An insight into recent investigations in France: Key aspects of the AMF’s 2015 Annual Report

On 17 May 2016, the Chairman of the French Autorité des Marchés Financiers (AMF), Mr Gérard Rameix, presented the AMF’s 2015 Annual Report to the media (the Report). The Report outlines the key activities carried out by the AMF over the course of 2015, as well as the regulator’s main objectives for 2016. In particular, it provides an insight into the inspections, investigations, settlement agreements and sanction procedures conducted by the AMF in 2015.

Although these are not directly presented as areas of focus for the AMF, the fact that risk prevention is identified as one of the regulator’s top priorities in 2016 should lead to tighter controls on regulated professionals and more investigations over the coming year.

#1: Inspections

Over the course of 2015, the AMF opened 36 inspections on 12 investment service providers (ISPs), 18 portfolio management companies and 6 financial investment advisors. The Report shows that this figure is lower than in previous years; the AMF opened 42 inspections in 2014 and 56 inspections in 2013.

The Reports justifies the downward trend in the number of inspections carried out by the AMF in 2014 and 2015 by the fact that it very rarely called upon external supervisory bodies such as the French banking regulator, the ACPR (Autorité de contrôle prudentiel et de résolution), without providing any further explanation.

Approximately one third (12 out of 33) of the inspection reports sent in 2015 gave rise to disciplinary proceedings opened by the AMF’s Board (Collège de l’AMF) against 3 investment service providers, 8 portfolio management companies, and 1 financial investment advisor. In 8 of these cases, the notification of administrative charges (notification de griefs) was accompanied by a proposal to enter into a settlement agreement.

According to the Report, the following information from the inspections in 2015 should be kept in mind:

• Inspections were carried out on ISPs of very different sizes and concerned various themes, including custody account-keeping, financial analysis, the depository control function of collective investment funds, the management of conflicts of interest, the marketing of financial instruments, and automated devices for detecting market abuse.
• Various sized portfolio management companies with diverse activities (monetary and bond management, investment capital, structured finance, securitisation etc.) were inspected by the AMF. The Report states that particular attention was paid to the following recurring themes which are “decisive” with regard to the protection of investors: the supervision and management of conflicts of interest, the quality and traceability of internal control mechanisms, compliance with the company’s activity program, the quality of the information provided to investors and compliance with the rules set out in the products’ regulatory and contractual documents, etc. Several of the inspections also concerned the fight against money laundering and terrorist financing, which remains a 'key inspection theme' in light of the fourth European directive on this subject.
• Since May 2014, the AMF has conducted 162 “mass” inspections on financial investment advisors, with the support of external firms or regional departments of the Banque de France, 10% of which were supplemented by an on-site inspection. The Report notes that the financial investment advisors did not always control the risks of certain atypical products that they advised to their clients and that their compliance with their professional duties in the context of their client relationships or AML/CFT due diligence was sometimes perfectible.

#2: Investigations

A total of 65 investigations were opened by the AMF in 2015, whereas 83 investigations were opened in 2014. Out of these 65 investigations, 25 were opened on the AMF’s own initiative (compared to 33 in 2014) and 40 were opened in the context of international cooperation between regulators.

Almost all (24 out of 25) of the investigations opened on the AMF’s initiative followed a proposal from its Market Surveillance Department (Direction de la surveillance des marchés) and the remaining one followed an alert from its Issuers Department (Direction des émetteurs).

The majority of these investigations (20 out of 25) concerned possible market abuse, as in 2014 (27 out of 33 investigations).

Out of the 75 investigations completed by the AMF in 2015, 48 were conducted in order to assist foreign regulators. Among the latter 27 investigations conducted on the AMF’s own initiative:

• 8 gave rise to the opening of sanction proceedings;
• 15 were transferred to the judicial authorities;
• 11 led to the issuance of one or several letters of observation (reiterating the regulation in force);
• 11 were dismissed;
• 1 led to a press release by the AMF.

#3: Settlement agreements ('composition administrative')

The settlement agreement procedure is proving to be increasingly successful. The Reports shows that 12 settlement agreements were approved by the AMF Enforcement Committee (Commission des sanctions) in 2015, amounting to €1.32 million in total, compared to only 9 settlement agreements in 2014.

Settlement agreements that were published in 2015 concerned various issues, such as the use of the client’s assets, the filing suspicious transaction reports, and the detection of market abuse…

At present, market abuses are excluded from the settlement agreement procedure. However, a Bill (named 'Sapin 2' after the Minister of Finance Michel Sapin) is currently making its way through Parliament, which proposes to extend this procedure to market abuse. The Secretary General of the AMF, Mr Benoît de Juvigny, has praised this proposal, considering that it will give the AMF an additional tool to quickly deal with small market abuse cases.

#4: Sanctions

Among the 22 decisions issued by the AMF Enforcement Committee in 2015, concerning 42 individuals and 29 legal persons, only 2 individuals were cleared of the charges.

That being said, the AMF Enforcement Committee was more lenient in 2015 than in 2014 in terms of the total amount of fines issued. Overall, it issued 65 fines against 37 individuals and 28 legal persons, ranging from €3000 to €5 million. These fines amount to €21.32 million in total, as opposed to the record total of €32.86 million in 2014. Out of this total amount, €10 million comes from the Euronext-Virtu case alone which notably concerned price manipulation committed by a high frequency trader.

The AMF Enforcement Committee also issued 4 disciplinary sanctions against 3 individuals and 1 legal person (2 warnings, 1 reprimand, and 1 temporary ban to operate a certain activity), 2 of which were not accompanied by a financial sanction.

The Report shows that the breaches sanctioned by the AMF Enforcement Committee in 2015 include price manipulation (10%), insider trading (23%), breaches of the rules regarding the information provided to the public (31%) and breaches of professional duties (36%).

With thanks to Dan Benguigui, a Counsel in Allen & Overy’s Paris office, who kindly assisted with the preparation of this blog post.