF RESPONDENTS REPORTING MORE THAN 50%

60% 9% 91%

2013

70% 41%

• Pillar 1 • Pillar 2 • Pillar 3 • Taken into accountbut not yet started

• Work less than50% complete

• Work morethan 50% complete

• Well advanced (>75%)Pillar 1

LEVEL OF PREPAREDNESS, BY PILLAR IN 2013

3% 7% 22% 68%

Pillar 2

4% 26% 49% 21%

Pillar 3

12% 46% 37% 4%

26. These are risk management, the actuarial function, internal audit and compliance.



85


In September 2013, 425 institutionsrepresenting most of the market(90% of the life segment and 75%of the non-life segment) submitteda selection of Solvency II prudentialdisclosures and a methodologynote to the ACPR. One of the mainobjectives of this exercise, whichwas highly demanding both for

participants and for the ACPR andwas conducted while talks on theLong-Term Guarantees Assessment(LTGA) were taking place, was toshare the stabilised parts of Solvency II with the market, i.e.future prudential disclosures andupdated technical specificationsother than measures relating to

long-term guarantees. The scopefor progress highlighted by the exercise mainly concerned th take-up of specifications by institutionsand the reliability of data pro -vided in the disclosures.

Q&A WITH ROMAIN PASEROT, HEAD OF THE SOLVENCY II PROJECT AT THE ACPR

How much progress has the French insuranceindustry made on preparing for Solvency II?

We have three ways of measuring preparedness: ourannual survey, which covers all aspects of the futureprudential regime; supervision, through assignments or interviews at insurance institutions; and preparatoryexercises such as the one on reporting, carried out inSeptember 2013. Taken as a whole, the French marketcontinues to make progress in its preparations for thevarious aspects of the future prudential regime, and thegaps we used to see between institutions of different sizesor sectors have narrowed. There is still a great deal left to do, however. The work on calculating quantitativerequirements and drafting prudential disclosures needsto be made more robust and integrated into formal,controlled processes. Similarly, it is essential to makeprogress on implementing the new governance rulesand all the Pillar 2 qualitative requirements. This appliesparticularly to ORSA, where much remains to be done.

What will happen in the two years leading up tothe implementation of Solvency II?

We have always insisted that preparations for the newregime should be set into a clear, shared and multi-yeartimetable. This is what we did at the end of 2012, at a conference dedicated to Solvency II held amidconsiderable uncertainty, and we renewed that call atour own conference on this issue at the end of 201327.Our work schedule for 2014 and 2015 is based on a fewstrong principles. First, we are resolutely committed to theEuropean trajectory that EIOPA has mapped out throughits guidelines; we also hope to take full advantage of the two-year period to propose two sets of preparationexercises to the market, covering both quantitative andqualitative requirements as well as reporting. Although

we do not expect perfect results during the preparatoryphase, the objective is clearly that institutions shouldmake progress from one year to the next. These exerciseswill be approached from the dual standpoint ofeducation and dialogue, since any problems will needto be identified and reported before Solvency II comesinto effect.

What will happen in 2014?

We will conduct two main exercises, including one oncollecting prudential statements and possibly puttingthem into the XBRL format, which will be mandatory in2016. Following the high degree of participation in our2013 exercise, this one will show how much progress hasbeen made and could be based on the new technicalspecifications that EIOPA is developing to take accountof the agreement signed on 13 November 2013. We arealso planning a preparatory ORSA exercise, for which wewould expect to receive all of the ORSA components.Apart from training for this new obligation, thepreparatory ORSA should enable each of the institutionsconcerned to foresee how Solvency II will affect themand to talk to the ACPR sufficiently ahead of time if theyintend to request authorisation to use any of the toolslisted in the directive, namely internal models,undertaking-specific parameters, ancillary or transitionalown funds. What’s more, preparations for Solvency II willbe a priority for our inspection teams.

To help institutions get information on Solvency II, theACPR has set up a section on its website dedicated topreparing for the new prudential regime:http://www.acpr.banque-france.fr/solvabilite2

Romain Paserot, head of the Solvency II project.

27. Video footage of the conference is available on the ACPR website: http://acpr.banque-france.fr/solvabilite2/conferences.html

• Entities not subject to Solvency IIwill continue to be supervisedby the ACPR under the presentregime

A large number of institutions – albeit with a small combined market share – will not come withinthe scope of Solvency II. In-housework at the ACPR has so far identi-fied around 400 institutions that willnot be subject to the new pruden-tial regime on the basis of the sizeand activity criteria in the directive.Half are governed by the substitu-tion regime in the mutual insurancesector and will therefore remainsubject to the rules specified in existing codes.

B. ACPR priorities in supervising the insurance sector

QUALITY OF PRUDENTIALDISCLOSURES AND COMPLIANCEWITH REGULATIONS

• Ongoing prudential controlIn the context of ongoing supervi-sion, the ACPR ensures that insti-tutions are capable of meetingtheir obligations at all times andactually do so. This is a permanentcommitment rather than a one-offobligation on a specific date. TheSolvency I prudential regime ineffect at the moment is based onthe following principles:I sufficient technical reserves to

meet all commitments; I eligible assets of an amount

equivalent to regulated liabilities,the valuation of which must bejustifiable at all times;

I compliance with a minimum solvency margin in order to meetany unforeseen requirements.

The ACPR therefore monitors respect for the two main quantita-tive pillars – the solvency marginrequirement and coverage ofregulated liabilities – with equalattention.

The second requirement is oftenharder to meet than the first, andcan be breached even when thesolvency margin is respected. Thisis because a comfortable level ofequity does not guarantee thatregulated liabilities are covered byassets with suitable characteristics,notably as regards liquidity and dispersion.

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• Closer attention to ACPR filingdeadlines for regulatory information

The ACPR noted that the quality of the regulatory disclosures submit-ted to it was clearly insufficient topermit proper supervision of com-pliance with this requirement and,above all, that too many institutionswere not covering their regulatedliabilities correctly. In addition toissuing individual requests for corrective action to the institutionsconcerned, the ACPR organised aconference on supervision in June2013 to remind all market partici-pants about the importance of

covering regulated liabilities andalso about the arrangements formaking the corresponding regula-tory disclosure.

More broadly, compliant regulatoryreporting is absolutely vital if theACPR is to carry out its duties pro-perly. The comprehensive annualreview and annual report ingpackages have to be filed andsent to the Authority within thedeadlines set by the regulations(e.g. four months after the end ofthe financial year, 30 days after thegeneral meeting of shareholders),as do the quarterly statements.

The ACPR is particularly attentiveto conformity with these filingdeadlines as well as the preci-sion of the information submit-ted. Indeed, one of the ACPR’sduties is to supervise compliancewith this obligation. The variousregulatory prudential disclosuresand documents filed with the ACPRhave to be compiled carefully. Insti -tutions should ensure that the infor-mation they submit is consistent,that they respect all applicableconventions (such as monetaryunits) and that the content of theannual file is both complete andregulation-compliant.

With a view to collecting 2012 accounts, an information campaign was launched in March2013 to remind all market participants of theirobligations. The letter that was sent out emphasisedthe need to comply with Decree 2013-434 of 27 May2013, which requires institutions subject to the MutualInsurance Code to call a general meeting ofshareholders within seven months of the end of thefinancial year. These institutions have a temporarydispensation for an additional period expiring 31 October 2013 in which to submit their 2012accounts. All this information and these obligationswere reiterated at the ACPR’s conference on 14 June2013.

Even so, too many institutions are still not submittingthe information required, or are very late in doing so.The ACPR sent out more than 300 reminders in thesecond half of 2013. Although there has been adegree of improvement over the years, with just oneprocedure for issuing an injunction actually initiatedwith respect to 2012 accounts, considerable effortshave still to be made on meeting deadlines andsignificantly improving the quality of the informationprovided. The ACPR will continue to monitor thesituation and will use its powers as often as necessary,notably those relating to injunctions combined withfinancial penalties.

GREATER FOCUS IN 2013 ON COMPLIANCE WITH FILING DEADLINES FOR REGULATORY DISCLOSURES

CONSOLIDATED SUPERVISION OF GROUPS

• Work carried out in colleges of supervisors andinternational cooperation

With European colleges seekingto implement the EIOPA actionplan, the ACPR continued in 2013to provide leadership to the 15 colleges of insurance super-visors that it chairs. Designed inthe form of successive steps andreviewed annually, the action planaims to build on work carried outjointly by the various national regu-lators charged with supervising different insurance or reinsurancecompanies belonging to the samegroup, and without waiting for Sol-vency II to take effect. Among otherthings, the plan provides for thelaunch of coordination agreementprojects and contingency plansbetween the authorities con -cerned, the introduction of com-mon quantitative and qualitativeinformation tools, the organisationof regular points of contact (face-to-face and/or telephone meet -ings), preparations for Solvency IIand, where applicable, the assess-ment of internal model pre-applications. In 2013, particularemphasis was placed on joint analysis of insurance groups’ riskprofiles, which led inspectors todefine a common methodology

and procedure in each college foranalysing risks and areas of vulne-rability. ACPR staff are also active inaround 30 colleges of insurancesupervisors in their capacity as thelocal authority, with a similar objec-tive of extending work in this area.

To conduct supplementary supervi-sion of the main insurance groupswith entities outside the EEA, worldcolleges have to be set up to pro-vide a global view of their risk pro-files. In 2013, as in previous years,relationships with the supervisors inthird countries were broadenedand placed on a formal footing byinviting new countries to join col-leges, strengthened in areas ofmutual interest (e.g. provisioning,reinsurance, intra-group transac-tions), or linked to specific currentevents such as acquisitions.

Building on discussions related tothe financial crisis, and with an eyeto facilitating work at world colleges, made up of authoritiessubject to sometimes very differentrules, the International Associationof Insurance Supervisors (IAIS, towhich the ACPR belongs) hassought to craft a common super -visory framework, ComFrame, forinternational insurance groups. Theproposal was put out to publicconsultation in October 2013,ahead of a test exercise that theauthorities will carry out in 2014. It addresses such issues as the identification of these groups, mini-

mum overall requirements on such matters as governance and capi-talisation, and the way in which theirjoint supervision is organised in bothnormal and crisis conditions.

Experience shows that the effec -tiveness of colleges of supervisorsdepends largely on the clear iden-tification of shared priorities, theemergence of a “supervisor com-munity” and highly operationalaspects such as tools, methodsand the practical organisation of work. In 2013, therefore, theACPR focused on identifying anddisseminating best practices, both in-house and at EIOPA, by partici-pating in the 2013 peer review ofinsurance colleges.

• Cooperation on validation of Solvency II internal models

In parallel with the ACPR’s day-to-day tasks, preparations for SolvencyII have been a major theme in inspections of reporting institutions.This applies equally to general inspections intended to best mea-sure the overall state of prepared-ness for the new regime and to theexamination of pre-applications forthe use of internal models to calcu-late solvency margin requirements.On the latter point, the ACPR un -veiled the evaluation framework it will use when assessing pre-application documentation at itsconference in late December on

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preparedness for Solvency II (see inset below). The preparedness of IT systems for Solvency II in severalmajor entities was also tested for resilience, governance

and the quality of insurance data. These are thethemes on which formal requirements stemming fromSolvency II are far more developed.

Institutions wanting to use an internal model to calculate their margin requirement will have to submit an application to the ACPR at least six months before the new regime comes into effect.The ACPR strongly urges institutions wishing to use an internal model from 1 January 2016 onwards to start the pre-application process as soon aspossible. The main stages of the process werereiterated at the conference on 12 December 2013,namely receipt and analysis of the pre-applicationfile, determination of an inspection plan, on-site

verifications of the main aspects of the model,followed by corrective steps.

During the conference, the ACPR unveiled the evaluation framework for pre-applications and applications. Implementation of this framework,developed using the provisions and standardsappearing in the directive and proposedimplementation texts, enables the ACPR to declare itself compliant with EIOPA guidelines on the assessment of internal models.

PRE-APPLICATION FOR USE OF AN INTERNAL MODEL AND THE EVALUATION FRAMEWORK FOR THE MODEL

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Quantitative criteria Qualitative criteria1. The model’s perimeter and structure are appropriate. 1. High standard of governance of the IM system.

2. The evaluation of the balance sheet on a one-year 2. The validation of the IM is capable time horizon for the SCR* IM** calculation is adequate. of guaranteeing its statistical worth.

3. The risk factors used in the IM are appropriate. 3. Internal control covers the IM system.

4. The aggregation structure accurately reflects 4. The allocation of profits and losses confirms the diversification of risks. the model’s results.

5. In the case of a PIM***, the IM results are accurately 5. The IM is widely used for operational ends. integrated in the standard formula.

6. The risk mitigation techniques are identified 6. The policy for changing the model is rigorous.and accurately measured.

7. The measure of risk used in the IM is calibrated 7. The quality of the IM’s IT system is satisfactory.according to the official definition.

8. IM reports accurately reflect the risk profile. 8. The model is properly documented.

EIOPA-led reviews of the inspection of insurance internal models have emphasised the quality of the ACPR’sorganisation. On the one hand, a reference department for policy and international negotiations is responsiblefor carrying out specific inspections and generating a cross-cutting view of market practices; on the other, the inspection departments apply the resulting framework to their own tasks, thereby enabling the ACPR to step up its supervisory effort.

* Solvency Capital Requirement. ** Internal model. *** Partial internal model.

• The ACPR’s involvement in efforts to identify systemic insurers

In July 2013, the Financial Stabil -ity Board (FSB) published a list ofnine insurers, including the Frenchgroup AXA, which are consideredsystemically important to theinternational financial system.This means that any difficultiesincurred by these companieswould have an impact on globalfinancial stability. The naming pro-cess is part of a programme aimedat cushioning the impact of thecollapse of an international finan-cial group. ACPR staff have colla-borated on determining a methodof assessing the groups concerned,in order to provide data and draftadditional measures for containingthe effects of possible difficulties inthe insurance sector.

The authorities responsible forsupervising systemic insurancegroups, including the ACPR, musttherefore comply with FSB recom-mendations concerning the super-vision of any group in question.These recommendations includestrengthening consolidated andgroup-wide supervision, frequentinteraction with senior manage-ment and boards of directors, in -volvement in assessing successionplans for key functions (senior ex -ecutives, chief financial officers,chief risk officers, internal auditors,etc.), more in-depth evaluation ofthe group’s internal control process,specific supervision of the activitiesconsidered the most systemic, andgreater expectations for aggre -gated risk information, notably interms of frequency.

A demanding timetable for mea-sures to be implemented has beenadopted: I July 2014: in cooperation with the

ACPR, the group will have to havefinalised a Systemic Risk Manage-ment Plan (SRMP) describing howit manages and reduces systemicrisks;I July 2014: the group’s supervisor

will have to have assembled andtrained a Crisis ManagementGroup (CMG) that includes themain stakeholders involved in thegroup’s resolution programme;I End-2014: the CMG has to sign

off on a Recovery and ResolutionPlan (RRP) and a liquidity manage-ment plan for the whole group.

C. Institutions or activities in special situations

• Points-based supplementarypension systems (Branch 26)

Given the present economic envi-ronment of low interest rates andthe possible impacts of the futureSolvency II regulations, the future ofsupplementary pension systems isa matter of concern.

The ACPR therefore carried out aqualitative and quantitative surveyin the first half of 2013 of the 20 orso institutions that run the 46 points-based supplementary pension systems (known as “Branch 26”regimes, after the correspondingauthorisation category), which helped establish an overview of themarket.

The survey showed marked dispari-ties between the profiles of thevarious regimes, which are go -verned by three codes and sepa-

rate legal provisions. According to2012 accounts, outstandings underthese systems totalled almost 40 billion euros, of which 66% wereconcentrated in five systems. Thelargest system accounted for 30%of outstandings all on its own. At anoverall market level, it appears thata few systems in a structurally fragilesituation are no longer covered, butthe rest of the market does cover itsliabilities overall. Faced with thissituation, some institutions havemade up for the lack of cover bymaking an allocation to a special,additional technical reserve; othersthat were already being monitoredspecifically by the ACPR are fol -lowing convergence plans. Theupshot was that no additional spe-cial measures were required forthese systems with regard to their2012 accounts. The ACPR will keepa close watch on these systems in2014 and will exercise its powers in the event that policyholders’ interests are or could be threat -ened in the short or medium term.

At the same time, the ACPR is actively involved in changes to thecurrent regulations for Branch 26 systems and in discussions onthe future of retirement savings products, particularly in the contextof Solvency II.

• Enhanced supervision of life insurers

Life insurers’ profitability and solvency are liable to be af -fected by falling financialincome in the present interest-rate environment; enhancedsupervision of these institutionscontinued in 2013, both through

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ongoing supervision and on-site in -spections. Supervision departmentspaid particular attention to thequality of investment portfolios, aproper match between assets andliabilities, the balance between netfinancial income, contractualcommitments and attributed profit-sharing schemes, as well as thestandards of discipline for manage-ment, accounting and investmentmonitoring. Since the quest for yieldcould encourage some institutionsto shun conventional investmentsand diversify their portfolios intoassets that are harder to manage,the ACPR has carefully and closelyfollowed the increase in some insti-tutions’ holdings of specific assetclasses (e.g. structured finance,property-backed loans, securitieslending), as well as the latest indus-try thinking on methods of finan-cing, notably loans to mid-sizedcompanies.

• Institutions in special situationsThe French insurance sector provedreasonably strong in 2013, despitea difficult macroeconomic andfinancial environment. This situationstill has to be monitored very care-fully, however, as default risk isincreasing across the economy.

The sector’s health is the result ofsignificant efforts by market partici-pants and also by the supervisor.The ACPR has closely monitored institutions at the level of both theGeneral Secretariat, which hasbeen able to detect difficult situa-tions, and the Supervisory College,which made full use of its safe -guarding powers and took deci-sions appropriate to the individualsituations of certain institutions.The ACPR’s Insurance SupervisionSub-College asked these institutionsto submit recovery plans con -taining all appropriate steps to

strengthen their financial stabilityand management. These requestswere prompted, for example, byparticular investment choices orwhere claims management couldbe optimised (regardless of whether it had been delegated), orbecause a new business was notproperly managed. Several institu-tions in breach of the regulationswere ordered to come into com-pliance.

D. The health and provident sectors

The mutual insurance sector, go -verned by Book II of the Mutual In -surance Code, continues to con- solidate, with institutions either merging or winding up. However, itis still highly fragmented, with alarge number of very small partici-pants. Some, but not all, arebacked by larger partners. In thissecond case, the ACPR pays parti-cular attention to compliance withthe minimum guarantee fund or tothe existence in the institution’s articles of association of provisionsdescribed in the Mutual InsuranceCode that exonerate it from therequirement to constitute suchfunds. Several checks and requestsfor explanations were made in2013.

The need for appropriate businessand IT tools and for control over therelated costs has led many provi-dent institutions to explore mergeroptions. Several mergers wereconcluded in 2013, reducing thenumber of such entities. Furtherdeals have already been an -nounced. It should be noted thatthese jointly managed institutionsare operating in the broadercontext of AGIRC-ARRCO supple-mentary pension systems that arethemselves managed on a jointbasis. In 2013, the ACPR remindedseveral institutions that their growthand risk management policies hadto be firmly under control in order toprevent underwriting of loss-makingbusiness that could jeopardise theirbusiness model.

The national inter-professionalagreement on supplementaryemployee health insuranceschemes and the passage of thecorresponding legislation at theend of 2013 will undoubtedly haveimportant consequences for theinstitutions operating in these sec-tors. Being vigilant by nature, theACPR will check that all changesare made in compliance with thevarious codes and in the interests ofpolicyholders and members.

Act No. 2013/672 of 26 July 2013 onthe separation and

regulation of banking activitiesentrusts the ACPR with the newrole of preventing and resolvingbanking crises for the purpose of“safeguarding financial stability,maintaining the continuity of theactivities, services and operationsof institutions whose failure wouldhave a serious impact on the eco-nomy, protecting depositors andavoiding, or limiting to the greatestpossible extent, any recourse topublic financial aid.” To this pur-pose, the Act established a specificResolution College, which held itsfirst meeting in November (seeChapter 1).

At the ACPR, the work of theResolution College is preparedby a specific directorate set upat the end of 2013. The head ofthe college is appointed by adecree from the Minister of theEconomy on the recommendationof the Governor of the Banque deFrance, who is also Chairman ofthe ACPR. The legal construction ofthe 2013 Act seeks to ensure theseparation of supervision and reso-lution activities while allowing ope-rational flexibility for the College towork with all ACPR teams on a day-to-day basis. The Resolution directorreports directly to the Resolution

College. The resources required areincorporated in the ACPR budget,which now has a section, agreedafter consultation with the Resolu-tion director, relating to the Resolu-tion Directorate’s operations. Tocarry out its tasks, the ResolutionDirectorate has access to informa-tion held by ACPR for supervisorypurposes.

In 2014, the Resolution Collegewill be invited to adopt a generalstrategy on resolution that willdefine the key tenets of the ACPR’sapproach in this area. In line withthis general strategy, and whileadapting to the particular situationof each banking institution orgroup, the Resolution College’s newdirectorate will have to draw upoperational resolution plans thatexplain the specific ways in whichthe resolution measures will beapplied to each of the banking institutions and groups concerned.

To that end, the directorate will takeaccount of the work done bysupervision departments to analysethe recovery plans produced bythese groups. This process has threeaims:I identifying and disseminating best

practices;I drafting resolution plans;I evaluating the plans’ compliance

with international standards.

Analyses of the recovery plans and draft resolution plans are andwill be submitted to meetings of the Crisis Management Groups(CMGs). Started in 2011, thesemeetings involve the ACPR GeneralSecretariat, supervisors of the mainforeign entities of banking groupsand the Banque de France. In2013, the principal focus was onrecovery plans, particularly:I formation of an organisation re -

sponsible for drafting recoveryplans;I quality of stress scenarios;I warning indicators that can swiftly

identify pressure points;I the recovery options that each

group could take to restore finan-cial soundness in the event of dif-ficulties.

The Banking Separation and Regu-lation Act enables the ACPR toorder institutions to take steps, withina specified timeframe, that itbelieves necessary for effectiveapplication of resolution measureswhere no obstacles to resolutionare in evidence and where thesolutions suggested by the institu-tion appear insufficient. In thiscontext, the ACPR will start work onassessing the ability of groups todeal with resolution issues.

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Resolution of banking crises4

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Similarly, the Resolution Directoratewill be charged with monitoring cre-dit institutions in resolution situations.

The Resolution Directorate will alsobe responsible for the ACPR’s rela-tions with the Deposit Insuranceand Resolution Fund. It will thereforeco-ordinate work on calculatingcontributions to the Fund.

Implementing the Bank Recoveryand Resolution Directive (BRRD) willbe another important task for the Resolution Directorate in 2014.Alongside the General Directorateof the Treasury and the Banque deFrance, it will contribute actively totransposing the directive in a man-ner consistent with regulations onthe single resolution mechanism.

The ACPR also participates in inter-national work on resolution. Theestablishment of the ResolutionDirectorate strengthens France’scontr ibution to the variousforums and working groupscharged with these questions,both at international level (FSB)and in Europe (EBA).

“The Resolution Directorate is contributing directly to building a safer European economic environment by helping to forewarn of banking crises and resolve them.

Corinne Paradas,ACPR Resolution Directorate.

”

1. The main on-site inspection themes in 2013 962. Questionnaires on implementation of customer protection rules 1003. Processing customer requests 1024. Specific instruments 106

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3

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The ACPR makes sure that the entities under its supervisioncomply with consumer protection rules derived from anylegislative and regulatory provisions, codes of conductapproved at the request of a professional association andprofessional best practice that is either observed or arises fromACPR recommendations.

These rules extend to advertising, pre-contractual information,due advice or warning, and the execution of contracts untilcommitments are met. The ACPR is responsible for compliancewith these rules and ensures that reporting institutions haveadequate resources and appropriate procedures in place tocomply with these rules.

To that end, the Business Practices Supervision Directorateincludes experts in banking, non-life insurance, life insuranceand health and provident insurance that carry out inspections,analyse customer complaints, monitor contracts andadvertising, participate in European projects and work incoordination with the Autorité des marchés financiers (AMF),notably in the Joint Unit.

The ACPR carries out inspections of credit institutions, insuranceentities, insurance intermediaries and intermediaries in bankingtransactions, and payment services intermediaries. Inspectionsfocus on all distribution channels: branch networks, websites(proprietary sites and price checkers) and telephone marketing.

Customer protection in banking and insurance

1.1 RULES SPECIFIC TOBANKING AND CREDIT

Building on initiatives conducted in 2012, the ACPR undertook further inspections concerningcompliance with the rules onaccess to banking services. Itfound that individuals eligible forthese provisions had been directedto fee-paying services such as non-cheque means of payment withoutbeing offered basic banking ser-vices. On 3 July 2013, the ACPR’sSanctions Committee disciplinedan institution for not having madeall the necessary arrangements forstrict compliance with these rules,particularly the provision of freebasic banking services (see Chap-ter 5).

The ACPR also checked com-pliance with the rules for makingand deleting entries on the natio-nal register of household creditrepayment incidents, FICP. Itsinvestigations showed that thescope of FICP declarations was notfully respected. More specifically,the filing procedure was not

applied to certain defaulting deb-tors in the event of a payment incident, ensuring that they werenot reported to the Banque deFrance. Moreover, in some decla-rations the debtor information fellshort of requirements.

The ACPR likewise inspected marketing arrangements forrevolving credits. Among otherthings, it checked that the methodsused to assess customers’ solvencydid not lead to an overestimate of their borrowing capacity andtherefore a weaker financial posi-tion. In some cases, it noted apractice of systematically takinginto account the income of aspouse or civil partner not party tothe contract. These institutions hadnot specified precise criteria befo-rehand for establishing a situationof joint responsibility that would justify taking the income of a non-contracting spouse or partnerinto consideration.

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The main on-site inspection themes in 2013

on-site inspections concerning consumer protection 90

I of which 71 carried out directly by ACPR staffresponsible for business practices supervision I 7 delegated to banking and insurance ins-pection teamsI 12 by the French overseas departments’ note-issuing bank (IEDOM).

written requestsand complaintsreceived 4,762

advertisementsanalysed4,193

Supervision of business practices in figures

In 2013:

1

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1.2 THE DUTY TO ADVISE IN INSURANCE

Effectively providing objective andsuitable advice when selling aninsurance policy is vital to a balan-ced relationship between the professional concerned, be it theinsurance entity or intermediary,and the consumer. A total of 47 on-site inspections carried out by theACPR in 2013 were aimed specifi-cally at assessing the sales pro-cess used in life and non-lifeinsurance. Some best practiceswere indeed identified, confirmingthat formally providing appropriateadvice is both possible and com-

patible with every professional’sbusiness requirements. Even so,particular vigilance is required fromintermediaries with respect to thesoundness of the marketing pro-cess and each step in it.

The customer needs total transpa-rency on the true nature of the services offered and the advicegiven by the professional, particu-larly in the case of remote sellingand online product comparisons.In-depth knowledge of customersaffects the accuracy with whichtheir requirements and needs areassessed and the way they are for-mally recorded. Lastly, the reasonsfor the advice must be personali-

sed and should not be based on anon-specific sales pitch that has nobearing on the individual require-ments and needs that have beenidentified. This reasoning must showwhy particular advice was given,both in light of the customer’s requi-rements and needs and withregard to the features of the insu-rance policy offered. During inspections and follow-up actions,the ACPR frequently reminded intermediaries of these duties,which have to be tailored to thecomplexity of the policy but arenonetheless applicable to all ofthem, even non-life insurance andpayment protection insurance.

90 on-site inspectionsconcerning consumer protection were carried out.

Backed by an initial ruling from theSanctions Committee on the dutyto advise, the ACPR will continue toensure that the tools and proce-dures put in place, including theremuneration of employee or part-nership networks, lead professionalsto provide objective advice.

1.3 RULES ON THE RIGHTTO ENGAGE IN ANDCARRY ON THEBUSINESS OFINTERMEDIATION

The customer’s first line of protec-tion is a relationship with professio-nals that comply with the conditions

governing the right to engage inand carry on a regulated profes-sion. For insurance intermediaries,this professional framework hasbeen in place since 2007.

In 2013, it was extended to interme-diaries in banking transactions andpayment services.

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3. CUSTOMER PROTECTION IN BANKING AND INSURANCE1. THE MAIN ON-SITE INSPECTION THEMES IN 2013

1.3 Rules on the right to engage in and carry on the business of intermediation

“When inspecting intermediaries,the ACPR has been checking compliance with the rules on goodstanding, professional ability, professional liability insurance andfinancial guarantees. These inspections revealed a fewfailures to register, with some ofthese professionals acting as inter-mediaries in return for payment.The ACPR wants to alert professio-nals to this situation, particularly inthe case of groups.

Close attention should be paid tothe registration requirements foreach entity in a group with regardto its specific business and notablyits relationship with customers.Moreover, payment should beunderstood as any direct or indirect commission or any economic benefit. In addition, theregistration category should beappropriate to the intermediary’sbusiness.

”

Laurence Val lée, Business Practices SupervisionDirectorate.

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28. Or Article L. 116-5 of the Mutual Insurance Code, which concerns the validation of advertising documents by the insurance entity and theavailability of the information required to evaluate all of the policy’s terms and conditions, both by the intermediary and by the customer.

All too often, inspections revealedshortcomings in compliance withregulations on professional abilities. Intermediaries have strug-gled to prove the professional ability of all their employees at thepoint of hire or during inspections.It should be remembered that anyemployee presenting, proposing orhelping to conclude an insurancepolicy or a banking transactionmust have the appropriate profes-sional capabilities before any business is undertaken. At its inspec-tions, the ACPR examined the com-pliance of training programmesand the quality of course reports.

The ACPR has continued to payclose attention to relationshipsbetween partners (between inter-mediaries and between interme-diaries and an insurance entity orcredit institution) by checking theexistence, content and implemen-tation of their agreements, particu-larly on life insurance business, and by checking payments madeto the intermediaries. Inspectionshave shown that agreements oftenfail to incorporate all the wordingrequired by Article L. 132-28 of theInsurance Code28, applicablesince January 2010. Implementa-tion of these agreements has to be

improved to ensure that advertisingis compliant and that policy detailsare communicated effectively, the-reby ensuring that customersalways have clear and preciseinformation. As far as the paymentof intermediaries by their partners isconcerned, participants have tobe more vigilant whenever a busi-ness relationship between profes-sionals is established as well asduring the course of that relations-hip. In particular, improvements areneeded in anticipating situationswhere intermediar ies cease trading.

In 2013, the issue of unclaimed life insurancepolicies generated considerable activity for theACPR, notably through additional on-site and off-site inspections, two cease-and-desist ordersand the initiation of two disciplinary proceedings.

Concerning compliance with the general dutyto identify deceased policyholders, the ACPR isparticularly vigilant because too many insurershave introduced portfolio selection or exclusioncriteria. Moreover, some insurers have voluntarilyopted to ignore deaths, sometimes in almost alltheir portfolios.

Although claim assessment and the search forbeneficiaries have to be initiated once apolicyholder’s death has been notified, the ACPRhas identified numerous cases in which thisprocess had not started even several years afterthis information was received.

On this point, a significant number of cases haverevealed imprecise beneficiary clauses that makethe search for beneficiaries difficult or evenimpossible.

Lastly, the ACPR noted irregular practices such as charging beneficiaries for searches, eitherdirectly (fees deducted from death benefits) or indirectly (genealogists billing beneficiaries,sometimes for up to 40% of the benefit).

In 2014, the Sanctions Committee will rule on the various cases that have been referred to it.

The Authority will keep a watching brief to ensurethat insurers comply fully with their obligations onsettling claims and implementing sustainablemechanisms for clearing the backlog of unsettledpolicies.

UNCLAIMED LIFE INSURANCE POLICIES

In accordance with Instruction 2012-I-0729 of 13 December 2012, which introduced a mandatory requirement, the ACPR analysed

a questionnaire (2012 data) on compliance with customer protection rules in the banking and insurance sector. The response rate improved significantly in 2013,to 96% of banking institutions and 87% insurance institutions.

Almost all respondents reported that they had identifiedand collated the customer protection requirements

related to their various activities, set forth in legislativeand regulatory provisions, codes of good conduct,ACPR recommendations, professional commitments,etc., and had factored them into their risk maps.

Concerning banks, the large number of responseswas encouraging and represented an improvement on data provided the year before, notably on the issueslisted below.

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Questionnaires on implementation of customer protection rules 2

Concerning credit business, the collection of evidencefor evaluating repayment capacity has improved for consumer loans, but it remains insufficient for a significant number of institutions, notably with respect tothe borrower’s expenses.

Product and consumer protection training for advisersappears to be carried out through vocational trainingprogrammes rather than upon appointment, as a

significant proportion of advisers is hired without anybanking training.

Variable remuneration or one-off advantages linked to sales targets during marketing campaigns are common practice. Pay-related sales goals do not oftenincorporate qualitative criteria on compliance withconsumer protection rules.

Theme All institutions Large groups

Establishing a committee to examine the compliance of new products 91% 95%

Checking the quality of information and advice covered by internal control arrangements 81% 87%

Making arrangements for ongoing training for product advisers 70% 82%

29. Relating to the questionnaire on the application of customer protection rules.

”The ACPR is well aware that advertising is important for financial professionals, whichincreased their advertising expenditures by 7.1% in 201330. For this reason, it pays close attention to the quality of information given to the public.In particular, it has made every effort to avoid problems stemming from vague or overoptimistic promises made in advertisements.“MONITORING AND SUPERVISING ADVERTISING

In 2013, the ACPR checked 4,193 advertisements forvarious banking and insurance products. It continued toclosely monitor the credit and life insurance sector andstepped up its inspections in health insurance. Thesechecks gave rise to 68 actions against the companiesconcerned, a 26% increase compared with 2012.

On-site inspections have also focused on the advertisingof revolving credit and car loans, as well as on theresources and internal procedures used by professionalsto ensure compliance.

François Hanse, Business Practices SupervisionDirectorate.


As far as the monitoring of the quality of advice givento customers is concerned, advice on life insurance isnot always traceable. Internal control coverage of issuesrelated to the quality of advice or of marketing or advertising documentation is not always sufficiently integrated.

A sizeable number of insurance, mutual insurance and

provident institutions admit they have not carried outinternal audits on consumer protection issues.

Variable remuneration or one-off advantages linked tosales targets during marketing campaigns are commonpractice in these entities, although to a lesser extentamong mutual insurers.

Theme Insurance Mutual Provident companies insurers institutions

Establishing a committee to examine the compliance of new products 63% 29% 39%

Ensuring that customer-facing staff have specific materials to assist with advice 66% 66% 66%

Establishing arrangements to train staff in customer protection rules 72% 56% 54%

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In the insurance sector, appropriate and robust measures usually govern risk control relating to claims

management. But some other themes warrant closerattention.

30. Source: Kantar media.

3.1 PROGRESS ON THERECOMMENDATIONON COMPLAINTSHANDLING

In December 2011, the ACPR published a recommendation on complaints handling, applicablefrom 1 September 2012 onwards.The aim is to ensure customers: I the availability of clear and trans-parent information on proceduresfor handling complaints and aneasy access to the complaintshandling system;I an efficient, equal and harmoni-zed complaints handling process;I the implementation of any corrective actions by financial ins-titutions for addressing any problems identified during thecomplaints handling process.

Responses to the questionnaire onthe implementation of customerprotection rules submitted by creditinstitutions and insurance entities offer an initial indication of how far this recommendation has beenimplemented.

CUSTOMER INFORMATION ANDACCESS TO THE COMPLAINTSHANDLING SYSTEM

Customer information on the com-plaints procedure is not yet availa-ble in all contractual documents.That said, there has been an impro-vement in this regard in institutions’customer reception areas and ontheir websites. These efforts shouldbe maintained.

Information on the status of thecomplaint is not systematicallyavailable, but there appears to begradual implementation of therequisite procedures.

ORGANISATION OF COMPLAINTSHANDLING

The documentation of complaintshandling still has to be improvedamong a number of reporting insti-

tutions. That said, a manager responsible for complaints handlinghas been identified in almost allentities.

MONITORING AND FOLLOWING UPCOMPLAINTS

Concerning the monitoring of complaints and the recognition ofshortcomings or bad practices byinternal control departments, anddespite a significant number ofinternal audits, there is still room for improvement on monitoringsub-contractors and agents and onimplementing corrective measuresfor observed bad practice.

Once collated, questionnaires for 2013 will show whether the complaints handling process hasbeen improved.

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Processing customer requests 3

The ACPR received 4,762 written requests and complaints.

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3.2 HANDLING OF CUSTOMER REQUESTS

A. The ACPR’s role

DIRECTING CUSTOMERS

Customers of banks and insurancecompanies can send requests forinformation or written complaintsabout business practices to theACPR. The Authority also offers atelephone service for questions oninsurance.

The ACPR department that handlesthese requests gives the customerclear information about the optionsfor out-of-court redress, includingcontact information for internalcomplaints handling departmentsand/or for competent ombuds-men. Regular communication withombudsmen is organised to obtainup-to-date information, particularlyabout their area of jurisdiction.Depending on the data it has onfile, the ACPR also makes sure tospecify the applicable rules so thatthe complainant can assess thegrounds for the request.

In the case of bad practice liableto be detrimental to customers, ora flagrant breach of a legal orregulatory provision or contractualobligation, the ACPR can takeaction directly with the institution,entity or intermediary at fault.

USING COLLECTED INFORMATIONFOR INSPECTION PURPOSES

Requests received give the ACPRan indication of the state of themarket and its trends. They are alsoa valuable source of information onbusiness practices – whether gene-ral market practice or isolatedcases – that might be detrimentalto the interests of customers and/orthe entity itself. They help determineareas for inspection, which may bethematic or specific to certain enti-ties. Such requests constitute a setof indicators to situations wherebest practices need to be dissemi-nated, whether through recom-mendations or legislative orregulatory change. They alsocontribute to improvements in business practices and hence toenhanced consumer confidencein financial sector professionals.

B. Lessons learned fromrequests

CUSTOMER REQUESTS RECEIVED BY THE ACPR

In 2013, the ACPR received 4,762written requests and complaints.This number was up sharply by 18%on 2012, particularly on bankingissues.

The Authority also replied to almost11,000 requests made by tele-phone.

CUSTOMERS ARE STILL UNFAMILIARWITH INTERNAL MEANS OF REDRESS

More than 10% of all letters oremails received were mistakenlysent to the ACPR; they ought tohave gone to credit institutions,insurance companies or interme-diaries and be dealt with under theterms of the contractual relation -ship with the customer (making aclaim, terminating contractual rela-tions, etc.). Although this proportionwas down slightly on 2012, it illus-trates the need for firms in thesesectors to do a better job of infor-ming customers about whom tocontact as part of the contractualrelationship and, where appro-priate, to update the documenta-tion they receive.

3,835

2010

4,049

2011

4,030

2012

4,762

2013

NUMBER OF WRITTEN REQUESTSRECEIVED BY THE ACPR, 2010 TO 2013

A full 18.5% of ACPR actions withrespect to companies, entities orintermediaries are directly linked tothe internal complaints handlingsystem (some systems take toolong to respond; some give no answer at all) or problems acces-sing the mediation function, if thereis one.

BREAKDOWN OF REQUESTS BYCATEGORY AND SUBJECT

There were more written requestsconcerning health/provident insu-rance and life insurance in 2013than in 2012.

The breakdown of telephonerequests concerning insurance andwritten requests concerning ban-king was largely unchanged.

As was the case in 2012, written requests and phone calls relating to insurance mainly concerned claims management and coverage under non-life insurance, followed by policy termination or maturity in life insurance.In banking, contract execution was the main topic.

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Non-life insurance

Health/personal risk

Life insurance

Unspecified

37%

36%

25%

2%

INSURANCE IN 2013(written requests)

INSURANCE IN 2013(phone calls)

BREAKDOWN OF REQUESTS IN 2013 BY CATEGORY

47%

27%

14%

13%

26%

35%

17%

20%

3%

BANKING IN 2013

Credit

Payment instruments

Saving products

Unspecified

Policy subscription(excluding premium)

Other unspecified

Policy management

Policy termination/maturity

Premium/contribution

Claim/coverage

18%

7%

15%

33%

23%

3%

INSURANCE IN 2013(written requests)

INSURANCE IN 2013(phone calls)

BREAKDOWN OF REQUESTS IN 2013 BY SUBJECT

3%3%8%

27%

22%

38%

17%

34%

18%

17%

9%5%

BANKING IN 2013

Contract maturity

Quality of customer relation

Fees/taxationOther unspecified

Contract execution

3. CUSTOMER PROTECTION IN BANKING AND INSURANCE3. PROCESSING CUSTOMER REQUESTS

3.2 Handling of customer requests

Bank account

Contract subscription

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The ACPR took action on 12.4% ofthe written requests it received in2013 concerning non-complianceby an entity or institution with statutory, regulatory or contractualprovisions.

In non-life insurance, the ACPRnoted a number of shortcomings inonline applications for certain travelor event cancellation policies. Insu-rance cover and assistance provi-sions offered on the internet aresometimes reserved to residents ofFrance or the European Union. Frequently this is not stipulated inthe terms and conditions and thereis often a failure to remind consu-mers of this condition before apolicy is taken out online. Moreover,insurers do not systematically checkthe policyholder’s address asdeclared in the application form.Yet when the policyholder fails tomeet the conditions of cover, his orher claim for compensation can-not be honoured. The policy is the-refore meaningless and premiumsmust be repaid to the policyholderwithout benefits. Going forward, theexpansion of online sales, policyhol-ders’ lack of information or automa-tic warnings when policies aretaken out online suggest anincrease in litigation in this area.

In health insurance, refusals tocancel policies are still a majorsource of complaint. They areusually associated with situations inwhich customers’ cancellationrequests have not been madewithin a legal or contractual timelimit or have not been sent to theright address, or are based on thefact that the provisions of Act 2005-67 (the Chatel Act) do not apply togroup policies. The ACPR has notedthat a significant proportion ofcomplaints stem from the fact thatcertain intermediaries make a

commitment to individuals, espe-cially those contacted at home orby phone, that they will handle allthe formalities required to cancelan existing insurance policy withoutchecking whether this is actuallypossible. Consumers can thereforefind themselves paying involuntarilyfor duplicate insurance cover.

In life insurance, the ACPR recei-ved numerous complaints again in2013 about insurers’ failure to com-ply with statutory deadlines for theprocessing of transactions in whichpolicyholders or members are see-king contract execution, notably onsurrender or transfer requests. But italso noted that late payment inte-rest had been paid more systema-tically by insurance entities. TheACPR also dealt with a growingnumber of complaints from peoplecriticising insurers for having infor-med them only after some time –sometimes years after the death ofthe policyholder – of the existenceof a policy under which they arebeneficiaries.

In banking, one of the recurrentthemes in complaints is sale-rela-ted credit, notably in renewable

energy. In some cases, complai-nants deny that they had signedthe work completion slips that trig-gered the release of funds, whenthe item being financed had notbeen delivered. Complainants’ difficulties can also be aggravatedin cases when the contractordefaults before the work is comple-ted.

Actual or suspected online fraudhas given rise to many complaints.These cases can take many formsand concern several types of product. Regarding credit, somewebsites offer loans aimed mainlyat vulnerable people, such theunemployed as those on bankblacklists, in breach of the regula-tions on banking transactions. Insome cases, individuals are offeredcash loans through social media,emails or websites that require adown-payment or upfront fee thatthey never recover. Concerningsavings, numerous requests relateto investments made online withentities not authorised to do busi-ness in France, particularly in areasof foreign exchange and binaryoption trading.

4.1 RECOMMENDATIONS

The ACPR and AMF have workedtogether through the Joint Unit togather customer information inconnection with the marketing offinancial instruments and life insu-rance policies. This initiative promp-ted an ACPR recommendationpublished on 8 january 2013 on themarketing of life insurance and anAMF position on financial instrumentmarketing.

The ACPR is recommending bestpractices to insurance entities andintermediaries relative to the follow -ing: I the ways in which information isgathered (the form and contentof questions, the quality of theinformation and updates to it) andits traceability (archiving, access,transmission and availability);I the quality of the content, via anindicative, non-exhaustive list ofinformation that could be askedof the customer, whether on their

personal, family and financial circumstances, or on their finan-cial knowledge and experience,insurance objectives, investmenthorizon and profile in terms ofexpected returns and risk tole-rance;I the use of the information recei-ved (handling inconsistent and/orincomplete information, and theknowledge required of staff responsible for marketing);

I the resources and procedures putin place to ensure compliancewith customer protection rules andwith rules on internal control forcompanies required to have sucharrangements.

The recommendation has been inforce since 1 October 2013.

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Specific instruments 4

The ACPR recommendsbest practices to insuranceentities and intermediaries.

4.2 APPROVED CODES OF CONDUCT

At its meeting on 24 June 2013, theACPR College approved the provi-sions of two sets of professionalstandards from the Fédérationbancaire française (FBF) as “codesof good conduct” relating to bankservice charges: I the first relates to displaying thetotal monthly bank charges andauthorised overdrafts on bank statements;I the second covers the display of bank fee schedules using astandard table of contents and astandard summary of fees andcharges.

Both codes aim to improve visibilityon bank charges.

Once the ACPR has approved acode at the request of an associa-tion, the approval is published andthe code becomes binding on theassociation’s members.

4.3 THE POSITION ONINTERNAL CONTROLAND INTERMEDIARIESIN BANKING TRANSACTIONS ANDPAYMENT SERVICES

In Position 2013-P-01, adopted 6 November 2013, the ACPRexplains how the internal control

systems of institutions subject toCRBF Regulation 97-02 should takeaccount of intermediaries in ban-king transactions and payment services when marketing their pro-ducts and services. This appliesequally to the use of ORIAS-registe-red agents and brokers. The ACPRdraws the attention of reporting ins-titutions to the need for vigilance onall banking transactions concludedand payment services providedthrough intermediaries.

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ACTION BY THE ACPR/AMF JOINT UNIT IN 2013

Tasks The Joint Unit set up by the ACPR and the AMF is now anintegral part of the French regulatory system. It has carriedout numerous actions as part of its remit: I coordinating supervisory priorities; I analysing the results of supervisory activities and learninglessons from them; I coordinating the supervision of all banking and insurancetransactions, investment services and savings productsand monitoring advertising campaigns; I acting as a single access point for all financial sectorconsumers.

Activity in 2013Inspections based on cross-cutting themes were organisedfor professionals in a wide diversity of roles, notably insurers,insurance intermediaries, credit institutions, investmentservices providers, financial investment advisers, and assetmanagement companies. These inspections were carriedout directly by staff of one of the two authorities, backingup joint inspections by an ACPR/AMF team at individualentities.

In 2013, 29 inspections focused essentially on complaintshandling, the duty to advise in life insurance, agreementsbetween producers and distributors and remote selling. The ACPR recommendation and AMF position on KYC-related information-gathering published in January2013 went into effect on 1 October 2013.

The Joint Unit also worked on several subjects as:I producer-distributor agreements that govern relationshipsbetween insurance brokers and institutions and betweenproducers and distributors of financial instruments; I advertising for financial services.

For public information purposes, the “Assurance BanqueÉpargne Info Service” website launched in December 2012is regularly updated with thematic contributions in areassuch as deciphering insurance and bankingadvertisements, beneficiary clauses in life insurance, bankcard fraud, shareholder meetings of listed companies, andfees on financial investments. The ACPR, AMF and Banquede France also publish warnings as and when products areoffered that breach the law or regulations.

Internet users can also sign up for the newsletter.

Reached on a single number, the Assurance BanqueÉpargne Info Service telephone platform handlesconsumers’ information requests. It received almost330,000 calls in 2013, broken down as follows:

Theme Number of callsStock market and financial products 11,488Insurance 37,267Banking 280,159Total calls to the ABE IS platform 328,914

1. ACPR supervision 1102. Work on legal instruments related to AML/CTF 112

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4

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Anti-money laundering and counter-terrorist financing

The ACPR makes sure that reporting entities fulfiltheir obligations regarding anti-money launderingand counter-terrorist financing (AML/CTF).

For this it relies on ongoing supervision – forexample, examining responses to AML/CTFquestionnaires – and it also carries out on-siteinspections to analyse the compliance of reporting entities’ AML/CTF systems and to ascertain whether due diligence measures are in place.

1.1 ONGOING SUPERVISION

In 2013, the ACPR analysed re -sponses to the first joint question-naire for banking sector institutions(excluding money changers) andlife insurers, as defined by Instruc-tion 2012-I-04 of 28 June 2012.

The Authority follows up any short -comings emerging from its exami-nation of questionnaire responsesand from interviews with institutions.Where necessary, further informa-tion is obtained by examining theAML/CTF part of internal controlreports.

The ACPR has also examinedmoney changers’ responses to thethird questionnaire specific to thatprofession (Instruction 2011-I-04 of28 March 2011).

All the information sent to the ACPRis analysed, and the findings aretaken into account when framingthe annual inspection timetable.

1.2 ON-SITE INSPECTIONS

In 2013, 83 on-site inspectionscomprising an AML/CTF compo-nent were conducted at institutionsin the banking and insurance sectors.

The ACPR focused on the followingpoints:I the organisation of the AML/CTFsystem. With respect to groups,the ACPR checks that proceduresand risk classifications in the dif -ferent entities are internally consis-tent and adapted to the group’sstructure, its business and each

entity ’s customer base. Thegroup’s parent company isexpected to provide meaningfulguidance on AML/CTF arrange-ments;

I due diligence in practice. TheAu tho r i t y checks tha t due diligence provisions implementedare appropriate to the customertype (occasional or a businessrelationship) and the risk of moneylaundering and terrorist financing;

I detecting anomalies. The ACPRchecks that the parameters ofautomated business relationshipmonitoring and analysis systemsare consistent with the risks iden -tified in the risk classification, that

110

ACPR supervision

AML/CFT compliance at credit institutions and investment firms issatisfactory. That said, a decline in the compliance rate has beennoted in responses relating to the verification of cheques, duediligence on wire transfers, and periodic controls on the AML/CFTsystem.

The arrangements put in place by payment institutions seem to bemore comprehensive than they were in 2011. But inconsistenciesappeared in some responses, particularly in connection with duediligence on wire transfers.

Work on AML/CTF measures is progressing at life insurance institutions.The ACPR reports that there is considerable scope for improvement in a majority of institutions, especially among mutual insurancecompanies and provident institutions, in ensuring their systems are compliant. This applies particularly to updating customer files,recourse to third party introducers, the detection and handling of unusual transactions, internal control and the imposition of restrictive measures such as asset freezes.

Some parent companies of groups with foreign operations and thatare supervised by the ACPR on a consolidated basis reporteddifficulties in fulfilling their AML/CTF obligations. The ACPR is waiting for these institutions to explain what the problems are and how they are being addressed.

RESPONSES TO THE AML/CTF QUESTIONNAIRE FOR THE BANKING AND LIFE INSURANCE SECTORS

1


these systems actually detecttransactions that are unusual forthe type of business relationshipconcerned and that unusualtransactions are analysed as soonas possible;

I meeting reporting requirements.The Authority checks that suspi-cious transaction reports (STRs)and, where appropriate, informa-tion on a certain type of transac-tion (COSI) described in Article L. 561-15-1 of the Monetary andFinancial Code, are sent to Tracfin(see Chapter 6);

I internal control. The ACPR checksthat permanent and periodiccontrols cover the entire AML/CTFsystem and that suff icientresources are dedicated forthem;

I asset freezes. The ACPR checksthat automated systems actuallydetect transactions carried out bythe counterparties subject to restrictive measures and lead toasset freezes.

Depending on the seriousness ofany shortcomings, on-site inspec-tions can give rise to an action letter from the ACPR General Secre-tary, administrative enforcementmeasures or disciplinary pro -ceedings followed by sanctions, ifnecessary.

In 2013, the Sanctions Committeeissued five sanctions comprisingAML/CTF charges (out of a total often since the ACPR was created inMarch 2010) based on pro -ceedings opened in 2012. Disci -plinary proceedings were ongoingin one case at the end of 2013.

Nine AML/CTF-related cease-and-desist orders were issued in 2013,raising the total number issuedsince the ACPR was established to15. Two of the orders issued in 2013concerned life insurance institu-tions.

Inspection reports that did not giverise to disciplinary proceedings oradministrative enforcement mea-sures were the subject of action letters detailing the Authority ’s findings and recommendations.

The ACPR monitors the execution of measures set out in cease-and-desist orders and of correctivemeasures mentioned in action letters.

The ACPR adviser to note-issuing institutions in France’soverseas departments and territories directs theseinstitutions’ involvement in the Authority’s AML/CTFinspections. The adviser also represents the ACPR in communications intended for regulated entities in these departments and territories.

In 2013, with the help of experts in institutions’ headoffices and branch staff, the ACPR adviser carried out17 on-site inspections at the ACPR GeneralSecretary’s request. These inspections concernedmutual insurers, money changers and insuranceintermediaries. The ACPR adviser also conducted 23 face-to-face interviews with banking andinsurance institutes established overseas. The interviewsare an opportunity for an in-depth individual review of how AML/CTF obligations are being implementedand the improvements may be needed.

The ACPR adviser also held eight meetings to raiseawareness among institutions subject to ACPRsupervision. The adviser also met a number ofauthorities with national or local AML/CTFresponsibilities, such as Tracfin, the Directorate-General of Public Finance (DGFIP), the customsservice, and law enforcement agencies.

Concerning international cooperation, the ACPRadviser represented the French delegation at twoplenary meetings of the Caribbean Financial ActionTask Force.

In 2014, the ACPR adviser will pay close attention tothe way in which the relevant financial institutions takeaccount of the risks related to the change in CFP francbanknote denominations in France’s Pacific territories.

IMPLEMENTATION OF AML/CTF OBLIGATIONS BY INSTITUTIONS BASED IN OVERSEAS DEPARTMENTS AND TERRITORIES

111

2.1 INSTRUCTIONS

The ACPR College adopted Instruc-tion 2013-I-08 on information to befiled under Article L. 561-3 VI andArticle D. 561-3-1 III of the Monetaryand Financial Code. The instructionexplains how the reporting institu-tions concerned (EEA payment institutions and electronic moneyinstitutions)31 have to submit reportsno later than 31 March each yearto the ACPR on the permanentrepresentative (see Chapter 6) andtheir activities (permanent repre-sentative declaration, statisticalinformation, annual report compris -ing a variety of information on the

institution’s business on French territory and the implementation ofdue diligence and Tracfin reports).

The College also adopted the following: I Instruction 2013-I-09 on licenceapplication forms, agency decla-rations and notices of right of es -tablishment, freedom to provideservices, the use of an agent andreliance on a distributor in anothermember state of the EuropeanUnion or in another country in theEuropean Economic Area for anelectronic money institution;

I Instruction 2013-I-10 on informa-tion on AML/CTF arrangements atmoney changers, for which a new

questionnaire has been prepared.The instruction was drafted to takeaccount of the main shortcom -ings observed among moneychangers as well as regulatorychanges related to this business,notably on transactions con -cluded without either the cus -tomer or its legal representativebeing physically present for iden-tification purposes. As for the banking and life insurance sectors, a methodological guidespecifying the ACPR’s expecta-tions is appended to the instruc-tion.

112

Work on legal instrumentsrelated to AML/CTF2

The Anti-Money Laundering and Counter-TerroristFinancing Consultative Committee is tasked with givingan opinion on all AML/CTF-related mandatorydocuments (instructions) and explanatory documents(guidelines, sector enforcement principles andpositions) adopted and published by the ACPRCollege. The Committee met five times in 2013.

The Committee was consulted on the following: I Instruction 2013-I-08 on information to be filed underArticle L. 561-3 VI and Article D. 561-3-1 III of theMonetary and Financial Code;

I Instruction 2013-I-09 on licence application forms,agency declarations and notices of freedom ofestablishment, freedom to provide services, the useof an agent and reliance on a distributor in another

member state of the European Union or in anothercountry in the European Economic Area for anelectronic money institution;

I Instruction 2013-I-10 on information on AML/CTFmeasures at money changers.

In 2013, it finished the work started in 2012 on sectorenforcement principles on correspondent bankingand on the beneficial owners of shares in collectiveinvestment schemes.

The Committee also completed a revision of wealthmanagement guidelines adopted by the Commissionbancaire for the banking sector in 2010, and isupdating AML/CTF-related sector enforcementprinciples for the insurance sector.

THE WORK OF THE ANTI-MONEY LAUNDERING AND COUNTER-TERRORISTFINANCING CONSULTATIVE COMMITTEE IN 2013

31. Payment institutions and electronic money institutions whose registered office is in a member state of the European Union or an EEA countrythat to carry on their business on French territory have recourse to the services of one or more agents or entities with a view to distributingelectronic money.

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2.2 EXPLANATORY DOCUMENTS

Several explanatory documentswere published in the ACPR’s officialregister.

The sector enforcement princi-ples for correspondent bankingdescribe the most significant risksthat should be included in the riskclassification, i.e. the country riskwhere the correspondent bank isbased, the correspondent bankitself and the services offered bythe correspondent bank. They listthe information that the correspon-dent institution can gather at theoutset of the relationship in order tobe able to determine the AML/CTFrisk within each of the risks just men-tioned.

The document also describes thesituations in which the correspon-dent bank has to exercise en -hanced vigilance, such as whenthe client institution is in a countrythat does not enforce equivalentAML/CTF obligations. Examples illus-trate how each of these measurescan be applied in practice.

The sector enforcement princi-ples concerning beneficialowners of shares in collectiveinvestment schemes supplementthe guidelines on the notion ofbeneficial ownership, adopted in2011. They were discussed widelyamong members of the Consulta-tive Committee as well as theGeneral Directorate of the Treasuryand the AMF, particularly in relationto customer status recognition incollective investment schemes(CISs). The sector enforcement prin-ciples cover situations where theCIS is the financial institution’s cus-

tomer. They also apply to situationswhere the CIS is represented by amanagement company, particu-larly when it has no legal persona-lity, as is the case with a mutualfund. Financial institutions’ proce-dures are expected to be capableof differentiating between situationswhere the customer is a collectiveinvestment scheme and thosewhere it is a management com-pany.

The document describes the speci-fic features of a business relation -ship with a CIS, the notion of abeneficial owner of shares in a col-lective investment scheme, theways in which the beneficiary isidentified and the verification ofthat identity. It also lists the informa-tion that can be used to assess theAML/CTF risk that could arise from abusiness relationship with a CIS.

A flowchart summarises the due diligence required to identify thebeneficial owner of shares in a collective investment scheme.

The Consultative Committee re -vised wealth management guide-lines (adopted by the Commissionbancaire for the banking sector in2010) in the wake of reports frominspections on this theme carriedout in 2010 and 2011 and madepublic in 2012. The revised guide-lines, published and adopted inMarch 2014, cover the bankingand life insurance sectors.

An examination of updated sectorenforcement principles relating toAML/CTF in the insurance sector isunder way. This will incorporatechanges made by the Act 2012-387 of 22 March 2012 (known asthe Warsmann Act), which relaxesrequirements in non-life insurance.

The new sector enforcement princi-ples are likely to cover the followingthemes: the risk-based approach,the business relationship and duediligence, AML/CTF requirements innon-life insurance, the organisationof AML/CTF arrangements, internalcontrol and asset freeze obliga-tions. This update is an ACPR priority.It will be a pragmatic guide that willhelp compliance by insurance institutions, particularly in areaswhere improvements can bemade. The sector enforcementprinciples are due to be adoptedbefore the end of 2014.

In 2014, the Anti-Money Launderingand Counter-Terrorist FinancingConsultative Committee will workclosely with Tracfin – which attendsthe Committee’s meetings – onguidelines on suspicious transactionreports. These reports have to berevised in light of major changes toreporting and information require-ments in 2013 (see Chapter 6).

1. Activity of the Sanctions Committee 1162. Other highlights 123

114

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115


The Sanctions Committee is responsiblefor punishing violations of the laws andregulations applicable to reportinginstitutions.

The Committee was established to fulfil the requirements of the EuropeanConvention for the Protection of HumanRights and Fundamental Freedoms, as interpreted by the European Court of Human Rights, by drawing a cleardistinction between the enforcement,investigation and sanction functions inthe exercise of the ACPR's jurisdiction.

violations Punishing

1.1 CASES REFERRED TO THE COMMITTEE IN 2013

Although eight disciplinary caseswere brought before the ACPR’sSanctions Committee in 2013, thereal number was seven becausetwo referred to the same matter. Bycomparison, five cases werebrought before the Committee in2010, the year it was established,then three in 2011 and nine in2012. In all, 26 cases have beenreferred to the Committee since itwas created, an average of justover six per year.

The following observations can bemade:I the number of cases referred tothe Committee declined in 2013after an increase the year before;

I as in previous years, referrals in2013 mainly concerned institu-tions from the banking sector (five cases, compared with tworelating to insurance institutions);

I complaints notified to bankingsector institutions fall in two maincategories: those based on theprovisions of CRBF Regulation 97-02 of 21 February 1997 relatingto internal control and those relating to anti-money launderingand counter-terrorist financing(AML/CTF); and other complaintswarranting disciplinary proce-dures, notably non-compliancewith the solvency ratio and,

concerning business practices,poor understanding of provisionsrelating to the access to banking services;

I the two cases involving insurancesector institutions concernedmajor firms. The complaints madeagainst them referred to shortco-mings in customer protection rulesrelating to unclaimed life insu-rance policies;

I no payment institutions or moneychangers were referred to theCommittee;

I there were no referrals for non-compliance with administrativeenforcement measures.

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Activity of the Sanctions Committee

rulings handed down in 2013 10 9

1Average time taken to reach a decision:

months

“Beyond their punitive role, disciplinary sanctionshave educational value for the sector concerned.

”Raphaël Thébault,ACPR Sanctions Committee Secretariat.

117


Appointed by the Vice-Chairman of the Conseil d’État:

Rémi Bouchez, Conseiller d’État, Chairman, and Jean-Claude Hassan, Conseiller d’État, alternate; Alain Christnacht, Conseiller d’État, committee member, and Marc Sanson, Conseiller d’État, alternate.

Appointed by the Chairman of the Cour de Cassation:

Claudie Aldigé, Conseiller to the Cour de Cassation, committee member, and Yves Breillat, Conseillerto the Cour de Cassation, alternate.

Appointed for their expertise in matters helpful for the Authority to meet its statutory objectives:

Francis Crédot, committee member, and Louis Vaurs, alternate; Pierre Florin, committee member, and Jean Cellier, alternate; André Icard, committee member, and Charles Cornut, alternate.

MEMBERSHIP OF THE SANCTIONS COMMITTEE (AT 31 DECEMBER 2013)

”

Back row, from lef t to right: Jean-Claude Hassan, Pierre F lor in, Charles Cornut,Jean Cell ier, Marc Sanson, Lou is Vaurs, Francis Crédot.

Front row, from lef t to right: Yves Brei l lat, Claudie Aldigé, Rémi Bouchez, AlainChristnacht, André Icard.

SANCTIONS COMMITTEE

1.2 DECISIONS HANDEDDOWN IN 2013

A. Number and nature of sanctions

In 2013, the Sanctions Committeehanded down ten rulings (compa-red with five in 2011 and 2012)32,of which eight on the merits of thecase. Six of these decisionsconcerned institutions in the banking sector, one related to an insurance company and oneconcerned a money changer33.

The Committee issued one warningand seven reprimands, togetherwith eight fines ranging from70,000 euros to 10,000,000 euros.The cumulative total of fines reached 15,420,000 euros, upfrom 980,000 euros in 2011 and1,225,000 in 2012. Even excludingthe fine of 10,000,000 euros impo-sed on UBS France34, these figuresshow a trend towards heavier finesin line with successive increases inmaximum penalties since 2008.

All the rulings handed down in2013 were published in a non-anonymous format.

B. Time taken to reviewcases

The time taken to review cases issubject to a number of constraints,notably frequent requests for defer-ral for the parties to produce theirvarious submissions. The averagetime to review cases in 2013 wasnine months, compared with tenmonths in 2012.

At 31 December 2013, the Com-mittee had six outstanding cases,with the oldest dating back to areferral in March 2013.

C. The Sanctions Commit-tee’s main contributionsto jurisprudence in 2013

GENERAL QUESTIONS ANDPROCEDURE

1) Fundamental rights prior to disciplinary proceedings

Having reviewed case law handeddown from the Conseil d’État(30 March 2007, Société Prédica,Req. 277991) and the EuropeanCourt of Human Rights (21 Septem-ber 1994, Fayed vs. United King-dom and 17 December 1996,Saunders vs. United Kingdom), theCommittee determined that at theinspection stage, the supervisor wassubject only to a duty of loyalty inseeking evidence, so that in theevent of a subsequent disciplinaryprocedure the r ights of thedefence will not have been irreme-diably compromised (18 June2013, Arca Patrimoine, Procedure2012-07).

Basing its reasoning on recentConseil d’État decisions (see CE, 15 May 2013, Société Alternative Leaders France, Req. 356054), theCommittee also held in its rulings of 25 June 2013 (UBS France, Procedure 2012-03)35 and 25November 2013 (Caisse d’Épargneet de Prévoyance du Languedoc-Roussillon, Procedure 2013-01)36

that it had sole jurisdiction to judgewhether inspections that precedereferrals have been carried out in away that does not irremediablyinfringed the rights of defence ofthe parties to whom complaints aresubsequently notified.

2) The absence of “subsidiarity” in disciplinary proceedings

In its ruling of 18 June 2013 (ArcaPatrimoine, Procedure 2012-07),the Committee held that therewere no provisions in the Monetaryand Financial Code that made theopening of disciplinary procee-dings subject to the prior failure ofan ACPR recommendation madeafter a previous inspection or enfor-cement measure, nor to the failureof an institution to cooperate duringthe inspection or to rectify the situa-tion after it.

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5. PUNISHING VIOLATIONS1. ACTIVITY OF THE SANCTIONS COMMITTEE1.2 Decisions handed down in 2013

32. The Committee’s decisions are published in the ACPR’s official register and can also be consulted in the compendium of decisions postedon the Authority’s website.

33. This case (Procedure 2012-05) was referred to the Committee in 2012.34. UBS France is appealing this decision before the Conseil d’État.35. UBS France is appealing this decision before the Conseil d’État.36. La Caisse d’Épargne et de Prévoyance du Languedoc-Roussillon is appealing this decision before the Conseil d’État.

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3) The ACPR’s obligations relativeto evidence

In its ruling of 18 June 2013 (ArcaPatrimoine, Procedure 2012-07),the Committee determined that itis always up to the prosecutingauthority to establish the failings itintends to sanction. That said, itshould be deemed to have fulfilledthis obligation when it providesprima facie evidence that failure issufficiently probable, and thedefendant institution’s response islimited to denial, without submittingthe evidence in rebuttal that it possesses or is required to possess.

4) No statute of limitations on disciplinary proceedings Contrary to the rules applicable to the AMF37, the Monetary andFinancial Code does not set anytime limit in which shortcomingscan give rise to disciplinary procee-dings by the ACPR’s SanctionsCommittee. In its ruling of 25 June2013 (UBS France Procedure 2012-0338), the Committee issued areminder of a ruling by France’sconstitutional court (Decision 2011-199 QPC of 25 November 2011)that no constitutional rule or princi-

ple required disciplinary procee-dings to be subject to a statute oflimitations. It then ruled that thisdecision had merely called on disciplinary authorities to ensure res-pect for the principle of proportio-nal punishment, which implies thatthe time elapsing between violationand conviction can be taken intoaccount in reducing the punish-ment.

5) Requests for a preliminaryruling at the Court of Justice ofthe European Union

In its ruling of 25 November 2013(Caisse d’Épargne et de pré-voyance du Languedoc-Roussillon,Procedure 2013-0139), the Commit-tee held that because of the possi-bility of recourse of full jurisdictionover its decisions (Monetary andFinancial Code, Article L. 612-16 IV),it was in no way obliged to refer apreliminary ruling request to theCourt of Justice of the EuropeanUnion. It also explained that Euro-pean and French jurisprudencecould not be regarded as contra-dictory on the need to respect fundamental rights during adminis-trative procedures leading to possi-ble disciplinary sanctions, and thatthere were therefore no grounds forproceeding with such referrals.

ON THE MERITS

1) Money changers’ AML/CTFreporting requirements

The business of money changing isparticularly exposed to the risk ofinvolvement in money laundering.Therefore, when asked to deal inunusually high amounts, moneychangers should systematicallyseek to clarify the reasons for thetransaction. The absence of reaso-nable reassurance on the lawful origin or destination of funds consti-tutes “good reason to suspect”under the obligation to inform Tracfin under Article L. 561-15 I ofthe Monetary and Financial Code(ruling of 5 February 2013, AuxiliaireParisienne de Services Financiers,Procedure 2012-05).

2) The protected employee statusof heads of internal control

The fact that the head of internalcontrol responsible for various failures in the exercise of his dutieshad the status of protectedemployee (which gave him virtuallyunchallengeable security of tenure,according to the bank) did notexempt senior management fromtaking all appropriate steps to enda situation that was incompatiblewith the security of the bank’s trans-actions (ruling of 1 March 2013,Tunisian Foreign Bank, Procedure2012-0640).

In 2013, the SanctionsCommittee handeddown ten rulings.

37. cf. Article L. 621-15 of the Monetary and Financial Code, which sets a three-year statute of limitation for the AMF.38. UBS France is appealing this decision before the Conseil d’État.39. Caisse d’Épargne et de Prévoyance du Languedoc-Roussillon is appealing this decision before the Conseil d’État.40. Tunisian Foreign Bank is appealing this decision before the Conseil d’État.

3) Non-compliance risk in cross-border business

The sanctions handed down by theCommittee to UBS France in itsruling of 25 June 2013 (UBS FranceProcedure 2012-0341), (a 10-millioneuro fine and removal of anony-mity) punished the bank mainly forthe following: I although it had been warned nolater than the autumn of 2007 ofdeep suspicions that its commer-cial network was involved in facili-tating transactions liable to becharacterised as illicit selling andthe laundering of tax fraud proceeds, it waited more than 18 months before taking steps toimplement the supervisory andcontrol procedures needed todeal with this r isk of non-compliance in its cross-borderbusiness; and

I it had not checked either theterms under which its ownaccount managers had beenauthorised by its parent com-pany, UBS AG, to contribute to ITfiles managed by that companyto identify prospects likely to openaccounts in foreign countries, orany use made of these authorisa-tions.

The Committee explained its rulingwas without prejudice to likely pro-ceedings at the judicial enquirythat opened in April 2012 after apreliminary investigation decided inMarch 2011. The enquiry is seekingto establish, with the help of docu-ments submitted by the ACPR andappropriate investigations, whetherthe offence of aiding and abettingthe laundering of tax proceeds orillicit selling had actually beencommitted.

4) Implementation at operationallevel of provisions on access tobanking services

In its ruling of 3 July 2013 (Le CréditLyonnais, Procedure 2012-09), theCommittee sanctioned several fai-lures to implement these provisions.The fact that customers had askedfor services that were in addition tothe basic banking services (BBS)included in a bundled offering andthat incurred flat-rate charges,which had been accepted, did notwarrant an attack on the principlethat holders of accounts openedunder the BBS procedure musthave access to BBS without havingto pay for them. This principle isenshrined in Article D. 312-6 of theMonetary and Financial Code.Accordingly, as soon as CréditLyonnais opened an accountunder the BBS procedure, it wasrequired to adopt organisational

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41. UBS France is appealing this decision before the Conseil d’État.

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and pricing arrangements that singled out the charges for additio-nal, non-BBS services.

In this case, the Committeeapplied the provisions of Article L. 612-1 of the Monetary and Finan-cial Code, which state that theACPR ensures that the entities sub-ject to its supervision comply with“the provisions of the Monetary andFinancial Code, as well as the regu-latory provisions laid down for itsimplementation (….), Book III of theConsumer Code, the approvedconduct of business rules and anyother legislative or regulatory provi-sion which, if disregarded, results innon-compliance with the afore-mentioned provisions.” It rejected acomplaint that the institution invol-ved had disregarded the provisionsof Article 1134 of the Civil Code,which impose a general duty to respect contractual commitments,for want of proof that such disre-gard would imply disregard of theaforementioned codes. The Com-mittee did point out that violation ofthe provisions in the Monetary andFinancial Code requiring the freeprovision of BBS to qualifying bene-ficiaries was the subject of separatecomplaints, which it had upheld.

5) Accountability of an institutionaffiliated to a central body forshortcomings in its AML/CTFarrangements

In its ruling of 25 November 2013,the Committee held that the exis-tence of arrangements put inplace by a central body couldresult in the definition of “group”tools but that it did not exempt affi-liated credit institutions from theirobligation to adapt or supplementsuch tools in light of their specificcircumstances (Caisse d’Épargneet de prévoyance du Languedoc-Roussillon, Procedure n° 2013-0142).

6) Implementing obligations todeclare suspect sums or trans-actions to Tracfin and ofenhanced scrutiny in respectof AML/CTF

In its decision of 2 December 2013,(Banque Chaâbi du Maroc, Proce-dure 2012-08), the Committee heldthat simply closing an account showing transactions that areinconsistent with the information inan institution’s possession is an inap-propriate reaction unless a decla-ration of suspicion is filed withTracfin. This is because the partyconcerned can use other institu-tions to continue conducting trans-actions liable to fall under Article L. 561-15 of the Monetary andFinancial Code, without this comingto light.

D. Appeals against Sanctions Committeerulings

1) Conseil d’État ruling re. BanquePopulaire Côte d’Azur (BPCA),25 July 2013 (Req. n° 366640)

In a decision dated 25 July 2013,the Conseil d’État decided thatnone of the four applications for apriority preliminary ruling on the issueof constitutionality (QPCs) raised byBPCA would be referred to France’sconstitutional court. The QPCsconcerned the absence of a statute of limitation on disciplinaryproceedings, an alleged failure toseparate the prosecution and inspection functions, the absenceof any obstacle in the Monetaryand Financial Code to the initiatorof a referral participating in the deli-beration process, and the absenceof any guarantee, resulting from theprovisions of Article L. 612-38 of theCode, that the ACPR will not take itsown initiative in disciplinary matters.The court held that the questions“are not new and are not serious innature.”

2) Conseil d’État ruling re. UBSFrance, 15 January 2014 (Req. 371585)

In the context of its appeal againstthe decision of 25 June 2013 (Procedure 2012-03), UBS Franceraised a QPC over whether the pro-visions of Articles L. 511-41, L. 611-1, L. 611-7, L. 612-1 and L. 612-39of the Monetary and FinancialCode disregard constitutional rightsand freedoms. (Those provisions,

42. Caisse d’Épargne et de Prévoyance du Languedoc-Roussillon is appealing this decision before the Conseil d’État.

relating to the internal control rulesapplicable to credit institutions,delegate the terms on which theserules are implemented to the Minis-ter of the Economy and define theACPR’s disciplinary powers.) UBSFrance argued that the provisionswere inconsistent with the require-ment for clarity and precision stem-ming from the principle thatoffences and penalties must bedefined in law, as guaranteed inArticle 8 of the Declaration of 1789.Therefore, by adopting them, thelegislature failed to respect its

powers under Article 34 of theConstitution to define for itself theobligations incumbent on credit institutions.

In a ruling dated 15 January 2014,the Conseil d’État held that therewere no grounds for referring thequestion to France’s constitutional

court. It explained that the dutiesstemming from the constitutionalprinciple that offences and penal-ties must be defined in law, whenapplied outside criminal law, aremet in administrative contexts byreference to the obligations appli-cable to interested parties underthe laws and regulations applica-ble to their business, profession orstatus or to the institution for whichthey work. The Conseil d’État saidthat, in the case at bar, the combi-nation of Article L. 612-1, whichdefines the ACPR’s supervisory

duties, and Article L. 612-39 of theMonetary and Financial Code,which lists the penalties the Com-mittee can impose according tothe severity of the failings observed,meant that credit institutions are liable to be punished if they infringea provision of the Monetary andFinancial Code or the regulatory

provisions intended to implement it. The ruling was also justified by Arti-cle L. 511-41 of the Monetary andFinancial Code, which requires credit institutions to “have a suitableinternal auditing system to enablethem, inter alia, to assess the risksand profitability of their activities”. By making the Minister of the Eco-nomy responsible for ensuring thatthese provisions are enforced,notably by tasking the Minister withestablishing internal control proce-dures in accordance with Article L. 611-1 (10) of the same code, thelawmakers had not delegated tothe supervisor the task of settingrules or principles that the Constitu-tion had put in the realm of the law.

3) Ongoing appeals before the Conseil d’État

No Committee decision was over-turned or set aside in 2013.

At 31 December 2013, fourappeals against Sanctions Com-mittee decisions were pendingbefore the Conseil d’État. Theyconcerned the rulings of 10January 2013, Banque PopulaireCôte d’Azur (procedure 2012-04and 2012-04 Bis), of 1 March 2013,Tunisian Foreign Bank (Procedure2012-06), of 25 June 2013, UBSFrance (Procedure 2012-03), andof 25 November 2013, Caissed’Épargne et de Prévoyance duLanguedoc-Roussillon (Procedure2013-01).

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2.1 JOINT MEETINGS OFTHE ACPR SUPERVI-SORY COLLEGE AND THE SANCTIONSCOMMITTEE

The enforcement and “judgement”functions are organically separateat the ACPR. To prevent this separa-tion hampering the effectiveness of the supervisor ’s enforcementefforts, the ACPR Supervisory College met in plenary sessionjointly with the Sanctions Commit-tee on 5 June 2013 and 29 January 2014.

These meetings – which did not dis-cuss any ongoing cases – served toproduce an updated assessmentof ACPR enforcement on each ofthese two dates. Participants wereable to informally discuss the Supervisory College’s generalpolicy on opening disciplinary pro-ceedings, as well as the lessons tobe drawn from the Committee’srulings and Conseil d’État decisions.

2.2 SANCTIONS COMMITTEE OFFICES

In January 2014, the SanctionsCommittee and its secretariatmoved to new offices43 with adedicated hearings room.

The move has simplified the Committee’s operations, includingits hearings. All these operations arecompletely paperless44, as indica-ted in the first ACPR Reports.

Other highlights 2

43. 53, Rue de Châteaudun, Paris 9th.44. cf. page 25 of the 2010 Report and page 161 of the 2011 Report..

The enforcement and«judgement» functionsare organically separate at the ACPR

1. ACPR involvement in European and international bodies 1262. Legislative and regulatory developments at national level 142

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6

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Contributing to thedevelopment of theinternational, Europeanand French regulatoryframework

The ACPR represents the French supervisorysystem at international level. It plays an activepart in the meetings of international andEuropean bodies in the insurance and bankingsectors for prudential, accounting and customerprotection issues. In 2013, it made a substantialcontribution to work on implementing a singlesupervisory mechanism in the banking sector.

The International Affairs Directorate is in charge of cross-cutting issues affecting the banking and insurance sectors in the areas of prudentialand accounting regulations.

T’he year was markedby preparations forimplement ing the

single supervisory mechanism andthe resulting adjustments to thearchitecture of European financialsupervision. This involves changesto the regulation establishing theEuropean Banking Authority (EBA),intended to revise the majorityvoting rules. At the same time, andin accordance with the rules esta-blishing the various authorities in theEuropean supervisory system (EBA,EIOPA45, ESMA46 and ESRB47), thesebodies are being assessed by the European Commission andEuropean Parliament.

1.1 BANKING

A. In Europe As a participant in around 20 EBAworking groups, the ACPR contri-buted actively in 2013 to finali-sing new prudential standardsand drafting texts aimed at the harmonised introduction ofEurope’s new prudential regula-tions. In preparation for thesechanges, the ACPR was simulta-neously involved at national level inexplaining the European texts andbriefing institutions, particularly atregular banking industry meetings.It has also collaborated actively inthe work on transposing the provi-sions laid down in European lawsand regulations.

REPORTING

The ACPR has contributed to theEBA’s work on finalising technicalstandards containing templatesand instructions for f inancial reporting (FINREP) and commonreporting (COREP). COREP now integrates the ratios for solvency,large exposures, l iquidity and leverage. Reporting templates onasset encumbrance will supple-ment these standards in 2014, inparallel with the adoption of EBAguidelines on defining how encum-bered asset levels are published. A template for institutions’ fundingplans and additional liquidity moni-toring tools will complete a harmo-nised set of financial and prudentialstatements.

LEVERAGE AND LIQUIDITY RATIOS

Regarding leverage and liquidityratios, a number of changes will bemade to reporting templates in2014 to take account of the dele-gated acts provided for in theCapital Requirements Regulation(CRR) that will be adopted by theEuropean Commission. The dele-gated act for leverage has to beadopted before 1 January 2015,when the obligation to publish theratio takes effect, and it will prompta change in the technical standardrelating to this disclosure require-ment. The European Commissionhas to adopt the delegated act forthe Liquidity Coverage Require-ment (LCR) in 2014 for entry intoforce in 2015. With the aim of assisting the Commission in drafting

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ACPR involvement in Europeanand international bodies

working groups or sub-groups

ACPR representatives sat on

258

groups

ACPR representatives chaired

25

1

45. European Insurance and Occupational Pensions Authority. 46. European Securities and Markets Authority. 47. European Systemic Risk Board.


this delegated act, the EBA pub -lished two reports on this requir e - ment – with contributions fromthe ACPR – in December 2013.

DEFINITION OF OWN FUNDS

In 2013, the ACPR was involvedat the EBA in finalising work onthe new definition of own funds,following the major changeswrought by CRD 4. The EuropeanCommission has already adoptedtwo technical standards; they covera wide range of issues, from thedefinition of the foreseeable divi-dend to the methods of recon -structing the nominal value of afinancial instrument after reductionand the identification of mutualand cooperative institutions. A third standard wi l l have to def ine,among other things, the nature andscope of indirect and synthetic holdings that have to be deductedfrom institutions’ own funds. Thefourth and final standard will defineand set limits on the notions of the dividend multiple and preferen-tial distributions. The ACPR alsocontributed to a technical opinion submitted by the EBA to the European Commission presentingthe advantages and disadvan-tages of reintroducing prudential filters on unrealised capital gains.

MARKET RISK

The ACPR has been closely involv -ed in work on market risks. It hascontributed to six drafts of technicalstandards, thereby helping progressin implementing the new regulatoryframework for the prudent valuationrequirements for assets measuredat fair value. While the technicalstandard was being drafted, an initial quantitative impact study wascarried out by the EBA among banking institutions at the end of2013. Other draft technical stan-dards clarify a variety of issues,notably by defining the notion of amarket, describing the materialitycriteria that justify the use of internalmodels for trading book positionsand determining lists of diversifiedindices and closely correlated currencies.

REMUNERATION

CRD 4 has significantly altered theprudential control of remunerationpractices and policies, introducinga major legislative innovation,namely a cap on risk takers’ va -riable remuneration, which as ageneral rule cannot be greaterthan their fixed remuneration. At European level, the ACPR helpedto draft a technical standard on theidentification of risk takers, intendedto define the categories of staffwhose compensation will be regu-lated. It also contributed to thedrafting of two sets of EBA guide-lines: one specifying the financialinstruments that are allowed to beused for the payment of variableremuneration, and the other de -fining the discounting method for deferred remuneration to takeaccount of factors such as inflation.

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ACPR representatives sat on 258 working groups or sub-groups.

6. CONTRIBUTING TO THE DEVELOPMENT OF THE INTERNATIONAL, EUROPEAN AND FRENCH REGULATORY FRAMEWORK1. ACPR INVOLVEMENT IN EUROPEAN AND INTERNATIONAL BODIES

1.1 Banking

The CRR covers all of the prudentialrequirements of Pillars 1 and 3. The entry intoforce for the very first time of Europeanimplementation provisions directly related to prudential issues has prompted a completere-examination and ‘tidy-up’ of existing Frenchregulations.

The CRD IV legislative package is made up of a regulation (CRR) and a directive (CRD 4) adopted on 26 June 2013. As of 1 January 2014, it has tightened theprudential requirements applicable to credit institutionsand investment firms, essentially by implementing theregulatory framework arising from the Basel III agreement inEurope. ACPR staff have been heavily involved in preparinga draft to transpose the directive, in collaboration with theGeneral Directorate of the Treasury, and in providinginformation to institutions.

One indirect consequence of the package has been thecreation of a new ‘finance company’ status, defined inthe Executive Order of 27 June 2013, for entities whosebusiness does not correspond fully with the definition ofcredit institutions covered by the CRR (see inset, Chapter 2,on the status of finance companies). The ACPR played an

important role in preparing this new status as well as theOrder of 23 December 2013 that sets out the prudentialrequirements applicable to this new category of institutions.

Although the CRR and CRD 4 entered into force on 1 January 2014 and 31 December 2013, respectively,their provisions will be implemented over a period oftime. A transition regime lasting from 1 January 2014 until 31 December 2018 will apply to the new definition ofprudential capital, for example. The new solvency ratios areto be implemented gradually from 1 January 2014 onwards,with increases on 1 January 2015 (4% CET 1 ratio and 5.5%Tier 1 ratio required in 2014, then 4.5% CET 1 ratio and 6%Tier 1 ratio from 2015 onwards).

CRD 4 also introduces several prudential buffers on topof capital requirements. Progressive implementation from 1 January 2016 onwards is planned for the capitalconservation buffer and the countercyclical capitalbuffer, according to the following timetable: 0.625% of totalweighted risk exposure in 2016, then up to 1.25% in 2017,1.875% in 2018 and 2.5% in 2019 (or, for the institution-specific countercyclical buffer, at the level set by thecompetent authority, if higher).

Similarly, the buffer for global systemically importantinstitutions will be introduced gradually between 1 January2016 and 1 January 2019 according to the followingtimetable: 25% of the buffer determined for these institutionsin 2016, then a gradual increase to 50% in 2017, 75% in 2018 and 100% in 2019.

The systemic risk buffers could be determined as early as 2014, while buffers for other systemically importantinstitutions will not be required until 1 January 2016.

The CRR establishes 30-day and 1-year observationperiods for liquidity ratios. The Liquidity Coverage Ratio(LCR) will be defined by the European Commission in adelegated act and will enter into force gradually between2015 (60% of required ratio) and 2018 (100%). The NetStable Funding Ratio (NSFR) will be specified in a legislativeproposal from the European Commission between now and31 December 2016, on the basis of an EBA report expectedbefore 31 December 2015.

The CRR also provides for an observation period for the leverage ratio. The requirement will be specified in alegislative proposal from the European Commission betweennow and 31 December 2016, on the basis of an EBA reportto be submitted before 31 October 2016.

THE CRD IV LEGISLATIVE PACKAGE

Marie- José Lazcano, of the Legal AffairsDirectorate. ”“

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CONSUMER PROTECTION AND FINANCIAL INNOVATION

At European level, the ACPR participates actively in theStand ing Committee on Con -sumer Protection and FinancialInnovation (SCConFin) at theEBA. The committee’s workgathered pace in 2013.

In connection with the Directive onCredit Agreements Relating to Resi-dential Property (CARRP, 2011/0062)voted by the European Parliamentin December 2013, and in accor-dance with its mandate, the EBAhas drafted a technical standardspecifying the minimum amount of civil liability insurance cover forproperty lending intermediaries. Thestandard will ensure a harmonisedlevel of consumer protectionagainst civil damages that an inter-mediary could cause to customersduring the sale process.

Work on the CARRP Directive alsoprompted the EBA to publish twoopinions describing best practice inproperty lending and in the hand-ling of distressed borrowers.

The EBA is also paying close atten-tion to financial innovation, an areain which the ACPR is making acontribution at SCConFin. The EBAhas published an opinion on bestpractice relating to the manage-ment of risks linked to exchange traded funds within financial institu-tions. Moreover, this year it issued awarning to the public over virtualcurrencies, listing the risks they cancreate for users.

B. International activity The ACPR continued to be closely involved in the activity ofthe Basel Committee in 2013,participating in over 20 of its working groups.

BANK EXPOSURES TO CLEARING HOUSES

The ACPR participated in the jointwork of the Basel Committee – theCommittee on Payment and Settle-ment Systems (CPSS) and the Inter-national Organization of SecuritiesCommissions (IOSCO) – on deter-mining the calculation methodsfor capital requirements associatedwith bank exposures to clearinghouses. In a revamped regulatoryenvironment, with the entry intoforce of EMIR48 in Europe and theDodd-Frank Act in the USA, it was allthe more important to the ACPRthat an adequate methodology beestablished to ensure accurateand prudent valuation of theseexposures while encouraging theuse of central clearing. The ACPRalso checked that the prudentialconstraints imposed on clearinghouses in different jurisdictions didnot create competitive advan-tages. The three committees publi-shed a consultation paper in June2013 aimed at checking the relevance of their approach.

THE PRUDENTIAL TREATMENT OF SECURITISATION

The ACPR continued its active in -volvement in the Basel Commit-tee’s work on revisions to theprudential treatment of securitisa-tion, aimed at establishing morecautious rules that limit reliance oncredit rating agencies and reducepro-cyclical effects. The Authoritycontributed to the impact studythat followed an initial publicconsultation and played an activepart in drafting the second BaselCommittee proposal, published forconsultation in December 2013.This work will continue until the endof 2014, when the new standardshould be ready.

FUNDAMENTAL REVIEW OF TRADING BOOK CAPITALREQUIREMENTS

The ACPR is closely involved inongoing Basel Committee work ona fundamental review of the prudential regime applicable totrading. This review, which was putout to a second public consulta -tion in October 2013, has several components, including the bound -ary between the trading book andthe banking book, measures of risk, and ex-post verification. An impact study will be carried outin 2014.

48. European Market Infrastructure Regulation.

LARGE EXPOSURES

The ACPR participated in the

impact study launched by the

Basel Committee in June 2013

following the publication for consul-

tation of a prudential framework

harmonised at international level for

large exposures. This work will conti-

nue until the end of 2014, when a

new standard is due to be finalised.

REQUIREMENTS FOR OTCDERIVATIVES

In close collaboration with the

Banque de France, the General

Directorate of the Treasury and the

Autorité des marchés financiers

(AMF), the ACPR contributed to work

at the Basel Committee and

IOSCO that led to the publication in

September 2013 of a report calling

for tougher requirements in the

form of higher margins for trans -actions in non-centrally clearedderivatives. The objective is partly to reduce counterparty risk on theOTC derivatives market and partlyto make transactions on this marketmore cost ly, thereby encour -aging counterparties to use central clearing.

LIQUIDITY RATIOS (THE LCR AND NSFR)

The ACPR participated in furtherwork at the Basel Committee onthe design of a harmonised pru-dential framework for liquidity.Following the adoption of a short-term liquidity ratio in January2013 (the Liquidity Coverage Requi-rement, LCR), the Committee pub -lished a consultation paper inJanuary 2014 outlining the Net Sta-ble Funding Ratio (NSFR). The NSFR

is aimed at encouraging the “stable” funding of banking busi-ness, thereby making these institu-tions more resilient. With a one-yearhorizon, the NSFR complements theLCR. The gradual introduction of theLCR (from 2015 onwards) and thenof the NSFR (scheduled for 2018) willgive banks enough time to adaptto these new rules.

THE LEVERAGE RATIO

The ACPR has contributed to Basel Committee work on speci-fying methods of calculating the Leverage Ratio (LR) and estab -lishing a single publication format.After public consultation in June2013, the Committee made majorchanges in early 2014 to obtainbetter conceptual consistency andto ensure the LR requirement isadditional to the Solvency Ratio,

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1.1 Banking


rather than the main requirement in itself. The LR is now in an observa-tion period, with a test ratio of 3%until the end of 2017, with a view topossible migration under Pillar 1.Banks will have to publish their LRsfrom January 2015 onwards.

ANALYSIS OF WEIGHTED RISKS

The ACPR is closely involved in the Basel Committee’s work onmonitoring implementation of Basel III (the Regulatory ConsistencyAssessment Programme, RCAP),both in terms of country reviewsand analyses of the variability ofrisks weighted by market and creditquality (Risk-Weighted Assets, RWA).The ACPR chairs the working group responsible for analysing marketRWAs and made a major contribu-tion to two Basel Committee reportspublished in 2013. Concerning credit risk, the ACPR participated inanalytical work that gave rise to thepublication of a report.

CONSUMER PROTECTION AND FINANCIAL INNOVATION

In November 2013, the then infor-mal network of supervisors took ona new dimension by officially estab -lishing the International FinancialConsumer Protection Network.The Network’s objectives are to promote effective codes ofconduct that protect financial sector customers, to enhancepublic confidence and to controlsystemic risk related to the cus -tomer base. It is based in Paris and

its secretariat is provided by the Organisation for Economic Co-operation and Development(OECD). The Network has alreadycarried out a survey on responsiblelending.

At their summit meeting in 2011,G20 countries approved theOECD’s ten high-level principles on consumer protection for thefinancial sector. The OECD wasthen given the task of identifyingexisting and effective approachesthat could help to put these principles into practice. Work on

three principles – disclosure andtransparency, responsible businessconduct and complaints handlingand redress – was carried out in2013, with the collaboration ofACPR representatives. The results ofongoing work on the seven otherprinciples will be presented to theG20 summit in November 2014.

In 2013, international AML/CTF working groups concentrated on implementingnew recommendations from the Financial Action Task Force (FATF) adopted in February 2012.

The FATF’s work included the following:I preparing for the fourth round of mutual evaluations, with the adoption of a new evaluation methodology in February 2013;I developing guidelines and best practices. The ACPR contributed to the drafting of guidelines on a risk-based approach for prepaid cards, mobilephone payments and online payments49.

At European level, the ACPR supports the General Directorate of the Treasuryin discussions on the drafting of the Fourth Anti-Money Laundering Directive.The ACPR is also a member of the Anti-Money Laundering Committee (AMLC),which reports to the committee representing the three European authorities(EBA, EIOPA and ESMA) and whose ongoing activity includes the drafting of guidelines on risk-based approaches to supervision.

The ACPR has also contributed to updates of guidelines published by the Basel Committee’s Anti-Money Laundering Expert Group50 and by thefinancial crime group of the International Association of Insurance Supervisors (IAIS)51.

WORK BY THE ACPR TO STRENGTHEN AML/CTF AT INTERNATIONAL LEVEL

131

49. Guidelines and best practices published by the FATF following the adoption of these new recommendations are available on the internet:http://www.fatf-gafi.org/fr/documents/lignesdirectrices

50. Sound management of risks related to money laundering and financing of terrorism: http://www.bis.org/list/bcbs/tid_32/index.htm51. Insurance Core Principle 22: http://www.iaisweb.org/index.cfm?pageID=689&icpAction=listIcps&icp_id=23

Application paper on combating money laundering and terrorist financing: http://www.iaisweb.org/Application-papers-763

1.2 IN THE INSURANCESECTOR

A. In Europe The ACPR participates actively inthe main EIOPA work streams,which range from the technicalmeasures needed to implementSolvency II to issues such asconsumer protection, financialstability and crisis managementand pension funds.

The ACPR is involved in all the EIOPAworking groups, especially thosefocused on the construction of theSolvency II prudential framework,and it chairs several of them:I the Financial Requirements Committee (FinReq), responsiblefor aspects relating to Pillar 1(quantitative requirements) of Solvency II;

I the Committee on Consumer Protection and Financial Innova-tion (CCPFI) handles problemsrelated to consumer protectionand financial innovation;I the Solvency Sub-Committee of the Occupational PensionsCommittee (OPC), dedicated toissues related to pension funds.

In 2013, EIOPA continued to workon standards and guidelines, with aparticular focus on preparations forSolvency II, measures for long-termguarantees, peer reviews, consum -er protection and pension funds.

EIOPA PREPARATORY GUIDELINESFOR SOLVENCY II

At the end of 2012, amid uncer-tainty over the implementationdate for Solvency II and the pros-pects of an agreement on thetreatment of long-term guarantees,EIOPA expressed a wish that certainsettled and understood require-ments under the future prudentialframework be implemented earlythrough preparatory guidelines.

EIOPA published these guidelineson 31 October 2013 for implemen-tation on 1 January 2014. Nationalsupervisors had two months to indicate whether they planned toapply them, and were asked togive their reasons if they did not (the“comply or explain” principle).

The ACPR will be in overall compliance with these guide-lines and in 2014 will be involvedin preparatory exercises onreporting and the Own Risk andSolvency Assessment (ORSA).

While the constraints of the 2014legislative calendar might preventthe ACPR complying formally with the preparatory guidelines on governance, it will pay closeattention to the preparatory workthat institutions are doing. It is calling on the entire French marketto prepare actively for implemen-tation of this key pillar of Solvency II.

THE IMPACT ASSESSMENT ONLONG-TERM GUARANTEES AND THE AGREEMENT ON OMNIBUS II

The ACPR contributed greatly to the EIOPA impact study on theLong-Term Guarantees Assessment(LTGA) under Solvency II and to thedrafting of the report sent to theEuropean Commission.

It was on the basis of the conclu-sions of this report that the Euro-pean Parliament, Commission andCouncil reached agreement inNovember 2013 on a proposeddirective known as Omnibus II,which amends some of the pru-dential rules in the Solvency II directive and incorporates EIOPA’spowers, notably in relation to regulation and arbitration (see insetbelow).

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1.2 In the insurance sector

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The primary purpose of Omnibus II is to adapt the Solvency IIDirective to accommodate EIOPA’s powers in the areas ofregulation and binding arbitration and to provide for interimmeasures on capital, SCR and other issues in order to easethe transition from Solvency I to Solvency II. But the keychange in the directive concerns the series of measuresknown as the Long-Term Guarantees Package, notably onthe following points.

Volati l ity adjustment: the risk-free rate used by institutions to discount their technical reserves will contain a countercyclical factor intended to limit volatility in theevent of a spreads crisis in insurers’ liabilities. This measurewill be subject to an approval procedure by the supervisor if the legislator opts for it during transposition.

Matching adjustment: this measure is aimed at takingaccount of the yield on assets in determining the discountrate when asset and liability flows are perfectly matched. It will be subject to an approval procedure by the supervisor.

Two trans it ional measures concerning technicalreserves intended to produce convergence of the level of technical reserves calculated with the Solvency I ruleswith that calculated with the Solvency II rules over 16 years.They will be subject to an approval procedure by the supervisor.

Extending the non-compliance period for theSolvency Capital Requirement (SCR): if an exceptionalevent significantly affects a market (financial crisis,prolonged period of low interest rates, an exceptionalcatastrophe), the authority charged with regulating thatmarket can, with the agreement of EIOPA, extend the SCRnon-compliance period to a maximum of seven years for the institutions concerned.

The “governance” part of these measures: thesupervisor can impose an additional capital requirement on institutions that adopt these measures when their riskprofile deviates from the conditions associated with them. By virtue of Pillar 2, institutions will have to submit to thesupervisor an assessment of the effect on its solvency ofwithdrawal from the long-term guarantees package.

The “transparency” par t of these measures:institutions making use of these measures will have to makepublic the impact non-application would have on theirfinancial position.

All of the measures in the long-term guaranteespackage wil l be reviewed by the European Commissionon the basis of an annual report filed by EIOPA. That reportwill be drawn from annual reports from each supervisor on the implementation of these measures in their market.

THE PROPOSED OMNIBUS IIDIRECTIVE

Anne-Lise Bontemps Chanel, of the International AffairsDirectorate.

”“

The trialogue agreement of 13 November 2013 on thebasis of the LTGA alters theprudential rules on balancesheet valuation applicable to long-term guaranteedinsurance products under thethree pillars of the regime.

The agreement was a major step towards Solvency IIimplementation. It modifies the prudential rules onbalance sheet valuation applicable to long-term guarantees and permits the establishment of the new

regime on 1 January 2016, which was the date formallyset in the Official Journal of the European Union on 18 December 2013 under the “Quick Fix II” Directive(see timetable below).

PEER REVIEW

The ACPR was the subject of threeEIOPA-led peer reviews, bearing onthe following:I the management of critical situa-tions at insurance groups and enti-ties;I the authorisation procedure forinstitutions managing supplemen-tary pension schemes;I the operation of colleges of su -pervisors.

These reviews concluded thatthe ACPR’s inspection practicescomplied with European regula-tions. EIOPA will be publishing resultsaggregated at European level inthe near future.

CONSUMER PROTECTION

In 2013, European legislative ac -tivity confirmed the importance ofconsumer protection in cross-sectorconvergence. At the same time,the CCPFI (see inset below) hasintervened in very different waysand with the best possible use of itspowers to strengthen consumerprotection in insurance.

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2013

13 November 2013: trilogue agreement

December 2013:resumption of work on level 2

2014

Early 2014:plenary vote onthe Omnibus IIDirective in theEuropean Parliament

Spring 2014:Omnibus II Directive published in the EU Official Journal

August 2014: European Commission adopts level 2project. Beginning of 3-monthobjection period (extendableby a further 3 months) for theEuropean Parliament andCouncil.

End October 2014: European Commission adopts Implementing Technical Standards prepared by EIOPA.

2015

February 2015:at the latestexpiry of theobjection periodfor level 2

31 March 2015:deadline for thetransposition ofthe Solvency IIDirective asmodified byOmnibus II

1 April 2015: startof certain approvalprocedures (internalmodels, etc.)

End-June and end-September: threeseries of Commissionapproval procedures for EIOPA ImplementingTechnical Standards (ITS)projects

1 January 2016: Solvency II regime comes into force.

Solvency II implementation timetable

• European legislative develop-ments on consumer protection

European legislative developmentshave been dominated by ongoingnegotiations over revisions to theInsurance Mediation Directive(IMD 2). These talks are insepara-ble from continuing discussions onthe revised Markets in FinancialInstruments Directive (MiFID 2),which have made considerableprogress. The European Parliamentis calling for a high degree ofconsistency between the varioussector texts. With this in mind, it hasbeen decided to extend some ofthe MiFID 2 articles to the life insur -ance sector, notably concerningconflicts of interest. This is a signifi-cant change for the French market.

• Work by EIOPA on consumerprotection and financial innovation

The ACPR chaired the Commit-tee on Consumer Protection andFinancial Innovation (CCPFI) untilthe end of March 2014. Using itsvarious powers, this committee hasintervened in a wider range ofareas.

With a view to complementing theguidelines adopted in 2012 oncomplaints handling by insurancecompanies, the CCPFI has pub -lished similar guidelines for insur -ance intermediaries. In line with the proportionality principle, they pro-vide a complaints-handling struc-ture while improving customerinformation. The ACPR participatedactively in drafting these provisions,taking advantage of experiencegained in France from the imple-mentation of its own recommen-dation on the subject in 2011(Recommendation 2011-R-05).

For the first time, the CCPFI pub -lished opinions for the supervisory

authorities. The first related to bad practice in certain European markets in the marketing of pay -ment protection insurance. TheACPR was able to cite the benefitsof the French regulatory frameworkin this area, together with its recentchanges. The second opinion refer-red to unclaimed life insurancebenefits. The ACPR was gratifiedthat EIOPA chose to alert all national authorities to this majorissue.

Lastly, the CCPFI continued to pro-duce various reports that informed

contacts and discussions betweensupervisors. Its annual review ofconsumer trends was published in December 2013, reflecting questions and concern amongEuropean legislators in such areasas pre-contractual information (anabsence of transparency, mislead -ing information) and the quality ofadvice. The CCPFI also published areport on best practice on skills andknowledge among insurance distri-butors, with detailed examples ofthe skills and knowledge expectedof insurance company employeesand insurance intermediaries.

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The ACPR is represented on the three sub-groups of this committee. In 2013 a set of high-level principles was published on product governancerules. The ACPR supports the committee’s desire to establish trans-sectorrules aimed at guiding internal product design processes before theseproducts are marketed. Strongly influenced by the experience of newproduct committees in the banking sector, these rules will be put in detailed form subsequently by the various European regulatory authorities. The Sub-Committee on Consumer Protection and FinancialInnovation worked on the adaptation of recommendations on complaintshandling to insurance companies, the banking sector and the financialmarkets. Lastly, the sub-group charged with level 2 work on the PackagedRetail Investment Products (PRIPs) Regulation reflected on the content andformat of the information documents that will have to be made available to customers for life insurance, structured bank deposits and a wider range of financial products. The ACPR is particularly committed to theseefforts, which will make a major difference to the quality of pre-contractual information.

THE SUB-COMMITTEE ON CONSUMER PROTECTION AND FINANCIAL INNOVATION

Throughout 2013, the CCPFI usedthe full range of tools at its disposaland contributed actively to ongoinglegislative discussions. In 2014, it will be examining the protection ofpension fund members.

PENSION FUNDS

The ACPR has participated in final -ising the quantitative impact studylaunched by EIOPA in the context ofthe revision of the Institutions forOccupational Retirement Provision(IORP) Directive. Although the Euro-pean Commission announced in2013 that the quantitative require-ments applicable under the IORPdirective would not be altered inthe immediate future, EIOPA iscontinuing its work in this area, withthe ACPR’s assistance.

B. The International Association of InsuranceSupervisors (IAIS)

The ACPR contributes to the workof the IAIS. In 2013 it attended 14 meetings of IAIS committeesand sub-committees, including: I the Financial Stability Committee(FSC), whose role is to coordinatethe activities of the IAIS with thoseof the Financial Stability Board(FSB) and the G20 and to develop,with the Technical Committee,macroprudential tools to improvethe identification and preventionof risks to financial stability;I the Technical Committee, respon-sible for preparing internationalstandards for effective and trans-parent supervision to limit thescope for regulatory arbitrage byinsurers;

I the Market Conduct Subcommit-tee. The ACPR had the opportunityin 2013 to participate in the drafting of a discussion paper onguarantee funds. This document isintended for jurisdictions seekingto establish or modify their guaran-tee fund system, and summarisesall the issues liable to arise in thatprocess;I the Implementation Committee,whose goals include implemen -tation of standards, assessment of their impact and cooperationbetween supervisors.

DESIGNING COMFRAME

The Common Framework for theSupervision of Internationally ActiveInsurance Groups (ComFrame) pro-ject, which started in 2010, aims toestablish a single framework for thesupervision of Internationally ActiveInsurance Groups (IAIGs). A newversion of the ComFrame docu-ment was put out to public consul-tation in October 2013; the yearalso saw the introduction or conti-nuation of several work streams: I testing ComFrame provisions oninternationally active groups in thefield between 2014 and 2016. TheACPR is part of the Field TestingTask Force set up to conduct thisprogramme;I determining Basic Capital Requi-rements (BCR) that could serve asthe foundation for capital require-ments applicable to systemicallyimportant insurance groups;I determining, and eventually incor-porating in ComFrame, an Inter-national Capital Standard (ICS) forall internationally active insuranceinstitutions.

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SUPERVISION OF SYSTEMICALLYIMPORTANT INSTITUTIONS

The IAIS is continuing work on thesupervision of Global SystemicallyImportant Insurers (G-SIIs), includingthe identification of these institu-tions. A series of measures applica-ble to G-SIIs and a preliminary list of these institutions were published in July 2013 (see Point 1.3 of thepresent chapter).

PEER REVIEWS AND SURVEYS

The ACPR underwent a peer reviewon the application of insurancecore principles; the results of thereview were submitted to the FSB. It also answered several question-naires, which among other thingsconcerned the following:I the relevance of the IAIS’s multi -lateral memorandum of under-standing on information-sharingbetween supervisors to colleges of supervisors in France;I the Key Insurance Risks and TrendsSurvey.

1.3 SYSTEMIC INSTITUTIONS

The identification of systemicallyimportant financial institutions is a priority because entities deemed “too big to fail” benefitautomatically from internationalprotection, given the risks that theirdefault would generate. On theone hand, arrangements have to be made to monitor these institutions closely; on the other, their moral hazard has to belimited.

A. Global systemicallyimportant banks (G-SIBs)

The ACPR participated in additionalwork at the Basel Committee onprudential treatment and monitor -ing of global systemically importantbanks in 2013. The results includedrevisions to the assessment metho-dology and the definition of theseinstitutions’ additional loss ab -sorbing capacity, together with tougher reporting requirements.

In November 2013, the FSB up -dated its list of G-SIBs. The additionof Industrial and Commercial Bank

of China Limited to the previous listpublished in 2012 took the totalnumber of G-SIBs to 29.

This list is broken down into fivebuckets that determine additionalcore equity requirements52 and are mentioned in alphabeticalorder within each bucket.

These arrangements wi l l be implemented progressively from 1 January 2016 onwards on thebasis of figures from the 2013 finan-cial year. They will be in full forcefrom 1 January 2019 onwards.

Bucket 5, 3.5% surcharge: empty.

Bucket 4, 2.5% surcharge: HSBC, JP Morgan Chase.

Bucket 3, 2% surcharge: Barclays, BNP Paribas, Citigroup, DeutscheBank.

Bucket 2, 1.5% surcharge: Bank of America, Credit Suisse, GoldmanSachs, Crédit Agricole Group, Mitsubishi UFJ FG, Morgan Stanley, RoyalBank of Scotland, UBS.

Bucket 1, 1% surcharge: Bank of China, Bank of New York Mellon, BBVA,BPCE Group, Industrial and Commercial Bank of China Limited, ING Bank,Mizuho FG, Nordea, Santander, Société Générale, Standard Chartered,State Street, Sumitomo Mitsui FG, Unicredit Group, Wells Fargo.

GLOBAL SYSTEMICALLY IMPORTANT BANKS

52. This additional requirement ranges from 1% to 2.5% of risk-weighted assets. The 3.5% provided for in bucket 5 has no immediate implications.

The ACPR is closely involved with theFSB’s Data Gaps Initiative, whose firstphase started in March 2013 withthe launch of a data collectioneffort among G-SIBs. These reportsconcern all systemic banks and areintended to improve understandingof the interconnections betweenthem and the associated risks.

The ACPR also contributed to thefinalisation of the Basel Commit-tee’s principles for effective riskdata aggregation and risk report -ing. Published in January 2013,these principles are a response toFSB recommendations to enhance

the surveillance of G-SIBs. An initialprogress report on implementation– which must be complete byJanuary 2016 at the latest – waspublished in December 2013.

B. Global systemicallyimportant insurers (G-SIIs)

The ACPR participated in IAIS-spon-sored efforts to implement a seriesof measures to deal with the risksposed by G-SIIs to the financial system, in accordance with thewishes of the G20 and in the wakeof initiatives concerning the bank -ing sector. This work enabled theIAIS to publish a G-SII identification

methodology in July 201353, together with a preliminary list ofnine G-SIIs that is to be reviewedevery year.

In July 2013 the IAIS also pub -lished the range of measuresthat will be progressively im -posed on these institutions (seeinset below). These measures fallinto three groups:I requirements for recovery andresolution plans;I enhanced group supervision;I additional loss absorbing capa-city requirements.

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18 July 2013: designation of nine G-SIIs: Allianz SE,American International Group, Inc., AssicurazioniGenerali S.p.A., Aviva plc, Axa SA, MetLife, Inc., PingAn Insurance (Group) Company of China, Ltd., Prudential Financial, Inc., Prudential plc. (alphabetical order).

July 2013: implementation of enhanced supervision upon designation.

July 2014: publication of a new list of G-SIIs including reinsurers, if applicable.

July 2014: establishment of crisis managementgroups (CMGs).

End-2014: recovery and resolution plans established in line with the key criteria in FSB resolution regimes must be operational.

November 2014, G20 summit: finalisation of a simple and generic formula defining the BasicCapital Requirement and applicable to all groups’ activities, including non-insurance subsidiaries.

Before end-2015: detailed implementation rulesfor higher loss absorbing capacity.

November 2017: publication of final list of G-SIIs.

January 2019: application of all these measures to G-SIIs.

IMPLEMENTATION TIMETABLE FOR MEASURES APPLICABLE TO G-SIIS

53. « Global Systemically Important Insurers: Initial Assessment Methodology », IAIS.


1.3 Systemic institutions

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1.4 ACCOUNTING AND AUDIT

The ACPR’s involvement in ac -counting and audit issues takesmany forms. For the past few yearsit has worked in the context ofconvergence efforts between theInternational Accounting StandardsBoard (IASB) and the AmericanFinancial Accounting StandardsBoard (FASB), as well as on a rangeof European and French projectsrelating to accounting standards,financial reporting and auditingthat will take full advantage of thelessons learned during the financialcrisis.

In 2013, the ACPR participated in numerous working groups setup by organisations in France (the French accounting standardsauthority, ANC), Europe (EBA andEIOPA) and international bodies(Basel Committee, IAIS). It took partin over 180 meetings and confer -ence calls.

A. Action related to accounting

ACCOUNTING STANDARDS

• Proposed revision of the standard on financial instruments

The ACPR played an active role inwork undertaken at internationallevel (Basel Committee, IAIS), inEurope (EBA, EIOPA) and in Francewith the ANC in connection with theoverhaul of IAS 39 on financial instruments (the IFRS 9 project).

Concerning the classification andassessment of financial instruments(IFRS 9 – phase 1), the ACPR sup-ports the model put forward by theIASB and FASB, based on threeaccounting categories: amortisedcost, fair value through equity andfair value through profit or loss. Italso supports the notion that thebusiness model used by credit in -stitutions and insurers should betaken into account in determiningthe classification of financial instru-ments. The ACPR will continue topay close attention to the finalisa-tion of the IASB’s work on theseissues in order to ensure that finan-cial assets are classified properly ininstitutions’ and entities’ accounts.

Concerning the depreciation offinancial instruments (IFRS 9 – phase 2), the ACPR agrees with theANC and national regulators in theEuropean Union that the modelproposed by the IASB in its 2013exposure draft is a good compro-mise but a number of improve-ments need to be made. It alsosupports the expected loss modelthat distinguishes between differentstages in the deterioration of creditquality during the life of the finan-cial instrument, in line with credit riskmanagement arrangements atFrench credit institutions.

The ACPR has continued to monitor rules on the netting of financial instruments, given their potential impact onprudential regulation (see inset below).

• Proposed standard for insurance policies

As part of its involvement in the workof the ANC and the regulators(EIOPA and IAIS), the ACPR contrib -uted actively to the IASB consul -tation launched in 2013 onaccounting standards for insurancepolicies, intended to replace thecurrent IFRS 4 (phase 1). The valua-tion of insurance liabilities is based

on three building blocks: the cashflows that the insurer expects to payand receive in meeting its contrac-tual obligations (weighted by theirprobability and discounted), anadjustment for risk, and a contrac-tual service margin representingexpected contract profit andwhose recognition is deferred.While the ACPR agrees with the keyprinciples underpinning this valua-

tion model, it also concurs with criticisms that have been levelledat it, such as on the presentation ofthe income statement. Moreover, it considers that certain proposals in the consultation document, particularly in relation to the deter-mination of the discount rate, areliable to have an unhelpful impacton the comparability of insuranceentities’ financial statements.

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Despite initial willingness to work for convergence, the IASB and the FASB have not succeeded in setting a single standard on the netting of financial instruments. So far, the information to be disclosed in notes to theaccounts is the only common element and can be used to reconcile the two approaches.

IFRS favours presentation on a gross (i.e. non-netted) basis on the statement of financial assets and liabilities, while US GAAP provides for exceptions and permits greater scopefor netting on accounting statements.

Under IFRS, master netting agreements generally do notwarrant netting on financial statements because they canonly be activated if some future event occurs (the default of a counterparty, for example). This approach limits theappearance of netting on financial statements in practice.The amendment to IAS 32 (Offsetting Financial Assets and Financial Liabilities), which will be applicable in theEuropean Union from 1 January 2014, does not underminethe existing IFRS approach but seeks to clarify it.

In contrast, US GAAP provide for exceptions to the generalrules on netting for transactions carried out with a singlecounterparty under a master netting agreement, notably for derivative products and their cash collateral, and forpayables and receivables connected with repos or reverse repos.

In practice, and all other things being equal, these accounting differences directly result in smallerbalance sheets under US GAAP than under IFRS. Theconsequences for Leverage Ratio calculations could be extremely serious; the Basel Committee has thereforefinally decided to relax the calculation method for theLeverage Ratio by authorising, under certain conditions,netting for securities transactions (repos and reverse repos,securities lending, securities financing transactions)concluded with one and the same counterparty,independently of their accounting treatment54.

NETTING RULES UNDER IFRS AND US GAAP

54. On 14 January 2014, the Basel Committee published amendments relating to exposure calculation methods for the Leverage Ratio.


1.4 Accounting and audit

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• The activities of the Frenchaccounting standards authority(ANC)

The ACPR participated in the working group set up by the ANC in2013 to update French account -ancy regulations in the context ofCRD 4 transposition. This workinggroup has contributed to the defi-nition of accounting rules applica-ble to finance companies. TheACPR contributed to ANC discus-sions that led to the drafting of anew regulation for insurance entitiesconcerning the accounting rulesfor depreciable assets, notablydirect and indirect investments inloans to companies.

FINANCIAL DISCLOSURE

The ACPR participated in the BaselCommittee’s review of financial disclosure requirements (Pillar 3). In2013, efforts were made to analyseboth the information published by21 global systematically important

banks and reports and initiatives on the theme of banks’ financialcommunications. The Basel Com -mittee is set to publish a con -sultation paper on revised Pillar 3requirements in 2014.

The ACPR was also involved in theEBA’s analysis of certain disclosurespublished by a sample of 19 Euro-pean banks according to the requi-rements of Pillar 3. On the basis ofthis sample and publications in respect of 2012, it appears thatthere is still room for improvement,notably in relation to information onthe backtesting of credit risk amongbanks using the internal ratings-based (IRB) approach, to securitisa-tion and to market risks. The sameanalysis revealed elements of bestpractice as well, however. The EBApublished the results of this work inDecember 201355.

B. Audit work The ACPR plays an active role inthe various audit work streamsrelated to credit and insuranceinstitutions at European level(EBA, EIOPA, European Commis-sion) and internationally (BaselCommittee, IAIS). Activity in 2013continued to focus on the propo-sed recommendation on externalaudits for banks; in March 2013, theBasel Committee published apublic consultation document onthe subject. A draft recommenda-tion published on 31 March 2014 isbased on the key factors deter -mining the quality of bank auditsand their supervision: the auditors’skills and the quality of their work;the role of the audit committeeand relations between auditors andsupervisors. A comparable recom-mendation is currently being drafted for the insurance sector inconjunction with the IAIS.

The ACPR has continued to monitorrules on the netting of financial instruments, given their potentialimpact on prudential regulation.

55. Follow-up review of banks’ transparency in their 2012 Pillar 3 reports, EBA, 9 December 2013.

2.1 AML/CTF ARRANGEMENTS

A. The notion of a permanent representative

Act 2013-100 states that paymentinstitutions and electronic moneyinstitutions whose registered office isin a member state of the EuropeanUnion or another country within theEuropean Economic Area, and thatfor the purpose of their business onFrench territory use the services ofone or several agents or entitieswith a view to distributing electronicmoney, must designate a perma-nent representative residing onFrench territory.

The permanent representative isresponsible for ensuring that the institution concerned properlyapplies AML/CTF measures inconnection with business carriedout on French territory and thatdeclarations of suspicions andregular reports are conveyed toTracfin.

B. Transmission of information to Tracfin

The Acts 2013-100 of 28 January2013 and 2013-672 of 26 July2013 made the systematic com-munication of information to Tracfinobligatory in respect of the fol -lowing:I transfers of funds starting with acash deposit or using electronicmoney for an amount exceeding1,000 euros for a single transfer or 2,000 euros cumulated over a calendar month for a singleclient;I financial transactions with a highrisk of money-laundering or terroristfinancing by virtue of the countryor territory of the funds’ origin ordestination, the type of transac-tion or the legal structures con -cerned. A decree issued in 2014following consultation with theConseil d’État will define objec -tive criteria for the transactionsconcerned.

The systematic communication ofinformation is without prejudice tothe obligation to file suspicioustransaction reports.

Several changes were made to therules on declaring suspicions in2013:I attempted transactions are nowexpressly mentioned in Article L. 561-15 of the Monetary andFinancial Code as falling withinthe scope of the obligation to filesuspicion reports;I the ways in which suspicion reportsare to be submitted and sent toTracfin have been revised byDecree 2013-480 of 6 June 2013and an Executive Order of thesame date, which provide for the establishment of the secureERMES platform and set conditionson the admissibility of a suspicionreport.

Act 2013-672 defines the informa-tion that the regulators have to submit to Tracfin. Furthermore,when the ACPR sends Tracfin infor-mation on amounts or transactionsliable to have arisen from tax fraudas described in Article L. 561-15 II ofthe Monetary and Financial Code,it must simultaneously send thisinformation to the tax authorities(Act 2013-1117 of 6 December2013).

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Legislative and regulatory developments at national level 2

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C. Tougher measures on transparency

Act 2013-672 introduced new rulesfor credit institutions, financial com-panies, mixed financial holdingcompanies and investment firmson the disclosure of informationregarding their foreign operations(Article L. 511-45 of the Monetaryand Financial Code). The ACPR willbe responsible for checking thesedisclosures and for seeking injunc-tions combined with coercive fineswhen no disclosure is made orwhen there are omissions in disclo-sures, starting from the first publica-tion deadline at the end of the firsthalf of 2014.

2.2 CONSUMER PROTECTION MEASURES

The Banking Separation andRegulation Act of 26 July 2013(Act 2013-672) contains provi-sions to improve the protectionof consumers, borrowers and theinsured.

For the most vulnerable custom -ers,the Act states that institutions willhave to offer a specific range ofservices including means of pay-ment, banking services appropriateto their circumstances and a limiton the service fees that bankscharge for the unauthorised use of

an account. For customers benefit -ing from this specific offer andthose benefiting from basic bank -ing services under the bankingaccess rules, this limit is 4 euros pertransaction and 20 euros permonth. There are higher limits forother customers, set at 8 euros pertransaction and 80 euros permonth.

In order to increase access tobank ing services and facilitate their use, as well as to better avertand detect situations of financialfragility, the Association françaisedes établissements de crédit et des entreprises d’investissement(AFECEI) is expected to adopt acharter on banking inclusion and

The ACPR contributes actively to the legislative andregulatory developments.

the prevention of overindebtedness.The ACPR will ensure compliancewith this charter. The Act creates abanking inclusion observatory atthe Banque de France, which willbe charged with collecting infor-mation from credit institutions onaccess to banking services andtheir use, particularly for the more

fragile customers, and on theimplementation of their bankinginclusion charters. This observatorywill publish an annual report on itsprogress.

Concerning access to bankingservices, the obligation to provideapplicants with written confirmation

of any refusal to open a bankaccount is now a legal requirementrather than simply an aspirationunder the banking accessibilitycharter. The Act also introduces athree working day limit on the timeit takes an institution designated bythe Banque de France to open abank account once it has received

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6. CONTRIBUTING TO THE DEVELOPMENT OF THE INTERNATIONAL, EUROPEAN AND FRENCH REGULATORY FRAMEWORK2. LEGISLATIVE AND REGULATORY DEVELOPMENTS AT NATIONAL LEVEL

2.2 Consumer protection measures

the requisite documentation. Itwidens the Banque de France’spower to refer cases to the varioussocial protection bodies (depart-ment, Caisse d’Allocations Fami-liales, social services and certainnon-for-profit associations andfoundations), through which indi -viduals can submit their requests

to the Banque de France for the designation of a credit institution.

As far as dealing with overindebt -edness is concerned, the threemain objectives of the new legisla-tion applicable from 1 January2014 onwards are the simplificationof the procedure, a better fit with

measures related to housing andstronger protection for overindebt -ed persons.

On banking charges, the newmeasures – prior notice to custom -ers before any fees are charged,and a single set of terminology forthe main banking charges and

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services – will improve transparencyand stimulate competition.

Concerning home loans, the legis-lation provides a framework forforeign currency debt contractedby individuals that follows the line ofACP Recommendation 2012-R-01on foreign currency loans. Indi -vidual borrowers exposed to ex -change rate risk can only borrow ina foreign currency if they declarethat their income is mainly in thatcurrency or have wealth holdings inthat currency at the time the loanagreement is signed.

In addition, the legislation containsa very comprehensive range ofmeasures designed to protectcompanies – especially small andmid-sized firms – as much as possi-ble in their relationships with banks.Banks have to communicate theinternal rating attributed to a com-pany in the event that they turndown a request for a loan, andhave to send companies, andnotably retailers, exhaustive infor-mation on the charges they levy onpayment card processing. The obli-gation to draw up an accountagreement, which used to referonly to individuals, now extends topeople acting as self-employedprofessionals (sole traders) and hasto include provisions on access tomediation.

On payment protection insu-rance, the Act introduces newlegal notices on the costs of insurance relating to consumer

credit and home loans, intended toprovide better information toconsumers and stimulate competi-tion. For home loans, the legislationrequires the submission of a stan-dard information sheet as early asthe initial simulation; it must indicatethe types of cover on offer andreminds borrowers that they cantake out an insurance policy of theirchoice. In the case of insurancesubstitution, the law defines theapplicable procedure at the timethe contract is signed. The accep-tance of a new insurance policypresented by the borrower cannotgive rise to any change in the loaninterest rate or loan conditions, norto any additional charges.

An advance on funeral ex -penses can be debited from thedeceased’s accounts upon thesubmission of the relevant invoice,within the limit of the credit bal -ance on these accounts or byan amount fixed by decree.

Measures relating to funeral con -tracts have also been taken, in line

with ACP Recommendation 2011-R-04 on the marketing of insurance policies linked to funeralexpenses. This type of policy has toprovide expressly for the allocationof part of the benefit paid to thesettlement of the policyholder’sfuneral expenses. A mechanism forrevaluing these policies is planned,and a decree will define themethods of calculating and allo -cating of the financial and techni-cal profits.

The legislation creates new obli -gations for insurers to take action on unclaimed life insurance po -licies, including an annual consul-tation of the national register ofnatural persons and annual reportsof professional bodies56 on theimplementation of measures on the identification of deceasedpolicyholders.

These new legal obligations will beincorporated in ACPR inspectionsrelating to consumer protection.

56. The professional bodies concerned: the FFSA (Fédération Française des Sociétés d’Assurances), GEMA (Groupement des Entreprises Mutuellesd’Assurance), CTIP (Centre Technique des Institutions de Prévoyance) and FNMF (Fédération Nationale de la Mutualité Française).

1. Budget 1482. Performance monitoring 156

146

7

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The ACPR has specific budgetary resourcesderived from contributions for supervisory costs,which are collected by the Banque de Francefrom reporting entities and handed over in fullto the ACPR. These contributions may besupplemented by additional allocations fromthe Banque de France.

In 2011, the Authority introduced a set ofperformance indicators to measure itseffectiveness in carrying out its duties.

monitoring and performanceBudget

1.1 BUDGET OF THE ACPR

In accordance with Article L. 612-18 of the Monetary and FinancialCode, the ACPR, as an indepen-dent administrative authority, isfinancially independent, within thelimits of the contributions paid bythe entities under its supervision. TheBanque de France may allocateadditional funds to the ACPR.

Under the terms of Article L. 612-19of the Monetary and FinancialCode, the ACPR relies on supportfunctions provided by the Banquede France in order to promotesynergies and benefit from poolingcertain costs (property manage-ment, IT, HR, accounting, etc.) Italso relies on certain operatingfunctions of the Banque de France,especially the use of databasesnecessary for the performance ofits duties.

The services that the Banque deFrance provides to the ACPR arevalued on the basis of the centralbank’s cost accounting in accor-dance with the financial agree-ment it has with the ACPR. The ACPRrecognises these services as anexpense and the Banque deFrance recognises them as incomein its general budget. The servicesthat the ACPR provides to theBanque de France are also valuedon the basis of cost accounting.The ACPR recognises them as

income and the Banque deFrance recognises them as anexpense. The Banque de Francealso incurs capital expenditure onbehalf of the ACPR and the ACPRbudget records the related depre-ciation and amortisation.

All the ACPR’s receipts and expen-ditures in 2013 make up its budget.Under the terms of the Monetaryand Financial Code, this budget isan annex to the budget of theBanque de France.

The report on the ACPR budget outturn for 2013 was submitted tothe Audit Committee, which appro-ved it at its meeting on 24 February2014. It was then validated by theplenary meeting of the College on3 March 2014.

1.2 SUMMARY OF THE BUDGET

The budget outturn report appro-ved by a plenary meeting of theACPR College57 on 3 March 2014shows a posit ive balance of 0.6 million euros for 2013.

This figure reflects a modest 3.3 mil-lion euro increase in net receipts in2013 to 184.3 million euros, drivenby changes in the contributionrates applicable to both bankingand insurance sector companiesduring the year (see inset opposite).Expenditure was 183.7 million eurosin 2013, down 1.3% on the yearbefore.

The positive budget balancecontrasts with a projected deficit inthe provisional ACPR budgetapproved by a plenary meeting ofthe College. The difference bet-ween projection and outturn stemsfrom the fact that the rise in contri-bution rates had not been takeninto account, as it had not yet beenapproved58, and because staffnumbers were lower than the personnel target that had been setfollowing the transfer of many of theAuthority’s staff to the Banque deFrance, the European Central Bankand other international organisa-tions. Given recruitment lead times,staff mobility reduces personnelcosts. Substantial cuts in IT costsand mission expenses also explainthe difference between the budgetprojection and outturn.

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Budget 1

57. The budget outturn was presented to the ACPR College in thousands of euros. Some differences in the tables between details and totals arecaused by the conversion of the amounts from thousands to million euros.

58. Before the increase in contribution rates for banking and insurance sector companies from 0.63‰ to 0.66‰ and from 0.15‰ to 0.21‰, respectively, in March 2013.

149


Receipts and expenditure Receipts and Initial Receipts and Variance from Change in expenditure in million of euros expenditure 2013 expenditure budget 2012/2013

201259 budget 2013 Amount % Amount %

Contributions from reporting entities 178.3 163.8 181.4 17.6 10.7% 3.1 1.7%

Other receipts 2.7 2.6 2.9 0.3 11.5% 0.3 11.1%

Total receipts (A) 181.0 166.4 184.3 17.9 10.8% 3.3 1.8%

Personnel expenditure 102.0 106.9 100.8 -6.1 -5.7% -1.2 -1.2%

IT expenditure 23.6 30.3 23.8 -6.5 -21.5% 0.2 0.8%

Expenditure on buildings 28.7 29.7 29.1 -0.6 -2.0% 0.4 1.4%

Other expenditure 30.4 32.4 30.0 -2.4 -7.4% -0.4 -1.3%

Total expenditure (B) 184.7 199.3 183.7 -15.6 -7.8% -1.0 -0.5%

Budget balance (A)-(B) -3.7 0.6

A. Receipts of the ACPR

RECEIPTS FROM CONTRIBUTIONSFOR THE COST OF SUPERVISIONCAME TO 181.4 MILLION EUROS.

Receipts from contributions for thecost of supervision totalled 181.6million euros in 2013, excludingcancellations in respect of previousyears and amounts set aside toprovisions for the risk of non-collec-tion. This 2.4 million euro increase inreceipts compared with 2012stems from the rise in contributionrates for both banking and insurance companies. However,receipts from contributions for thecost of supervision paid by creditinstitutions, excluding contributions

from Caisse des dépôts et consi-gnations, were less than initially estimated, mainly because of asmaller basis for contributionamong the largest banking groups.This decline reflects reduced acti-vity, a continuing policy of divestingrisks and changes in the internalparameters used to calculatecapital requirements. In contrast,the combination of a smaller thanexpected contraction in life insu-rance inflows and a higher contri-bution rate resulted in a rise incontributions from the insurancesector. Although contributionreceipts from insurance and reinsu-

rance intermediaries are very closeto the amount expected, thecontributions received to date fromintermediaries in banking transac-tions and payment services havenot entirely confirmed the projec-tions that were made. This shortfallis explained mainly by changes inthe legislation governing access tothis profession, which led to a dispensation from contributing forparticipants carrying out only a limited amount of banking or payment services intermediation.

59.The final assessment of the Banque de France’s costs made in the second quarter of each year in accordance with the financial agreementshows that the amount for services provided to the Authority by the Banque de France, and the amount for services provided to the Banquede France by the Authority, were adjusted, bringing the budget balance for 2012 to a negative 3.7 million euros (compared with a negative5.8 million euros in the semi-final version). The 2012 data in this document are compiled on the basis of the final costs and may therefore beslightly different from the data compiled on the basis of the semi-final costs and published in the Authority’s 2012 Annual Report.

150

Contributions 2012 2013 Variation in million of euros 2012/2013

Amount %

Credit institutions and investment firms (including Caisse des dépôts et consignations) 137.9 129.2 -8.7 -6.3%

Money changers 0.2 0.2 0 0

Insurers, mutual insurance companies and provident institutions 34.9 47.3 12.4 35.5%

Intermediaries in banking transactions and payment services 3.3 1.8 -1.5 -45.5%

Brokers, microcredit associations 2.9 3.0 0.1 3.4%

Total contributions 179.2 181.5 2.3 1.3%

Charges to provisions net of reversals and cancelled contributions 0.9 0.2 -0.7 -77.8%

Contributions net of cancellations and provisions 178.3 181.3 3.0 1.7%

VII. BUDGET AND PERFORMANCE MONITORING1. BUDGET

1.2 Summary of the budget

Credit institutions, investment firms,insurers, mutual insurance compa-nies, provident institutions andCaisse des dépôts et consignations

account for 97.3% of receipts fromcontributions for the cost of supervision in 2013. Intermediariesin banking transactions and

payment services, insurance andreinsurance brokers and moneychangers account for the remai-ning 5 million euros.

As in previous years, the receiptsfrom contributions for the cost ofsupervision in 2013 were affectedslightly by contributions called inrespect of 2010, 2011 and 2012that were cancelled during theyear as part of dispute handlingprocedures. These cancellations,which impact the budget of theACPR only to the extent of thecontributions not provisioned atend-2011 and 2012, primarilyconcern entities wrongly declaredas intermediaries in banking trans-actions and payment services, orsums due that were written off, particularly as part of insolvencyproceedings.

At end-February 2014, the ACPRhad collected 99.7% of contribu-tions for the cost of supervision in2013. The 0.6 million yet to be col-lected relates almost entirely tointermediaries in banking transac-tions and payment services and toinsurance and reinsurance brokers.The collection rate for the interme-diaries categories is lower than itwas in previous years. This diffe-rence stems mainly from the latercall date for contributions from insu-rance and reinsurance brokers (30 June) and for contributions fromintermediaries in banking transac-tions and payment services in thetransition period (15 October, ratherthan 15 April in previous years).

Because of the later collection ofcontributions for the cost of super-vision from the intermediaries inbanking transactions and paymentservices category, reminder letterswere sent out at the beginning of2014. This meant that unpaid 2013contributions from this category ofintermediaries were not provisionedfor at the end of 2013.

Two changes were made to the rules regarding contributionsfor the cost of supervision payable by entities subject to ACPRsupervision in 2013.

The contribution rates applicable to banking and insurancesector companies were revised in 2013. I The Decree of 9 April 2010 setting the contribution rate forthe cost of supervision applicable to the banking sector wasamended on 29 March 2013. The rate applied to banks’capital adequacy requirements or minimum capitalrequirements was increased to 0.66 per thousand from 0.63 per thousand previously;

I The Decree of 26 April 2010 setting the contribution rate forthe cost of supervision applicable to the insurance sectorwas amended on 29 March 2013. The rate applied to premiums and contributions issued was increased to 0.21 per thousand from 0.15 per thousand previously;

The lump-sum contribution applicable to other categories ofsupervised entities and the minimum contribution remainedthe same.

The banking, insurance and finance intermediary registerprovided for in Article L. 512-1 of the French Insurance Code

entered into force on 15 January 2013 and is managed bythe insurance intermediary registrar ORIAS.

As a result, the rules on contributions for the cost ofsupervision, along with the terms and conditions of callingcontributions, changed in 2013 for both insurance andreinsurance brokers and for intermediaries in bankingtransactions and payment services.I Pursuant to Article L. 612-20-V-1° of the Monetary andFinancial Code, these two categories are now liable to paycontributions for the cost of supervision in respect of theiractivity as of 1 April each year (instead of 1 January);

I Reflecting existing practice for insurance and reinsurancebrokers, calls for contributions for the cost of supervisionfrom intermediaries in banking transactions and paymentservices are now made by the Banque de France on thebasis of information submitted to the ACPR by ORIAS;

I For these two categories of intermediaries, calls forcontributions are now made no later than 15 June eachyear, with 30 August as the deadline for payment. However,as a transitional measure, calls for contributions fromintermediaries in banking transactions and paymentservices in 2013 were made on 15 October, with 31 December as the deadline for payment.

CHANGES IN CONTRIBUTIONS FOR THE COST OF SUPERVISION

151


Decree 2012-1516 of 27 Decem-ber 2012 on the collection ofcontributions designates the Direc-torate General of Public Finance’sspecial receivables division (DCST)as the competent public accoun-tant for collecting contributions forthe cost of supervision and gives itthe power to impose the sanctionsand coercive fines provided for inArticle L. 612-20 VIII of the Monetaryand Financial Code. An agree-ment drawn up in accordance withthis decree describes the settle-ment procedures between theDCST, Banque de France andACPR. In 2013, a first batch ofunpaid contributions related to2011 and 2012 was passed to theDCST for enforced recovery. Almost50% of the amounts in this batchhave been recovered to date,resulting in a reduction in provisionsvia reversals.

OTHER RECEIPTS OF THE ACPR

In addition to the contributions forthe cost of supervision, 2.9 millioneuros in income from transactionswas recorded in the other incomeitem.

This amount, which was slightlyhigher than in 2012, stems mainlyfrom billing services that the ACPRprovided to the Banque de Franceand other bodies such as the European regulators (the EIOPA60

and EBA)61 and the European Central Bank, and the investmentincome on outstanding contribu-tions carried forward.

B. Expenditure As an offshoot of the Banque de France, the ACPR’s operatingexpenses are either incurreddirectly by its own General Secreta-riat, or by the Banque de Franceunits providing services.

The largest expenditure items incur-red by the Banque de France onbehalf of the ACPR include thewages of permanent staff, rent andupkeep of the ACPR premises, andspending on IT and training. Exceptfor personnel costs, the expensespaid by the Banque de France onbehalf of the ACPR are billed attheir full cost as determined by thecost accounting of the Banque deFrance under the terms and condi-tions stipulated in an agreementthat was renewed in December2013.

152

60. European Insurance and Occupational Pensions Authority. 61. European Banking Authority.



Figures at mid-February 2014 2013 Contributions 2012 Contributions 2011 Contributions 2010 Contributions Receivables Receivables Receivables Receivables (thousands Collection (thousands Collection (thousands Collection (thousands Collection of euros) rate of euros) rate of euros) rate of euros) rate

Credit institutions andinvestment firms 11 100.0% 6 100.0% 2 100.0% 1 100.0%

Insurers, mutual insurance companies and provident institutions 14 100.0% 8 100.0% 0 100.0% 0 100.0%

Caisse des dépôts et consignations 0 100.0% 0 100.0% - - - -

Money changers 10 94.2% 8 95.2% 3 98.1% 2 98.6%

Intermediaries in banking transactions and payment services 413 77.3% 491 84.8% 941 77.4% 1,280 70.6%

Insurance or reinsurance brokers and microcredit associations 185 93.8% 146 94.9% 186 93.3% 158 93.6%

TOTAL 633 99.7% 659 99.6% 1,132 99.3% 1,441 99.1%

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The expenditure of the ACPR for2013 stood at 183.7 million euros,a 0.6% reduction from 2012 levelsthat mainly reflects a fall in person-nel expenses that largely offset anincrease in overheads.

PERSONNEL EXPENDITURE (100.8 MILLION EUROS)

Personnel expenditure was 1.1%lower in 2013 than it was in 2012,despite a slight increase in head-count. This divergence is explainedby a change in the staffing struc-ture, with more junior personnel onstarting salaries, as well as reversalsof provisions for paid leave andtime-saving schemes arising fromthe stabilisation of staff numbersand lower taxation because of the

compétitivité emploi tax credit. Theprofile and breakdown by activity ofACPR General Secretariat staff is setout in Chapter 1 of this report.

Personnel expenditure was 3.3 mil-lion euros less than initially projectedfor the year, mostly because thepace of hiring was slower than pro-jected in the budget (1,018.6 ave-rage annual full-time equivalentemployees instead of the expected1,030.5).

Personnel expenditure categories Variation 2012/2013, (million euros) actual expenditure

2012 2013 Amount %

Base pay, special allowances, bonuses 45.7 45.5 -0.2 -0.4%

Other pay components for all personnel 20.5 18.8 -1.7 -8.4%

Tax and social charges 35.8 36.6 0.8 2.1%

Total 102.0 100.8 -1.2 -1.1%

IT EXPENDITURE (23.8 MILLION EUROS)

The ACPR incurred IT expenses of 23.8 million euros in 2013, just 0.2 million euros higher than in

2012. This amount is split betweencosts of software and outsourcedmanagement and developmentrelated to ACPR IT projects and sys-tems maintenance (7 million euros)

and services provided by Banquede France staff in support of the IT programme and the provision ofIT infrastructure (16.8 million euros).

Expenditure (million euros) 2012 % 2013 %expenditure structure expenditure structure

Personnel expenditure 102.0 55% 100.8 55%

IT expenditure 23.6 13% 23.8 13%

Expenditure on buildings 28.7 16% 29.1 16%

Other expenditure 27.8 15% 27.6 15%

Depreciation and amortisation 2.6 1% 2.4 1%

Total expenditure 184.7 100% 183.7 100%

154

As the 2013 budget for IT projectsand maintenance was 8.2 millioneuros, the expenditure outturn was1.2 million euros below the initialprojection. This difference reflectssavings on applications mainte-nance and the postponement ofcertain projects until 2014.

The cost of IT services supplied by the Banque de France wasassessed in accordance with theprovisions of the financial agree-ment signed in 2010 and renewedin 2013 between the Banque deFrance and the ACPR. In 2013these services amounted to 16.8million euros, a level comparableto that reported in 2012 (16 millioneuros).

These services included running the ACPR information system onBanque de France infrastructure, as well as advice and design assis-tance in areas such as informationsystem architecture and projectmanagement. This item alsoincludes all of the expenses incur-red in supplying employees of theACPR General Secretariat with indi-vidual IT tools (including collabora-tion tools and telephony).

EXPENDITURE ON BUILDINGS (29.1 MILLION EUROS)

Expenditure on buildings increasedby a modest 0.4 million euros between 2012 and 2013, with a 0.9 million euro increase in rentsand charges partially offset by a0.4 million reduction in services supplied by the Banque de France.The increase in rents and chargesreflected the occupation of newpremises and the indexation of rents and charges on theconstruction cost index.

In addition to the rents and chargesrelating to the two buildings occu-pied by departments of the ACPR’sGeneral Secretariat, expenditure onbuildings includes the cost of ser-vices provided by the Banque deFrance, assessed in accordancewith the financial agreement andcorresponding chiefly to upkeepand electricity expenses. The sur-face area allocated to each occu-pied workstation was 11.3 squaremetres.



Other expenditure 2012 2013 Change in million euros expenditure expenditure 2012/2013

Amount %

Non-IT sub-contracting 13.2 15.4 2.2 16.7%

Travelling expenses 4.6 4.0 -0.6 -13.0%

Other overheads 10.3 10.2 -0.1 -1.0%

Total other expenditure 28.1 29.6 1.5 5.3%

Adjustment for 2012 negative balance -2.1 -2.1

Net total 28.1 27.6 -0.6 -2.1%

OTHER EXPENDITURE (29.6 MILLION EUROS)

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Other expenditure totalling 29.6 mil-lion euros was significantly higherthan in 2012, mainly because ofhigher non-IT sub-contracting costs.

Non-IT sub-contracting expenditurecovers all other services apart frombuildings provided by the Banquede France to the ACPR for its ope-rations and was up 2.2 million euroson 2012. This change results fromhigher training costs, with a notableincrease in the number of hours of training organised for ACPR staffto prepare them for the new pro -fessional environment that theimplementation of European ban-king supervision will create, irrespec-tively of whether they are secondedto the European Central Bank orcontinue to work at the ACPR in collaboration with units at this insti-tution. The cost of human resourcesmanagement also rose sharply, asthe high degree of mobility of ACPRstaff increases the cost of servicesrelated to recruitment and adminis-trative formalities.

Travelling expenses decreased by0.6 million euros in 2013, as severalmissions were postponed as a resultof work on the establishment of theEuropean Banking Union. The num-ber of missions remained conside-rable, however, both in relation toinspections and participation ininternational working groups.

The other overheads item alsoincludes the 1.9 million euros inmembership fees that the ACPRpays to take part in various bodies.These expenses continued to rise in2013, essentially because of thegreater workload at the EBA andEIOPA, which were formed in 2010.

The other expenditure total decli-ned by 2.1 million euros overall,corresponding to the settlement ofthe negative balance for 2012determined following the calcula-tion of the final result62.

AMORTISATION AND DEPRECIATION(2.4 MILLION EUROS)

The amortisation and depreciationexpense declined from its 2012level. It consists primarily of amorti-sation of IT applications developedin-house and depreciation of IThardware. To a lesser extent, it alsoconsisted of amortisation of soft-ware and depreciation of furniture.

CONCLUSION

The balance for 2013 is a positive0.6 million euros. In accordancewith the applicable regulations, thissurplus will be set in full againstcontributions carried forward fromprevious years.

Structural and organisationalchange in 2014, ranging from theestablishment of the Europeansupervisory system to the assess-ment of the quality of banks’ assetsand the establishment of the Reso-lution Directorate within the ACPR,will have a significant impact onthe Authority’s finances in the future.

62. Article 9 of the agreement between the Banque de France and the ACPR.

The assessment of theACPR’s performancein 2013 marks a further

step in the project launched threeyears ago leading to the publica-tion of indicators designed tomeasure the effectiveness of theACPR’s action with regard to itsobjectives.

The introduction of a new strategyarea in 2013 covering the designand implementation of mea-sures to prevent and resolvebanking crises means that perfor-mance indicators are now monito-red for four strategy areas:I maintaining the stability of thefinancial system;

I contributing to setting internationalstandards and implementinginternational and European mea-sures in a convergent manner;

I ensuring that supervised entities’customers are protected;

I designing and implementingmeasures to prevent and resolvebanking crises.

To measure performance, three ofthese four strategy areas havebeen divided into ten operation -al objectives and assigned indicators to measure achieve-ments. The establishment at theend of the year of the ResolutionCollege and Directorate came toolate to define performance indica-tors for 2013.

To assess the ACPR’s efficiency inmaintaining the stability of thefinancial system, the operationalobjectives are to:I process licensing and authorisa-tion applications in due time, thereby contributing at an earlystage to the health of the financialsystem;

I assess the individual situations ofsupervised entities;

I measure the capacity of theACPR to maintain or intensifyongoing supervision of individualentities;

I implement the on-site inspectionprogramme of individual entities;

I expand and intensify ongoingsupervision, which, in an environ-ment dominated by cross-bordergroups, entails active cooperationwith foreign supervisors for the pur-pose of overseeing these groups;

I conduct stress tests where possi-ble, or at the very least impact studies, on a regular basis.

The following objectives were set in order to measure the ACPR’seffectiveness in helping to defineand implement European anddomestic standards in a conver-gent manner:I increase France’s influence in theinternational regulatory system in order to be involved from theoutset in the standard-setting process;

I apply regulation at operationallevel and provide supervised entities with more information.

In order to measure progress inprotecting supervised entities’customers, the objectives reflectthe initial stages involved:I improve customer informationabout the ACPR’s role in this area;

I develop supervision of businesspractices.

In view of the institutional changesin progress as regards supervision atboth European and national levels,some of these strategy areas andoperational objectives will beadapted as from 2014.

2.1 STRATEGY AREA:MAINTAIN THE STABILITYOF THE FINANCIALSYSTEM

Operational objective 1:

Process licensing andauthorisation applicationsin due time INDICATOR: Percentage of licen-sing and authorisation applicationssubmitted to the College or itsChairman that are decided uponwithin the allotted deadline. Thisindicator covers applications sub-mitted to the College as well asthose submitted to the Chairmanwithin the scope of his powers.

156

Performance monitoring 2

157


Target: 100%

Analysis of the result: The purposeof this indicator is to check the ability of the ACPR to submit licen-sing and authorisation applicationsfor banking and insurance to therelevant bodies of the ACPR College in a timely fashion.

In 2013, a total of 494 applicationsfor the banking sector and 102 forthe insurance sector were submit-ted to the ACPR College or itsChairman within the scope of hispowers. Of a total of 596 applica-tions, 7 were not processed withinthe allotted timeframe, mainlybecause of additional proceduresthat were required in order to suc-cessfully process the applications.13 applications from paymentagents could not be processedwithin the extremely tight regulatorydeadline, although without preju-dice to the activities these entitiesenvisaged undertaking.

Operational objective 2:Measure the ACPR’s activityof examining the individualsituations of supervisedentities INDICATOR: Number of individualdecisions63 taken during one year,presented by the type of Collegedecision as well as the cease-and-desist orders decided by the Chair-man acting under a delegationfrom the College. Unlike the indica-tor described above, this indicatordoes not take account the licen-sing and authorisation decisionstaken by the College Chairmanacting under delegated authority64.

Analysis of the result: The purposeof this indicator is to provide infor-mation on the volume of theACPR’s activity in its main decision-making areas, and on the effectiveuse of the various instruments givento the College by law.

In 2013, the College issued 174 deci -sions on licensing and authorisation(excluding decisions taken by theChairman acting under a delega-

tion. A total of 88 individual decisions were handed down inconnection with supervision of insti-tutions, such as enforcing regula-tions on the measurement of ownfunds, authorising the use by creditinstitutions and investment firms ofinternal models to measure capitaladequacy or manage liquidity riskor to cover regulated liabilities in theinsurance sector.

The ACPR issued 91 administrativeenforcement and other enforce-ment measures, including 18cease-and-desist orders issued bythe Chairman under a delegationfrom the College, three recoveryprogrammes, 16 cases in which theCollege ruled on the possibility ofplacement under provisional admi-nistration, one placement underspecial supervision, three businessrestrictions and two short-term fun-ding plans. The other individualmeasures taken under this headingwere mainly renewals of previousdecisions, such as the extension of a mandate for a provisionaladministrator or liquidator.

of the 596 licensing andauthorisation applications in thebanking and insurance sectorswere processed on time.

96.7%Result

decisions on individualsituations out of 502 decisionstaken by the ACPR College in2013.

442Results

63. As the College may take several decisions in connection with a single case, the numbers cited under operational objectives 1 and 2 are notstrictly comparable.

64. 428 licensing and authorisation decisions were taken by the Chairman of the College using delegated authority in 2013.

18 injunctions were issued relatingto Pillar 2 or to joint decision-makingby colleges of supervisors aimed atraising the capital of credit institu-tions or investment firms aboveregulatory requirements.

The College ruled on 63 othercases; these decisions concernedsuch matters as finance compa-nies, the launch of joint decision-making processes and refusals ofadministrative review.

The ACPR also decided to initiate 8 disciplinary procedures in 2013,of which one was annulled for tech-nical reasons.

Operational objective 3: Measure the intensity ofongoing supervision INDICATOR 1: Percentage of credit institutions, investment firms,financial holding companies, insu-rance and reinsurance, providentand mutual insurance institutionswith turnover of more than 5 millioneuros, referred to in Article L. 612 2-I of the Monetary and FinancialCode, whose risk profile has beenfully assessed through ongoingsupervision during the year underreview.

Target: 100%

Analysis of the result: This indicatoris used to verify that ongoing super-vision included a full annual risk pro-file assessment of all institutionscovered by the indicator, in addi-tion to the ACPR General Secreta-riat’s analysis of their accountingand prudential reports.

The overall rate for 2013 confirmscontinuing efforts since 2011 on thesystematic processing of all institu-tions under the ACPR’s supervision,which goes beyond the analysis of the largest and intermediateentities.

The analysis of the risk profile of 2reporting institutions – out of a totalof almost 1,400 – that could not bedone in 2013 was scheduled forthe beginning of 2014.

In an extension of the procedureestablished in 2011 and repeatedin 2012, this performance indicatormeasuring the intensity of ongoingsupervision is used in conjunctionwith an activity indicator identifyingthe number of institutions subject tospecific supervision decided by theCollege.

INDICATOR 2: Number of institu-tions subject to specific supervisionby the ACPR General Secretariatfollowing a College decision.

Analysis of result: The purpose ofthis indicator is to identify the institu-tions subject to specific ongoingsupervision further to a decision bythe College in order to prevent specific risks that may in certaincases lead to default. The institu-tions in question, in both sectors,are those under special supervisionwithin the meaning of Article L. 612-33 of the Monetary and FinancialCode, and those under provisionaladministration pursuant to Article L. 612-34 of this Code.

158

VII. BUDGET AND PERFORMANCE MONITORING2. PERFORMANCE MONITORING

2.1 Strategy area: Maintain the stability of the financial system

of institutions covered by theindicator had their risk profilesfully assessed in 2013.

99.9%Result

institutions in the banking orinsurance sectors subject to specificongoing supervision following aCollege decision, compared with17 at end-2012:I 12 under special supervision,I 7 under provisional administration.

19ResultSituation at 31 December 2013

159


16 of the 19 institutions concernedat end-2013 were already underspecific ongoing supervision at 31December 2012.

In 2013:I 1 insurance institution was placedunder special supervision. Onemeasure of a similar nature thathad been imposed in the insu-rance sector before 2013 was lifted.

I 1 institution in the banking sectorand one insurer were placedunder provisional administration.

Operational objective 4: Make sure the on-site inspection programme is implementedINDICATOR: Number of on-siteinspections for prudential and anti-money laundering purposes under-taken during the year under reviewrelative to the number of inspec-tions set by the ACPR SecretaryGeneral on the basis of College instructions.

Target: 100%

Analysis of result: 285 missionswere written into the 2013 pro-gramme before adjustment for for-ced cancellations in the bankingsector. 183 missions concerned thebanking sector and 102 missionsconcerned the insurance sector.

Preparations from late 2013onwards for the European bankingcomprehensive assessment, anexercise connected with the imple-mentation of the single supervisorymechanism, forced the cancella-tion of 32 on-site inspections thathad been planned for year-end. All the other missions in the programme had been completedor were being completed at 31 December 2013.

By definition, this indicator does notinclude short on-site visits byongoing banking supervision staff inorder to interview key personnel onspecific issues. These visits supple-ment the regular cycle of meetings.

of on-site inspectionsundertaken at end-December2013 under the 2013programme before adjustmentfor forced cancellations in thebanking sector.

89%Result

Operational objective 5: Cooperate closely withsupervisors to strengthenconsolidated supervision ofbanking and insurancegroupsPending transposition of the Sol-vency II Directive, the banking andinsurance sectors are not subject toa unified regime for colleges ofsupervisors. Accordingly, differentindicators have been put in placefor each sector in order to assessthe ACPR’s efforts in this area.

MEASURING COOPERATION ONBANKING GROUP SUPERVISION

INDICATOR 1: percentage of jointdecisions made in colleges ofsupervisors, without requiring EBAarbitration, on capital adequacy atbanking groups that the ACPRsupervises on a consolidated basis.

Target: 100%

INDICATEUR 2 : Proportion of contri-butions made within the applicabletime limits in response to jointassessments and decisions as thesupervisor of French subsidiaries ofEuropean banking groups.

Target: 100%

Analysis of results: All joint assess-ment processes for Europeangroups supervised by the ACPR on a consolidated basis led to ajoint decision with the supervisorsconcerned on capital adequacy in 2013. Where the ACPR is thesupervisor of French subsidiaries ofEuropean groups, its contributionsto the joint decision-making process were all made within thetimeframe specified in Directive2009/111/EC of the European Parliament.

In addition to this cooperationaimed at allowing joint decisions on capital adequacy, specific meetings were set up betweenEuropean supervisors in order todevelop further the first recoveryplans drafted in 2012 by the majorcross-border banking groups.

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2.1 Strategy area: Maintain the stability of the financial system

of draft joint reportssubmitted to the ACPRCollege for the periodunder review.

100%

of responses sent in duetime to the Europeanconsolidated supervisor.

100%

Results

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MEASURE ACTIVE COOPERATION IN THE SUPERVISION OF INSURANCEGROUPS

INDICATOR: Percentage of mee-tings of colleges of supervisors heldduring the year for insurancegroups with a French parent. Theframe of reference is EIOPA’s list ofthe 30 largest European insurancegroups, 6 of which are French.

Target: 100%

Analysis of result: Annual collegeof supervisor meetings for Euro-pean insurance groups are not yeta legal or regulatory requirement.However, cooperation betweensupervisors is governed by EIOPAguidelines and agreements signedby the supervisory authorities of EUmember states. European supervi-sors cooperated closely during theyear, notably on supervision of thelargest groups identified by EIOPA.As consolidated supervisor, theACPR held at least 1 college meeting in 2013 for each of the 6 European groups identified byEIOPA that has a French parent.

These meetings do not include theother college meetings organisedfor other insurance groups withoperations in other European Unioncountries that the ACPR superviseson a consolidated basis. The ACPRwas also actively involved in college meetings organised byEuropean supervisors responsiblefor consolidated supervision ofgroups with insurance subsidiariesbased in France.

Operational objective 6: Conduct European andinternational stress testswithin the allotted timeINDICATEUR : Percentage of European and international EBA orEIOPA stress test exercises carriedout on time, in collaboration withthe industry.

Target: Conduct the EIOPA-ledLong-Term Guarantees Assessmentand continue with Basel III impactstudies ahead of stress tests in thefirst half of 2014.

Analysis of result: Apart from theimpact study carried out at EIOPA’srequest in the first quarter of 2013and the Basel III impact studies,ACPR staff were closely involved in 2013 in carrying out several stress test exercises using in-housemodels for France’s main bankingand insurance institutions.

The ACPR also participated activelyin preparations for the EuropeanBalance Sheet Assessment andwork with insurers in implementingEIOPA guidelines on establishingSolvency II in the interim period.

Staff were involved in negotiationson the definition of a methodologyfor future European stress tests coordinated by the EBA, to be carried out in the first half of 2014.EIOPA is also set to coordinate stresstests in 2014.

of college meetingsconcerning the 6 mainEuropean insurance groupswith a French parent andappearing on the EIOPA listwere held in 2013.

100%Result

EIOPA-led impact study concerning the Solvency IItreatment of long-term guarantees.

1

impact study exercisesconcerning Basel III andcompliance with Core Tier Oneratio requirements in line withthe new EBA recommendation.

4

Result

2.2 STRATEGY AREA:CONTRIBUTE TOSETTINGINTERNATIONALSTANDARDS ANDIMPLEMENT EUROPEANAND INTERNATIONALMEASURES IN ACONVERGENTMANNER

Operational objective 1: Increase France’s influencein the international regulatory systemINDICATOR 1: Presence of staffseconded to institutions consideredessential to prudential supervision.

Target:At least 2 members of staff secon-ded to the EBA and EIOPA. At least 1 member of staff secon-ded to the following institutions:Basel Committee secretariat, Euro-pean Central bank (EuropeanSystemic Risk Board), EuropeanCommission (and other Europeaninstitutions).

Analysis of result: There was asignificant increase of 7 staff members seconded to institutionsconsidered to be essential to prudential supervision in 2013.

In light of work on the establishmentof the European supervisory system,concerted efforts were devoted toseconding staff to the ECB. Apartfrom the staff member already atthe ECB in 2012, 4 staff memberswere seconded to the institution inJune 2013. More will follow65 in2014, including 2 DG I and DG IVdeputy directors and 2 DG I departmental heads.

For the first time, the ACPR alsoseconded 2 staff members to theEuropean Securities and MarketsAuthority (ESMA) in 2013.

The other members of staff onsecondment are as follows: 6 atEBA, 1 at EIOPA, 1 at the BaselCommittee secretariat, 5 at theEuropean Commission (including 1 in the Directorate General incharge of accounting and finan-cial reporting and 2 in the Directo-rate General responsible for banksand financial conglomerations), 1 at the Permanent Representa-tion of France to the EuropeanUnion and 1 at the Committee onEconomic and Monetary Affairs atthe European Parliament.

INDICATORS 2 AND 3: Part ic ipat ion in internat ional committees, working groups andsub-groups on banking and insu-rance issues.

Chairmanship or co-chairmanshipof the international working groupsand sub-groups in which the ACPRparticipates.

Analysis of the result: In 2013, theACPR consolidated its role in deve-loping the regulatory framework,increasing its participation in working groups and sub-groups ofthe main international and Euro-pean bodies. At the end of theyear, representatives of the GeneralSecretariat were members of 258working groups or sub-groupsactive in the banking and insu-rance sectors. The work of thesegroups covered the definition and

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2.2 Strategy area: Contribute to setting international standards and implement European andinternational measures in a convergent manner

seconded to the above international bodies at 31 December 2013, comparedwith 15 at end-2012.

22staff

Result

working groups or sub-groups in which representatives of theACPR General Secretariatparticipate, compared with 213 in 2012.

258

chairs held by representatives of the ACPR General Secretariat,compared with 15 in 2012.

25

Result

65. At least 17 secondments have already been agreed.

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condit ions for implementing Solvency II and the CRD 4 Directive,consumer protection and financialstability, which included work on systemically important financial institutions and crisis management.The ACPR also continued to activelyparticipate in working groups andsub-groups dealing with accoun-ting standards, financial reportingand auditing. The working groups inwhich the ACPR participates aregenerally run by the following institutions: EBA, EIOPA, ESRB, IAIS,Basel Committee, Bank for Interna-tional Settlements, European Commission, IASB66, FSB67, FATF68,GIABA69, OECD70, XBRL71, JCFC72,and CIMA73.

Representatives of the ACPR chair25 working groups. Besides workinggroup chairs, the ACPR’s active participation in preparing andenforcing standards applicable toeach of the two sectors is reinfor-ced by the presence of DanièleNouy, ACPR Secretary General, onthe Management Boards of bothEIOPA and the EBA.

Operational objective 2: Apply regulation at theoperational level and provide supervised entitieswith more information INDICATOR: Number of measures(instructions, guidelines, recom-mendations, etc.) adopted by theACPR and published in its officialregister or communication media(website, La Revue de l’ACPR) or inthe Official Journal for the purposeof implementing regulations.

Analysis of result: This indicator isused to assess the transparencypolicy that the ACPR Collegeendeavours to promote, as descri-bed in an explanatory documentpublished in the ACPR 2011 officialregister. In 2013, the College adop-ted 27 measures concerninggeneral issues that were published.

These measures can be brokendown as follows:I 18 instructions on matters of licen-sing, prudential supervision, anti-money laundering, collection ofdata on compensation and theenforcement of rules designed toprotect customers;

I 1 position relating to the imple-mentation of Regulation 97-02 onthe intermediation of bankingtransactions and payment ser-vices;

I 2 guidelines on anti-money laun-dering and counter-terrorist finan-cing, concerning the notion ofpolitically exposed persons andequivalent third countries;

I 2 sector application principlesbearing on the beneficial ownersof shares in collective investmentschemes and on correspondentbanking;

I 2 approvals of codes of conductexamined at the request of theFédération bancaire françaiserelating to bank statement infor-mation on total monthly chargesand the authorised overdraft limitand to the presentation of banktariff notices in line with a modelsummary and an example showing standard fees;

I 1 decision concerning the imple-mentation in France of the gene-ral options provided for in the CRR;

I 1 notice relating to calculationmethods for the 2013 solvencyratio.

Besides these measures designedto facilitate implementation ofregulations at operational level, in 2013 the ACPR continued itscommunications efforts by organi-sing 3 conferences on specificissues and publishing its twice-monthly La Revue de l’ACPR publi-cation.

66. International Association of Insurance Supervisors. 67. Financial Stability Board. 68. Financial Action Task Force. 69. Intergovernmental Action Group Against Laundering Money in West Africa. 70. Organisation for Economic Co-operation and Development. 71. eXtensible Business Reporting Language. 72. Joint Committee on Financial Conglomerates. 73. Inter-African conference on insurance markets.74. 2 decisions of general relevance concerning responses to the EBA under the “comply or explain” procedure did not meet the performance

indicator publication criteria.

measures on general issuesadopted by the ACPR Collegein 2013 were published74.

27Result

2.3 STRATEGY AREA:ENSURE THATSUPERVISED ENTITIES’CUSTOMERS AREPROTECTED

Operational objective 1: Improve customer informa-tion about the ACPR’s roleINDICATOR: number of calls thatthe ACPR received from the publicconcerning customer protection.The indicator tracks the number oftelephone calls received by theAssurance Banque Épargne InfoService (ABE Info Service) platform.

Analysis : of the 328,914 calls75

made to the ABE Info Service plat-form in 2013, 37,267 calls directlyconcerned the ACPR, which answers questions relating to insu-rance76.

Many of the calls dealing with non-life insurance were about claimspayment and adjustment proce-dures, relating primarily to car and

home insurance. The majority of thecalls dealing with personal insu-rance concerned supplementaryhealth insurance, with questionsrelating to policy cancellation andpremium increases. The most common questions dealing with lifeinsurance related to the beneficiaryclause and returns on policies.

The number of calls is an indicatorthat helps measure the public’sknowledge about the ACPR's custo-mer protection role, by tracking thenumber of calls made to the ABEInfo Service platform.

Operational objective 2:

Develop supervision of business practices Indicator 1: number of on-site inspections specifically dealing withbusiness practices.

Analysis: the number of inspec-tions completed or continuing in2013 was comparable to that in2012. As in the previous year, someof the inspections were carried outwith support from staff in theBanque de France branch network.

In addition to the 71 inspectionstracked by the indicator, there were12 inspections carried out onbehalf of the Business PracticesSupervision Directorate by staff fromthe French overseas note-issuingbanks, 6 inspections carried out bystaff from the Credit Institution On-Site Inspection Delegation, and 1joint inspection carried out with theInsurance Supervision Directorate.

The inspections focused on specificarrangements for vulnerable custo-mers (right of access to bankingservices, procedures for includingor removing data from the NationalRegister of Household CreditRepayment Incidents (FICP), marke-ting arrangements for revolving cre-dits), the duty to provide adviceand requirements for taking up andconducting business as an interme-diary.

In addition to supervising thesevarious areas, the ACPR has alsomade it its mission to supervise thevarious types of institutions offeringservices to individual customers(credit institutions, insurance com-panies and intermediaries), as wellas the different marketing methods.

164


2.3 Strategy area: Ensure that supervised entities’ customers are protected

telephone calls concerned

the ACPR directly.

37,267Result

75. There were 291,647 calls concerning the stock market and financial products that were for the market regulator (AMF) and concerning thebanking sector that were for the Banque de France.

76. Questions relating to banking are handled by the Banque de France call centre.

on-site inspections carried out directly by the BusinessPractices Supervision Directorate in 2013.

71Result

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INDICATORS 2 AND 3: ensuringdiversity of supervision for the diffe-rent types of entities and the diffe-rent marketing methods, for all ofthe inspections dealing with busi-ness practices carried out directlyby the Business Practices Supervi-sion Directorate or delegated toother authorities.

Analysis: these two indicators supplement and refine the analysisof the indicator relating to monito-ring the programmes of inspectionscarried out by the Business Prac-tices Supervision Directorate. Thepurpose of these indicators is toensure supervision of the differentdistribution channels by targetingdifferent types of entities and diffe-rent marketing methods.

4 on-site inspections of insurancecompanies,

12 on-site inspections of creditinstitutions and

74 on-site inspections of intermediaries.

Marketing practices were examined specifically during 52 inspections of 46 face-to-facemarketers and 6 distance selling marketers.

Result

ACTUARYSpecialist who applies statistics andprobability to financial and insu-rance operations. In life and nonlifeinsurance, actuaries analyse mor-tality patterns; they use probabilitiesto assess risks and to calculate premiums and technical andmathematical reserves.

ADD-ONSIn the insurance sector, under Solvency II, capital add-ons maybe imposed on insurance and reinsurance undertakings underexceptional circumstances orthrough a reasoned decision by thesupervisory authority.In practice, there are two types ofcapital add-ons:- “Pillar 1” capital add-ons to meetquantitative requirements: theseadd-ons are used to adjust thecapital requirement when the riskprofile deviates from the assump-tions underlying the calculation of the requirement using the standard formula or an internalmodel;- “Pillar 2” capital add-ons relatingto governance: these add-onsare used to adjust the capitalrequirement when the quality ofgovernance deviates from thestandards required and make itimpossible to measure andmanage risk properly.

AERAS agreement (Assurer et emprunteravec un risque aggravéde santé)Agreement that aims to offer solutions to facilitate access to insurance and credit for personswho have, or have had, serioushealth problems.

AMF (Autorité des marchés financiers)French securities regulator.

ANC (Autorité des normescomptables)The French accounting standardsauthority. The body responsible forsetting accounting standards appli-cable in France. Executive Order2009-79 of 22 January 2009 merged the CNC with the Comitéde la réglementation comptable(CRC) to form Autorité des normescomptables (ANC), the accountingstandards authority.

BALANCE SHEET ASSESSMENT (BSA)See Comprehensive Assessment

BANKING UNION Set of legislative measures aimedat enhancing financial stability in Europe. They include the SingleSupervisory Mechanism, underwhich, starting on 4 November2014, the European Central Bankwill assume the task of supervisingeuro area banks in liaison with thenational authorities. This supervisionwill be direct in the case of largegroups and indirect for others.Other measures include a SingleResolution Mechanism, establishedby a European Regulation currentlyunder negotiation, and, in the longer term, a common depositguarantee scheme.

CAPITAL (accounting definition)All capital resources available to acompany.

CAPITAL EXERCISEThe exercise conducted by the EBAin 2011 and 2012 to review banks’regulatory capital positions andsovereign exposures, requestingthat banks set aside additionalcapital buffers.

CAPTIVEInsurance or reinsurance companyset up by an industrial or commer-cial group exclusively for the pur-pose of covering its own risks. Bycreating a captive, the parentgroup is able to pool its insuranceand reinsurance programmes toobtain better cover at more com-petitive prices in the internationalinsurance market.

CCSF (Comité consultatifdu secteur financier)Consultative committee thataddresses issues relating to howcredit institutions, payment institutions, investment firms andinsurance companies deal withtheir customers.It takes appropriate measures inthese areas, notably by issuing opinions or general recommenda-tions.

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lossaryG

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CDS (Credit default swap)Contract whereby an institutionwishing to protect itself against riskof non-repayment of a loan makesa series of regular payments to athird party in exchange for recei-ving a predetermined amount if adefault event occurs.

CEBS (Committee of European BankingSupervisors)Replaced 1 January 2011 by theEuropean Banking Authority.

CEIOPS (Committee of European Insuranceand Occupational Pensions Supervisors)On 5 November 2003, the formerinsurance supervisor for EuropeanUnion member states became theCommittee of European Insuranceand Occupational Pension Supervi-sors (CEIOPS). As part of the reformof Europe’s financial supervisory structure, CEIOPS was replaced on1 January 2011 by the EuropeanInsurance and Occupational Pensions Authority (EIOPA).

CFA (Call for Advice)Procedure whereby the EuropeanCommission seeks a technical opinion from the former CEIOPS,now EIOPA.

CIMA (Conférence interafricaine des marchés d’assurance –Inter-African Conferenceon Insurance Markets)Conference that set up uniformcontrols for its member states, i.e.the 14 nations in sub-Saharan Africathat are part of the “franc” zone.

CNIL (Commission nationale de l’informatique et des libertés)Independent administrative autho-rity responsible fordata privacy inFrance.

COMPREHENSIVE ASSESSMENT An assessment conducted by theECB in collaboration with the natio-nal competent authorities of theMember States participating in theSSM to assess the risks of nationalbanking systems. The Assessmentstarted in October 2013 and shouldbe completed before the SSMenters into force in November2014. The three main goals of theComprehensive Assessment are:transparency, enhancing the qua-lity of information available on thecondition of banks; repair, identi-fying and implementing the neces-sary corrective actions; andconfidence-building, assuring allstakeholders that banks are funda-mentally sound and trustworthy. The Assessment includes threeparts: - a prudential risk review, includingliquidity, leverage and financingrisks; - a Balance Sheet Assessment (BSA)to enhance the transparency ofbank exposures by examining theadequacy of asset and collateralvaluation and related provisions,complex instruments and otherhigh-risk assets; - a stress test to examine the resilience of banks’ balancesheets to stress scenarios.

COREP (Common Reporting Framework)Standardised reporting frameworkfor Basel II solvency requirements.

CRD 4Directive 2013/36/EU of the European Parliament and of theCouncil on access to the activity ofcredit institutions and the prudentialsupervision of credit institutions andinvestment firms, which deals withown fund requirements.

CRD IVThe set of legislation consisting ofCRD 4 and the CRR.

CRRRegulation (EU) 575/2013 of theEuropean Parliament and of theCouncil of 26 June 2013 on pru-dential requirements for credit insti-tutions and investment firms, whichdeals with own fund requirements.

CVA (Credit ValuationAdjustment)Estimated credit component ofcounterparty exposure to deriva-tives (e.g. via the counterparty’srating). The CVA is determined dailyby incorporating changes in ratingsand market prices, netting agree-ments and collateral.The higher the counterparty risk, thehigher the CVA.

D-SIB (Domestic Systemically ImportantBank) In addition to Global SystemicallyImportant Banks (G-SIBs – see thisterm), the Basel Committee hasalso looked at identifying DomesticSystemically Important Banks, or D-SIBs. The CRR/CRD 4 legislationcalls for an equivalent categoryunder EU law. This category willcover Other Systemically ImportantInstitutions, or O-SIIs.

DAMPENER APPROACHAlternative approach proposedunder the Solvency II frameworkthat aims to modulate the capitalcharge according to the position inthe stock market cycle and theplanned holding period for theassets.

DEFERRED ACQUISITIONCOST RESERVE(life insurance)An amount less than or equal to thedifference between the amounts ofthe mathematical reserves on thebalance sheet and the amountthat would be recorded if acquisi-tion costs had not been included ininsuredcommitments.

DE-NOTCHINGAs part of a stress test on credit risk,de-notching is a simulation consis-ting in measuring the effects on risk-weighted assets and/or the cost ofrisk of downgrading a counterpartyby one or more notches.

DGT (Direction généraledu Trésor)General Directorate of the Treasury.

DIVERSIFICATION RESERVE(life insurance)Technical reserve designed toabsorb asset price fluctuations inso-called “diversified” contracts.

EBA (European BankingAuthority)Supervisory authority for the Euro-pean banking sector, establishedby Regulation (EC) No. 1093/2010of the European Parliament and ofthe Council of 24 November 2010.

EIOPA (European Insurance and Occupational PensionsAuthority)Replaced CEIOPS on 1 January2011.

EIOPC (European Insurance and Occupational PensionsCommittee)In 2005 the Insurance Committeebecame the European Insuranceand Occupational Pensions Com-mittee (EIOPC) pursuant to Directive2005/1/EC of 9 March 2005. Chai-red by the European Commission,which also provides for the secreta-riat, the EIOPC is made up of theEuropean Union’s 27 regulators(France is represented by the Minis-try for the Economy and Finance),with the three other States of theEuropean Economic Area and thechairman of CEIOPS (EIOPA) actingas observers.The EIOPC was created followingthe application of the Lamfalussyprocess to the insurance industryand is thus a “Level 2” committee.It advises the Commission, onrequest, on policy matters concer-ning insurance, reinsurance andoccupational pensions, as well asthe Commission’s proposals inthese areas.

EMIR (European MarketInfrastructure Regulation)European regulation on over-the-counter (OTC) derivatives, centralcounterparties and trade reposito-ries.

EQUALISATION RESERVEReserve to deal with fluctuations inthe loss experience.It covers natural disaster risks andgroup accidental death policies.

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EQUITY DAMPENERAlternative approach proposed aspart of the Solvency II standards. Itis designed to reduce the pro-cycli-cal effects of market changes on insurance undertakings' equityholdings, by making it possible tomodulate the capital charge forthe equity risk sub-module of theSolvency Capital Requirement (seethis term) up or down by 10%. Theequity dampener is designed tovary according to an indicator defi-ned by the EIOPA: it will reduce thecapital charge when equity pricesare depressed, thus preventing sell-offs aimed at maintaining solvency,and increase the capital chargewhen equity prices increase.

ESMA (European Securities and MarketsAuthority)Replaced the Committee of Euro-pean Securities Regulators (CESR)on 1 January 2011.

ESRB (European SystemicRisk Board)Organisation set up in the wake of the 2009 economic crisis andtasked with implementing macro-prudential oversight and earlyassessment of systemic risk.

EUROPEAN ECONOMICAREAAssociation set up for the purposeof extending the European Union’sinternal market to member Statesof the European Free Trade Asso-ciation (EFTA) that do not wish, orare not ready, to join the EU. TheEEA aims to “remove all obstaclesto the creation of an area of com-plete freedom of movement similarto a national market”. It is thereforebased on the four freedoms of theEuropean Community, i.e. the freemovement of goods, persons, ser-vices and capital among membercountries.

EUROPEAN REGULATIONA law or regulation made by European institutions that is obliga-tory and directly applicable in allMember States.

FASB (Financial Accounting StandardsBoard)Group responsible for issuingaccounting rules applicable in theUSA.

FINANCIAL CONTINGENCYRESERVE (life insurance)Reserve to offset a decrease inasset returns relating to guaran-teed-rate commitments oncontracts other than unit-linkedcontracts. Insurance companieswith a stock of high-rate guaran-teed contracts may generatereturns that are lower than or equalto the amount payable to policy-holders. Because of the shortfall,the company would be unable tocover its future operating expenses.Insurers therefore set aside provi-sions for the difference betweenthe present value of their commit-ments, using a prudent interest raterelative to the return on their assets,and the previously calculatedcommitments.

FREEDOM TO PROVIDESERVICESThe right of an organisation havingits registered office or a branch in aMember State of the EuropeanEconomic Area to provide servicesin another EEA Member State.Thus, a company located in oneMember State can insure a risk inanother Member State.

FREG (Financial Requirements Expert Group)Working group reporting to EIOPA toprepare for Solvency II.

FSAP (Financial ServicesAction Plan)Multi-year European Commissionplan to modernise and open upfinancial services. Adopted in 1999,the FSAP consists of 42 measuresaimed at harmonising MemberStates’ regulations on securities,banking, insurance and mortgagelending and all other forms of finan-cial transactions. It was implemen-ted between 1999 and 2005 andevaluated by the European Com-mission.Following action taken under theFSAP, the European Commissionpublished a White Paper setting outits priorities for financial servicespolicies for the European Union for2005-2010.

FSB (Financial StabilityBoard)Established in April 2009 as the successor to the Financial StabilityForum (FSF).

G-SIB (Global Systemically ImportantBank) The G20 asked the Basel Commit-tee to develop an identificationmethod and supervision measuresfor Global Systemically ImportantBanks in order to eliminate the risksthat “too-big-to-fail” banks pose forthe financial system. The FinancialStability Board now publishes anannual list of these systemicallyimportant banks. The EU has trans-cribed the Basel rules on G-SIBs intoEuropean banking law with theentry into force of the CRD 4/CRRlegislation.

G-SII (Global SystemicallyImportant Insurer) The G20 asked the IAIS to developan identification method andsupervision measures for GlobalSystemically Important Insurers inorder to eliminate the risks that “too-big-to-fail” institutions pose forthe financial system. The FinancialStability Board now publishes anannual list of these systemicallyimportant insurers.

GAAP (Generally Accepted AccountingPrinciples)Standard framework of guidelinesfor financial accounting used in ajurisdiction. US GAAP are determi-ned by the FASB.

HFT (High frequency trading)Financial transactions executed at very at high speed through com-puter algorithms.

IAIS (International Association of InsuranceSupervisors)Organisation that aims to promotecooperation between its members,chiefly insurance supervisors orregulators, and to foster collabora-tion with supervisory authorities inother financial sectors, such asbanks and securities markets.Cooperation has become increa-singly necessary due to the interna-tional expansion of insurancegroups and their diversification intobanking and asset management.

IASB (InternationalAccounting StandardsBoard)Organisation that draws up interna-tional accounting standards, rati-fied by the European Union, forconsolidated financial statements.

IASCFInternational Accounting StandardsCommittee Foundation.

IFRS (International Financial Reporting Standards)International accounting standardsproposed by the IASB, which aregradually replacing InternationalAccounting Standards (IAS).

IGRS (Institutionde gestion de retraitesupplémentaire)Institution that manages a supple-mentary pension scheme.

IGSCInsurance Groups SupervisionCommittee.

IGSRRInternal Governance, SupervisoryReview and Reporting ExpertGroup.

IMEGInternal Model Expert Group.

INTERMEDIARYIn insurance, an individual or entityon a restricted list that offers orhelps to conclude insurance orreinsurance contracts, in exchangefor payment. Activities consistingsolely in managing, estimating orsettling claims are not consideredintermediation.

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IOPS (International Organisation of PensionSupervisors)Independent organisation of repre-sentatives and observers fromaround 50 countries at all levels ofeconomic development. IOPSaims to establish international stan-dards, promote best practices inoversight of private pensions(regimes that are not part of asocial security scheme), foster inter-national cooperation and providea forum for exchanging informa-tion. IOPS cooperates closely withthe other international organisationsconcerned by retirement issues: theIAIS, the International MonetaryFund and the World Bank. TheOECD provides the secretariat.

IOSCO (InternationalOrganization of SecuritiesCommissions) Association of organisations that regulate globalsecurities and futures markets.

IRP (Institutions de retraiteprofessionnelle)Occupational pension institutions.

JOINT FORUMBody established in 1996 under theauspices of the IAIS and its fellowsupervisors in charge of banking(Basel Committee) and securitiesmarkets (International Organizationof Securities Commissions –IOSCO), to address issues commonto the insurance, banking andsecurities sectors, including regula-tion of financial conglomerates.

LAMFALUSSY PROCESSApproach to developing Europeanregulatory standards for the finan-cial sector. The process breaksdown into four levels. Level 1consists of directives adopted bythe European Council and the Par-liament and setting forth the princi-ples to be developed in Level 2(regulations) adopted by the Euro-pean Commission, under the aegisof the Council and the Parliament.Level 3 texts are non-bindingrecommendations. At Level 4, theEuropean Commission is concer-ned with strengthening complianceand dealing with potential miscon-duct.

LCR (Liquidity CoverageRatio)One-month liquidity ratio providedfor the Basel III reforms.

LIQUIDITY RISK RESERVEReserve to be set aside when thecompany’s total nonfixed incomeassets show an unrealised loss rela-tive to acquisition cost (bonds arenot taken into account in this calculation because, unless thecounterparty defaults, no lossshould be realised if the assets areheld to maturity).Since 2003 companies meetingprudential standards (regulatorycommitments, capital adequacyrequirements) can create the liqui-dity risk reserve gradually (over aperiod of three to eight years,depending on the remaining life ofthe liability). The reserve should becalculated net of the reserve forpermanent impairment, which iscalculated for each individual holding and corresponds to theshareof unrealised capital lossesthat the company considers tohave a high probability of beco-ming permanent losses.

“LONG-TERM GUARANTEEPACKAGE”This set of six measures was discus-sed by the trilogue parties for theOmnibus II Directive. The measuresare aimed at reducing the impactof financial market volatility on thecapital of institutions engaging inlong-term activities.The measures include a VolatilityAdjustment, a Matching Adjust-ment, an extrapolation period forthe risk-free rate curve, transitionalmeasures for rates and technicalprovisions and extension of the sol-vency capital requirement reco-very period under exceptionalcircumstances.

MATHEMATICAL RESERVES(life insurance)Amount included in technicalreserves and corresponding to theshare of premiums disbursed by thepolicyholder as savings deposits.The insurance institution must holdthis amount in reserve to meet itscommitment to the policyholder ata pre-determined date.

MCR (Minimum CapitalRequirement)Under Solvency II, the minimumamount of regulatory capital belowwhich an institution’s authorisationwould be withdrawn. The MCR isexpected to be calculated in asimpler and more robust mannerthan the Solvency Capital Require-ment and cannot be less than afixed absolute amount in euros.

MINIMUM GUARANTEEDRATEMinimum interest rate granted byan insurer for annual revaluation ofmathematical reserves.

MMOU or MOU (Multilateral Memorandum of Understanding) Multilateral agreement on coope-ration and exchange of informa-tion.

NSFR (Net Stable FundingRatio)One-year liquidity ratio provided forin the Basel III reforms.

OMNIBUS IIA Directive amending the 2009 Solvency II Directive. Its primaryobjective was to adapt the Solvency II Directive to the newpowers of the EIOPA, following theestablishment of the new Europeanfinancial architecture. Furthermore,Omnibus II should confirm the Solvency II implementation delayand set the transitional periods fora number of measures (equiva-lence assessments, discount rates,etc.) In fact, the Omnibus II Direc-tive provided an opportunity toreview certain quantitative issues,such as long-term guarantees(“Long-Term Guarantee Package”).The trilogue parties ultimatelyagreed to a joint draft on 13November 2013 and the EuropeanParliament passed the Directive atits plenary session on 11 March2014. The delay of Solvency IIimplementation until 1 January2016 was ultimately included in anad hoc Directive called Quick Fix 2,passed on 11 December 2013.

OMTs (Outright MonetaryTransactions)The ECB programme started inAugust and September 2012 underwhich the Bank makes purchaseson secondary sovereign bond markets, under certain conditions,of bonds issued by euro area Member States.

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OPERATING EXPENSERESERVE (life insurance)Reserve designed to cover futuremanagement expenses not cove-red by other reserves. Its amount isbased on the projected incomeand expense of a homogeneousgroup of contracts, according torules set forth in Article A. 331-1-1 ofthe French insurance code. Foreach such group, the amount ofthe reserve is equal to the presentvalue of future managementexpenses less the present value offuture income from contracts.

ORIAS (Organisme pour le registre des intermédiairesd’assurance)Non-profit organisation responsiblefor establishing, maintaining andupdating the register of authorisedinsurance and reinsurance interme-diaries in France, as specified inArticle R. 512-1 et seq. of theFrench insurance code.

ORIGINATORCompany that originally createsdebts or assets (the original lenderin the case of debt) as part of asecuritisation transaction.

ORSA (Own Risk and Solvency Assessment)Internal assessment by an institutionof its risks and solvency, defined in Article 45 of the Solvency II Directive.

PROFIT SHARING (life insurance)Investment of insurance premiumsproduces income known as techni-cal and financial profits. Frenchinsurers are required to allocate aportion of these profits to holders oflife insurance policies.

PROFIT SHARING RESERVE(life insurance)Life insurance companies have theoption of not fulfilling their statutoryprofit sharing requirement imme-diately; they may wait up to eightyears to make the payout.Instead of distributing the amountimmediately, the insurer mayrecord it in an account titled “profitsharing reserve.”

PROVISIONAL ADMINISTRATIONLegal procedure whereby thepowers of administration, manage-ment and representation of thecompany are transferred to a des-ignated administrator. This mea-sure, which derogates from generalcompany law, removes the autho-rity of the existing corporate bodies.

PRUDENTIAL OWN FUNDSThese funds are made up of diffe-rent categories of own funds: Common Equity Tier 1 Capital,Additional Tier 1 Capital and Tier 2Capital. As the case may be, capi-tal requirements are expressed asa minimum level of CommonEquity Tier 1 Capital, as a minimumlevel of Tier 1 Capital (the sum ofCommon Equity and Additional Tier1 Capital), or as a minimum level oftotal capital (sum of Tier 1 and Tier2 Capital).

PSNEM (Provision poursinistres non encoremanifestés)Specific loss reserve required byFrench insurance regulations forfuture claims that have not yetmaterialised.

QIS (Quantitative ImpactStudy)The European Commission reques-ted CEIOPS (now EIOPA) to conductquantitative studies in order tomeasure the impact of Solvency IIon the evaluation of the regulatorybalance sheet and capital require-ments.

REINSURANCETechnique whereby an insurer trans-fers all or part of the risks it hasunderwritten to another entity. Arti-cle 2(1) of Directive 2005/68/ECgives a precise definition of reinsu-rance: “activity consisting in accep-ting risks ceded by an insuranceundertaking or by another reinsu-rance undertaking.” From a busi-ness point o view, reinsuranceenables insurance companies toinsure risks that exceed what theircapital alone would permit. Thisform of cover is legally representedby a contract traditionally known asa reinsurance treaty. In return forpayment, a reinsurer, known as thetransferee, commits to reimbursean insurer, known as the cedant,under stated conditions for all orpart of amounts due or to be paidby the insurer to the insured in theevent of a claim. In all cases wherethe insurer is reinsured for the risks ithas underwritten, it remains solelyliable to the insured (Art. L. 111-3 ofthe French insurance code).

RWA (Risk-weightedassets)Risk-weighted assets are based onbanks’ exposures and their associa-ted risk levels, which depend on counterparties’ creditworthiness,measured using the methods provided for in Basel II.

SCR (Solvency CapitalRequirement)Target capital requirement underSolvency II. The SCR corresponds tothe amount of capital estimatednecessary to absorb the shock ofan event that produces exceptio-nal claims. It is calculated basedon exposure to risks linked to insu-rance companies’ activities, i.e.mainly underwriting, credit, opera-tional, liquidity and market risks.Companies can calculate the SCRin either of two ways: with a stan-dard approach or an internalmodel.

SEC (Securities andExchange Commission)US financial regulator.

SGAM (Société de grouped’assurance mutuelle)Group of mutual insurers offeringsynergy and financial solidarity between its members.

SOLVENCY MARGINREQUIREMENTThe regulatory capital that an insu-rance company must hold in orderto meet the commitments resultingfrom its business. In life insurance,the solvency margin requirementdepends on the mathematicalreserves for unit-linked and non-lin-ked contracts, as well as capital atrisk. In non-life insurance, it dependson the amount of premiums orclaims. Reinsurance may also betaken into account. Note that thevocabulary has changed:Solvency II refers to “a level ofequity” or “capital requirement.”

SOLVENCY II PILLARSThe three Solvency II Pillars are:• Pillar 1: quantitative requirements,particularly for capital and tech-nical reserves

• Pillar 2: supervisory activities andqualitative requirements

• Pillar 3: regulatory reporting andpublic disclosure requirements.

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SPONSORFinancial institution, separate fromthe originator, that establishes andmanages an asset-backed com-mercial paper programme or anyother transaction or securitisationthrough which it purchases thirdparties’ exposures.

TECHNICAL INTEREST RATEMinimum revaluation of mathema-tical reserves that an insurer gua-rantees annually to its policyholders.This rate is used to calculate therate of insurance cover and theamount of mathematical reserves.For prudential reasons, it is determi-ned by regulations and may notexceed a certain number of thres-holds, decreasing with the timeperiod for which it is guaranteed.

TME (Taux moyen desemprunts d’État)Average interest rate on Frenchgovernment bonds.

TRACFIN (Traitement du renseignement etaction contre les circuitsfinanciers clandestins)French financial intelligence unit,run by the finance ministry and res-ponsible for preventing moneylaundering and terrorist financing.

TRANSPARENCY EXERCISE Disclosure exercise carried out bythe EBA in 2013 involving individualbank data with the aim of enhan-cing market discipline and financialstability in the European Union.

VAR (Value at Risk)Maximum potential loss caused byunfavourable change in marketprices, in a specified time periodand at a given probability level (the“confidence level”). VAR is an ove-rall probability measure of marketrisk.

ACPR PUBLICATIONS IN 2013

Analyses et Synthèses include various reports writtenby ACPR staff, notably analyses and commentaries onrisk surveys carried out in the banking and insurancesectors.

14 issues were published in 2013:I Stress tests sur le système bancaire et les organismes

d’assurance en France, January 2013;I La collecte et les placements des 12 principaux

assureurs vie à fin décembre 2012, June 2013;I La situation des grands groupes bancaires français à

fin 2012, June 2013;I Enquête sur les taux de revalorisation des contrats

individuels d'assurance vie au titre de 2011 et 2012,July 2013;

I Enquête sur les taux de revalorisation des contrats collectifs en cas de vie et des PERP au titre de 2011et 2012, July 2013;

I The Risks associated with Cloud computing, July 2013;I Commercial property financing in France in 2012, July2013;

I Performance of the French insurance sector in Francein 2012, July 2013;

I Housing finance in France in 2012, July 2013;I Le suivi de la collecte et des placements des 12

principaux assureurs vie à fin juin 2013, October 2013;I Sociétés d’affacturage – Exercice 2012 : contexte

économique, activité, résultats et risques, October2013;

I Suivi de la collecte et des placements des 12 princi-paux assureurs vie à fin septembre 2013, November2013;

I La situation des mutuelles du code de la mutualité en2012, November 2013;

I Grandes tendances de l’épargne des ménages français au bilan des banques et des assurances: juin2012, December 2013.

Débats économiques et financiers are articlesexpressing the authors’ personal opinions, which do notnecessarily reflect those of the ACPR as a whole. Theyare an invitation to consider questions related to thebanking or insurance business, regulations or prudentialpolicy.

9 issues were published in 2013:

I M. Dietsch and H. Fraisse, How different is the regula-tory capital from the economic capital: the case ofbusiness loans portfolios held by the major bankinggroups in France, February 2013;

I O. de Bandt, N. Dumontaux, V. Martin and D. Médée,Stress-testing banks’ corporate credit portfolio, March2013;

I D. Nouy, Les risques du shadow banking en Europe :le point de vue du superviseur bancaire, April 2013;

I L. Frey, S. Tavolaro, S. Viol, Reinsurance counterpartyrisk for French insurers, April 2013;

I D. Nouy, Banking regulation and supervision in the next10 years and their unintended consequences, May2013;

I O. de Bandt, J-C. Héam, C. Labonne and S. Tavolaro,Measuring Systemic Risk in a Post-Crisis World, June2013;

I B. Camara, L. Lepetit and A. Tarazi, Ex Ante CapitalPosition, Changes in the Different Components ofRegulatory Capital and Bank Risk, June 2013;

I M. Brun, H. Fraisse and D. Thesmar, The Real Effects ofBank Capital Requirements, August 2013;

I M. Lé, Deposit Insurance Adoption and Bank Risk-Taking: the Role of Leverage, December 2013.

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Director of publication: Édouard Fernandez-BolloPhotos: Pascal Assailly / Banque de France - Jean Derennes / Banque de France -

Philippe Jolivel / Banque de France - Peter Allan - Jean-Marc Armani

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