An extract from The Lending and Secured Finance Review, 6th Edition
i Banking and financial monopoly rules
Monaco legislation provides for a specific set of banking and financial monopoly rules that shall be strictly observed. Those rules come in addition to strict local regulation whereby any commercial activity shall have prior authorisation from the Monaco government (including banking and financial activities). Those rules prevent, or at least strongly limit, foreign credit or financial institutions from directly or indirectly canvassing, offering and performing banking or financial services in the Principality of Monaco.
For the conduct of banking activities, Monaco credit institutions are licensed and supervised by the French Prudential Control and Resolution Authority (ACPR) pursuant to the Exchange of Letters between the Republic of France and the Principality of Monaco dated 20 October 2010. Locally, banks are also informally supervised by an administrative department of the state in charge of ensuring the compliance of agreements pertaining to banking activities entered into France and Monaco, on the one hand, and the European Union and Monaco on the other.
For the conduct of financial activities (i.e., portfolio management on behalf of third parties naturally, Monegasque or foreign fund management, management advice and order reception/transmission), Monaco credit institutions are licensed exclusively by the local financial regulator, namely the Financial Activities Control Commission (CCAF).
Finally, it should be noted that credit institutions – just as any other businesses concerned in Monaco – are supervised by: (1) the Financial Circuits Information and Control Department (SICCFIN) as far as compliance with AML requirements are concerned; and (2) the Personal Data Control Commission (CCIN) as far as data protection issues are concerned.
ii Legal entities operating as banks
There are two legal forms to operate as a bank in Monaco: either as (1) a Monegasque branch of a foreign banking institution duly licensed to conduct banking activities in Monaco; or as (2) a Monegasque public limited company. Both legal forms would require, in addition to the ACPR’s licensing (except for branches of French authorised credit institutions), prior government authorisation before operating banking activities in Monaco.
Legal and regulatory developments
i International regulations
On 29 November 2011, Monaco and the European Union concluded a revised monetary agreement (the former dated 2001) composed of a core agreement and two Appendices (Appendix A and Appendix B). According to this agreement, Monaco must apply to credit institutions all measures taken by France to transpose the EU Directives or Regulations listed in Appendix A as far as the activity, the control of credit institutions or the prevention of systemic risk in payment and settlement systems are concerned. The monetary agreement also sets forth a list of EU Directives and Regulations in Appendix B, for which Monaco is to take equivalent-effect measures. One of the most recent ones is the fifth Anti-Money Laundering Directive, which lead to updating the Monegasque law on the topic.
The two Appendices are regularly amended as the last amendment occurred on 1 April 2021 by Sovereign Ordinance No. 8,600, resulting in the addition of 16 new European Regulations in total to those, including Directive 2019/878 (the CRD V Directive) as well as EU Regulation 2019/876, both dated 20 May 2019. These two texts thoroughly revised the regulatory requirements in terms of governance and internal control and, above all, create new obligations for European banks (concerning, inter alia, variable remuneration, outsourcing, audit cycles and conflicts of interest).
It should be noted that Monaco had also previously indirectly proceeded to implementation of Basel III derived from Directive 2013/36/EU dated 23 June 2013 (the CRD IV Directive), as the framework issued from that was transposed in France and, therefore, applicable and enforceable against Monegasque banks in accordance with the monetary agreement. Consequently, requirements such as the regulatory capital requirements, are similar and at the same level as those in force within the European Union.
ii National regulationsThe reinforcement of the AML framework
From a banking regulation perspective, the recent trend in banking regulation is definitely anti-money laundering regulation. The AML legislative and regulatory framework is constantly reinforced in Monaco to keep equivalent standards to EU AML regulation. A deep and complete redesign of the Monegasque AML regulation has occurred recently, and following that, the Monegasque AML law has been amended to take new measures to transpose the EU’s fifth Anti-Money Laundering Directive. In this respect, banks in Monaco are required to regularly adapt their practices and operational activity to this constantly evolving AML framework.
Law No. 1,503 of 23 December 2020 has recently strengthened customer due diligence in high-risk third countries. This Law has widened the accessibility of the register of beneficial owners and the register of trusts; has created a register of payment accounts, bank accounts and safe-deposit boxes, kept by the SICCFIN on the basis of declarations made by financial institutions. It has also reinforced the obligations of vigilance by tightening the controls and formalism of the KYC procedures of, in particular, financial institutions, and also of business relations and transactions involving high-risk states or territories.
The promotion of the fintech sector
The rise of the fintech sector has recently also been a concern for the Monegasque government as a legal framework (Law No. 1,491 of 23 June 2020 and Sovereign Ordinances No. 8,258 of 18 September 2020) has been adopted last year to promote the development of blockchain in Monaco, and especially the initial coin offering that constitutes a new and competitive way for companies in Monaco to access new financing methods.
Outlook and conclusions
i Outlook for the Monaco financial market
A bill No. 1,035 to the Monegasque Law No. 1,338 of 7 September 2007 on financial activities, as amended, resulting from the Principality of Monaco’s desire to become an ordinary member of the International Organisation of Securities Commissions, of which the CCAF has been an associate member since January 2018, was submitted to the Monaco National Council on 30 April 2021. This bill contemplates creating a new legislative framework for the exercise of financial activities in Monaco.
In particular, we can note:
- that the powers of the CCAF have been strengthened both in terms of supervision and legislation-monitoring;
- the end of the incompatibility regime between the management of Monegasque funds and the exercise of the RTO service;
- new rules relating to canvassing;
- the abolition of certain derogations previously favourable to credit institutions;
- new requirements in terms of policy and management of conflicts of interest; and
- regulation of market abuse in Monaco.
ii Outlook of the anti-money laundering landscape
A bill No. 1,037 (16 Articles) has been submitted to the Monaco National Council on 17 May 2021 and is aimed at completing the amendments recently made by the Monegasque Law No. 1,503 of 23 December 2020 to strengthen the system for combating money laundering, terrorist financing and corruption.
This bill contemplates bringing new legislative amendments that could not be made during the discussions and the vote of Law No. 1,503 but also to rectify several material errors. This draft clarifies the categories of professionals subject to the AML/CFT/CO system, the scope of which has been extended following the EU’s fifth Anti-Money Laundering Directive.
In particular, we can note that:
- new professionals are subject to AML/CFT/CO obligations: the luxury professionals;
- there is a new obligation to report to the SICCFIN for traders and persons dealing in goods when the value of the transaction or a series of related transactions is paid in cash for an amount equal to or greater than €10,000; and
- certain amendments relating to the reporting of suspicions to fully comply with the provisions of the fifth Anti-Money Laundering Directive.