January 2022
The draft law n° 1.035 amending Law n° 1.338 of September 7th 2007 on financial activities (“Law 1.338“), which was tabled in Public Session on May 10th 2021, was voted in Public Session on December 15th 2021, leading to the enactment of Law n° 1515 of January 7th 2022 amending Law n° 1.338 of September 7th 2007 on financial activities, as amended (the “Law“).
In order to better contextualise the purpose and nature of the Law, we suggest you read our commentary on draft law n° 1.035 in the “Latest News” section of our website.
The Law responds to an international legislative logic aiming at better protecting investors and promoting a secure functioning of financial markets. You will find in this note the major novelties and differences introduced by the Law.
Firstly, the Law clarifies, without changing the substance, the definitions of financial activities subject to authorisation by the Commission de Contrôle des Activités Financières (“CCAF“) provided for in Article 1 of Law n° 1.338[1].
The Law (Article 3) puts an end to the incompatibility of the activities of management of collective investment scheme under Monegasque law with the activities of portfolio management on behalf of a third party, reception and transmission of orders on behalf of third parties, execution of orders on behalf of third parties and dealing on own account.
Article 7 of the Law replaces the regime of prior information to the CCAF when a licensed firm intends to modify one or more characteristic elements of its license in favour of the requirement of a systematic prior approval of the CCAF. In addition, the Law provides that decisions to revoke authorisations will henceforth be published in the Monaco legal bulletin, namely the “Journal de Monaco”.
The Law reinforces the duties of the CCAF and underlines its status as an independent administrative authority for the supervision of financial activities on the Monegasque territory:
– The CCAF now rules on applications for changes to authorisations, in accordance with the conditions laid down in the Law;
– It is specified that authorised companies may apply directly to the CCAF to have their authorisations revoked;
– The Law reconfirms that the CCAF ensures that authorised companies and credit institutions that carry out the activity of custody or administration of financial instruments, as well as the persons under their authority or acting on their behalf, must comply with the professional obligations to which they are subject by virtue of the legislative and regulatory provisions applicable to them. To this end, the CCAF may obtain from the said persons any documents or information, regardless of the medium, that are useful for the performance of its duties;
– International cooperation in the area of financial market supervision has prompted the legislator to explicitly provide that the CCAF participates in the protection and information of investors, but also in the proper functioning of financial markets, through the execution of cooperation and information exchange agreements concluded with the competent foreign authorities in this field.
– The Law specifies that the CCAF has a right of control to ensure the regularity of operations carried out establishes authorised companies and the respect of professional obligations of all professionals placed under its responsibility. The CCAF has the power to investigate, at the request of foreign authorities with which it has concluded a cooperation agreement, any fact likely to undermine the protection of investors and/or the due functioning of financial markets, at the request of foreign authorities with which it has concluded a cooperation agreement[2].
– Article 10 (8) of the Law provides that in the context of its duties, the CCAF may, under certain conditions[3], conclude cooperation agreements with foreign authorities competent in the field of financial market supervision, in particular by exchanging information.
The Law specifies and adds new provisions relating to the independence of the CCAF and its members, but also relating to the nature and exercise of its investigative powers.
The Law provides that authorised firms must henceforth put in place a system to identify situations of conflicts of interest and take all reasonable measures to prevent such conflicts of interest affecting the interests of their clients. This system includes the obligation to establish written procedures for managing conflicts of interest, adapted to the size and activities of the authorised company in question, under the conditions set by Sovereign Order.
Article 23-2 of the Law is new in that authorised firms must now keep relevant information and a record of all services they provide and all transactions they carry out, enabling the CCAF to monitor compliance with their obligations, in particular with regard to clients.
The Law provides that while it is important that the authorisation that has been issued to authorised companies appears on their commercial documentation, this mention for advertising purposes, presented in particular as constituting a label of quality of management, is strictly prohibited.
A significant change to the current regime, Article 13 of the Law specifies that within four months[4] of the end of the financial year, authorised companies must send the CCAF an annual activity report and a certificate drawn up in accordance with the conditions defined by Sovereign Order. At the latest fifteen days after the approval of the annual accounts, the said companies shall send to the CCAF the annual accounts and their statutory auditors’ reports.
The Law creates an Article 31-1 which provides that the statutory auditors of authorised companies are released from professional secrecy with regard to the CCAF. This article provides, in addition to the obligation of the statutory auditors to alert the CCAF when they become aware that the activity of an authorised company does not comply with its authorization, a new obligation to report to the CCAF any fact concerning an authorised company that would constitute a breach of legislative or regulatory provisions applicable to that company and that could have a significant effect on the financial situation, the results or the assets and liabilities, any fact that would affect the continuity of the company’s operations and any fact that would lead to the issuance of reservations or the refusal to certify the accounts[5].
The Law provides, in particular, that the CCAF may temporarily suspend the authorisation of an authorised company for a maximum period of six months or withdraw this authorisation if the company has not engaged, without legitimate reason, in any significant activity for a period of six months, as opposed to twelve months previously.
The Law provides that, in addition to the fact that decisions imposing sanctions of suspension or revocation of authorisation are published in the Journal de Monaco, they will also be published on the CCAF’s website[6].
Article 21 of the Law increases to six months (instead of three months) the period during which the authorisation of a licensed company may be suspended by the CCAF in case of emergency.
The Law also devotes an entire section to market abuse offences and related criminal sanctions.
Our team remains at your disposal to assist you and to answer your questions on this matter.
ALFA MONACO
[1] For example, the reception and transmission of orders on the financial markets, relating to securities or financial futures instruments, on behalf of third parties becomes: “the reception and transmission of orders on behalf of third parties”.
[2] Under certain conditions, discussed in more detail in the Law.
[3] Such conditions are discussed in more detail in the Law.
[4] As opposed to 6 months previously.
[5] The same obligation applies to facts and decisions of which they become aware in the course of their work with a parent company or subsidiary of an authorized company. Statutory auditors cannot be held liable for information or disclosure of facts which they make in the performance of their duties or the obligations imposed by the Law.
[6] Other sanction decisions may be published in the Journal de Monaco and, where appropriate, on the CCAF website.