MONACO: REGULATORY FRAMEWORK FOR BANKS UNDER SCRUTINY

In a move to strengthen the country’s financial sector, Monaco’s regulatory authorities have outlined the framework governing the operations of credit institutions in the principality. A recent report highlights key aspects of the regime, including the requirements for opening insolvency proceedings against banks and the implications for foreign ownership.

INSOLVENCY PROCEEDINGS

Notably, some insolvency proceedings cannot be initiated against a credit institution without prior notice and approval from the Autorité de Contrôle Prudentiel et de Résolution (ACPR). This requirement underscores the importance of prudent risk management in the financial sector. Furthermore, Monaco has adopted Directive 2001/24/EC on the reorganisation and winding up of credit institutions, which provides for a single bankruptcy proceeding when a bank with branches in several European Union member states becomes insolvent.

FUND PROVISION FOR DEPOSITORS

The Fond Monégasque de Garantie des Dépôts et d’Assurance (FGDR Funds) may intervene upon the ACPR’s request to compensate depositors subject to specific conditions. This provision aims to protect depositors in the event of a bank failure.

CHANGES IN CAPITAL ADEQUACY GUIDELINES

The European Commission has proposed changes to the Capital Requirements Directive and Regulation, which are currently under negotiation. While these changes may impact the capital adequacy guidelines for banks, no significant alterations are expected in the near future.

OWNERSHIP RESTRICTIONS

There is no specific definition of “control” under Monegasque law, but the ACPR has a power of veto over bank acquisitions. Any project to acquire at least 10% of a Monegasque bank must be notified to the regulator, which will evaluate the conditions and respectability of the acquirer.

FOREIGN OWNERSHIP

Monegasque laws do not impose formal restrictions on foreign ownership of banks. However, any acquisition requires de facto approval from the ACPR.

IMPLICATIONS FOR CONTROLLING ENTITIES

Entities controlling banks are subject to regulatory requirements, including:

• Disclosure obligations
• Potential vetoes by the ACPR in cases where share sales do not meet certain criteria
• In the event of a bank’s insolvency, shareholders may be required to financially support the institution or face resolution measures

REGULATORY APPROVALS FOR CONTROL

To acquire control of a Monegasque bank, entities must notify: + The CCAF (Commission de Contrôle des Activités Financières) + The ACPR The regulator will evaluate the acquisition proposal and has the power to veto it if deemed necessary.

FOREIGN ACQUIRERS

Monegasque regulatory authorities are receptive to foreign acquirers, with the acquisition process similar to that applicable to domestic investors. Foreign investors must comply with relevant regulations and obtain required approvals from the ACPR.

The report highlights Monaco’s commitment to ensuring a robust financial sector, while also promoting investor confidence through a transparent regulatory framework.