Transposition of CRD V relating to credit institutions’ authorization and prudential supervision

France continues the transposition of Directive (EU) 2019/878 (the Capital Requirements Directive, CRD V) into its legal system, and adopted in this respect two administrative orders (arrêtés) on 25 February 2021, relating to (i) the authorization, changes in status and withdrawal of authorization of credit institutions (and French finance companies, payment institutions and electronic money institutions – the Authorization Order) and to (ii) prudential supervision on a consolidated basis (the Prudential Supervision Order). Said orders were published in the French official journal dated 6 March 2021.

1. Modifications relating to credit institutions’ authorization

The Authorization Order aims at modifying existing rules resulting from European Union (EU) regulations, implemented into French law by two administrative orders dated 4 December 2017. The two main changes thereby implemented into French law are the following:

• in addition to the capital providers’ identity, entities applying for a credit institution authorization should also evidence the appropriateness of said capital providers, on the basis of the following criteria, listed by article R. 511-3-2 of the French monetary and financial Code:
  1. the good repute of the capital providers;
  2. compliance with French requirements on good repute, knowledge, skills and experience of the managers;
  3. the financial soundness of the capital providers;
  4. the ability of the credit institution to comply and continue to comply with its prudential obligations; and
  5. the existence of reasonable grounds to suspect that a money laundering or terrorist financing operation or attempt is being or has been carried out.
• in the event of a simultaneous (a) approval procedure of a financial holding company, a mixed financial holding company or the parent undertaking of a finance company and (b) acquisition procedure by such entity of a credit institution, the latter procedure shall be suspended for a minimum period of twenty business days or until the completion of the former approval procedure.

2. Modifications relating to credit institutions' prudential supervision

The Prudential Supervision Order amended two existing orders, dated 3 of November 2014, relating respectively to prudential supervision on a consolidated basis and to prudential supervision and risk assessment process for banking services providers and investment firms other than portfolio management companies.

Firstly, the Prudential Supervision Order modified existing rules on competence of the French banking Authority (Autorité de contrôle prudentiel et de résolution, the ACPR) to supervise on a consolidated basis credit institutions and/or investment firms authorized in different EU / European Economic Area member States having the same parent (mixed) financial holding company established in a EU member State: the ACPR is now competent when it is the competent authority of:

• the credit institution where it is the only credit institution within the group;
• the credit institution with the largest balance sheet total, where there is more than one credit institution within the group; or
• the investment firm with the largest balance sheet total, where there is no credit institution in the group.

As regards prudential supervision and risk assessment process, the Prudential Supervision Order introduced several modifications, relating among others to the requirement, for the ACPR, to use a proportionality approach when controlling and assessing compliance, by credit institutions, with capital requirements obligations arising from regulation (EU) n^o 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms, as amended (CRR), and to inform the European Banking Authority (EBA) when suspecting a money laundering or terrorist financing operation or attempt. The Prudential Supervision Order also modified the scope of the controls conducted by the ACPR, the methods used and the scope of the specific recommendations made by the ACPR to a specific entity in relation additional own funds requirements.

It is to be noted that whereas most of these provisions already entered into force, a few of them will only become applicable as from 28 June 2021.