French resolution regime: Secondary legislation
Briefing note
1
November 2013
French resolution regime: Secondary
legislation
The law of 26 July 2013 established a new resolution regime for credit
institutions, financial holding companies, mixed financial holding companies and
investment firms, subject to certain specifications to be set out in a decree.
Such decree was adopted on 30 October 2013. We give a rundown below of
the main provisions of its imports.
holding companies and certain
investment firms (each an
"Entity", both together the
"Entities") in anticipation of the
EU draft Directive on recovery
and resolution of credit
institutions and investment firms;
French resolution
regime: brief
refresher
The law n° 2013-672 of 26 July 2013
on ring-fencing and resolution (the
"Ring-Fencing and Resolution
Law")1 has introduced, amongst
others, the following changes under
French law:
„
„
1
a separation of certain
speculative trading and
investment activities for own
account of systemically important
French banks into dedicated
subsidiaries;
a new resolution regime for credit
institutions, financial holding
companies, mixed financial
The text of the Ring-Fencing and
Resolution Law is available at:
http://www.legifrance.gouv.fr/affichTexte.d
o?cidTexte=JORFTEXT000027754539.
For further analysis of the changes
implemented by the Ring-Fencing and
Resolution Law, see our client briefing at
http://www.cliffordchance.com.
„
„
the French banking and
insurance supervisor ("ACP") is
vested with new resolution
powers and is now renamed
Autorité de contrôle prudentiel et
de résolution ("ACPR"). These
powers are exercised by a newly
created "resolution" committee
within the ACPR;
new rules were introduced on
remuneration of managers and
certain senior employees on top
of CRD III and CRD IV rules.
The implementation of the RingFencing and Resolution Law was
requiring additional secondary
regulations, including in order to
provide for practical arrangements
regarding the functioning of the newly
established resolution committee and
its resolution powers, which is the
purpose of the decree n° 2013-978 of
30 October 2013 (the "Decree"),
published at Journal Officiel n° 0256,
dated 3 November 2013.
Key issues
„
The resolution committee of
the ACPR, being in charge of
preventing and resolving
banking crises, is vested with
broad resolution powers
„
The exercise of such
resolution powers is subject
to a contradictory procedure
„
The measures taken by the
resolution committee are
effective against third parties
„
The conditions upon which
the "no creditor worse off"
principle is implemented are
specified
The resolution
committee and its
office
The new resolution regime is
implemented by a separate resolution
committee, created by the RingFencing and Resolution Law within
the ACPR (next to the supervision
committee and to the sanction
committee).
2
French resolution regime: Secondary legislation
As a reminder, the resolution
committee is specifically in charge of
elaborating and implementing
measures for the prevention and
resolution of banking crises in order to
achieve the following objectives:
„
to preserve financial stability;
„
to ensure the continuity of
activities, services and
transactions of Entities, the
failure of which would have
severe consequences for the
French economy;
„
to protect deposits; and
„
to avoid or limit to the fullest
extent possible, any public bailout.
In order to achieve such objectives,
the Decree creates within the ACPR a
new resolution office (direction de la
résolution) which is in charge of
preparing the resolution committee's
work and implementing its decisions.
The resolution office could require the
ACPR to provide information that the
latter may hold within the exercise of
its prudential control, as well as any
document or internal work which is
necessary to achieve the resolution
committee's objectives.
It should be noted that, like the
supervision committee, the resolution
committee has also been given the
power to start sanction proceedings
against an Entity.
Clarifications
regarding certain
resolution powers
The resolution committee has been
given broad resolution powers, which
include, among other things,
restructuring powers and powers to
replace the management of a failing
Entity. The Decree specifies the
procedure to be followed when
exercising the same.
next business day applies as
from the publication of such
decision on the ACPR's website,
being specified that the relevant
Entity must also publish such
decision on its website (or any
such other media as is
adequately advertised).
Like the supervision committee, the
resolution committee must apply a
contradictory procedure which is
regulated by the Decree:
„
„
a resolution measure has to be
notified to the relevant Entity and
the notification must explain the
reasons given to such measure;
should the resolution measure be
other than a request for
information, the legal
representative of the relevant
Entity must be called upon to
attend a hearing at least five
business days before such
hearing. It is specified that the
convened person may be
assisted or represented by a
person of its choice and must be
given at least five business days
to address its comments to the
resolution committee.
If resolution measures are taken in a
case of urgency, the resolution
committee has three months as from
the notification of such provisional
measures to deliver a final decision
following a contradictory procedure.
The Decree has also clarified an
important issue by specifying that the
measures taken by the resolution
committee are effective (opposable)
against third parties as from their
publication on the ACPR's website.
The Decree specifies the terms of the
resolution committee's powers:
„
the prohibition of payment of all
or part of the debts capable of
being bailed-in under the bail-in
powers cannot exceed six
months (renewable once for the
same period of time) as from the
publication of the resolution
decision on the ACPR's website;
„
the suspension of close-out
netting rights until 5.00 pm the
Conditions of the
"no creditor worse
off" principle
When taking a resolution measure,
the Ring-Fencing and Resolution Law
requires the ACPR to make sure that
no shareholder or creditor incur
losses in resolution greater that it
would have suffered in judicial
liquidation (this principle is commonly
referred to as the "no creditor worse
off" principle). The Ring-Fencing and
Resolution Law further specifies that
the conditions upon which this
principle is implemented are set out in
a decree. The Decree then provides
for the following:
„
the loss estimate must take into
account the assets' liquidation
value (valeur de realisation) on
the day where the resolution
measure was notified to the
Entity;
„
the total estimated losses are
deemed to be allocated in the
following order, which is the
same as under a bail-in:
–
first, to shareholders;
–
secondly, to holders of
subordinated debt of second
priority issued under Article
L.228-97 of the Code de
Commerce, titres
participatifs and other
second priority instruments
whose terms of issue
provide that they would bear
French resolution regime: Secondary legislation
losses on a going concern
basis;
–
thirdly, to holders of other
notes that are subordinated
under their terms of issue to
senior secured or unsecured
creditors.
It should be noted that the
estimated losses are equally
allocated between creditors
60284-5-6571-v0.5
having the same rank
proportionally to the value of their
respective debts.
Further
developments
3
Indeed, issues such as the thresholds
of members' contributions to the
Fonds de garantie des dépôts et de
résolution (FGDR) are still
outstanding and should also be
determined by decree.
The Decree specifies the terms of the
new French resolution regime but
other decrees should be expected.
FR-3000-02
4
French resolution regime: Secondary legislation
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