Law No 1.515 of 23 December 2021 amending Law No 1.338 of 7 September 2007 on financial activities

Law No. 1.515 of 23 December 2021 amending Law No. 1.338 of 7 September 2007 on financial activities, as amended (published in JDM No. 8572 of 7 January 2022) is the result of Bill No. 1035 (2021-10, 21 April 2021), received by the National Council on 30 April 2021 and passed on 15 December 2021.

The reform of Law No. 1.338, a prerequisite for the CCAF to obtain the status of Ordinary Member of IOSCO (obtained in October 2022):

The modernisation of Law n° 1.338 on financial activities is part of the objective for the Commission de Contrôle des Activités Financières (CCAF) to obtain the status of Ordinary Member of the International Organisation of Securities Commissions (IOSCO).

For the Principality of Monaco, the aim is to be "recognised at international level alongside the many States which, through their membership of the IOSCO, participate in the protection of investors and the proper functioning of financial markets". (Explanatory memorandum to Bill 1035, p. 2)

The international cooperation (mutual assistance and exchange of information between competent financial market regulators and supervisors) pursued by IOSCO is "aimed at ensuring compliance with laws designed to suppress securities offences and to enable the supervision of transactions, intermediaries, markets and the bodies involved in their operation" (Explanatory Memorandum to Bill 1035, p. 8). IOSCO's objectives and principles of securities regulation were endorsed by the G20 and the Financial Stability Board created in 2009.

The CCAF was granted associate membership of IOSCO in January 2018 and as such was a member of the Presidents' Committee (which meets once a year at the Annual Conference), but had no voting rights.

The CCAF initiated the process of joining IOSCO as an Ordinary Member in 2018. (Explanatory Memorandum to Bill 1035, p. 3)

IOSCO Ordinary Membership is conditional on the signing of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU).

The favourable opinion of the IOSCO Screening Group, sent to the CCAF on 10 November 2020, was given subject to prior amendments to Law No. 1.338 to meet the required criteria, which Law No. 1.515 formalises.

Composed of the members of the Monitoring Group, the Screening Group's tasks are to assess whether the applicant has the legal authority to comply with the specific provisions of the MMoU, to make a general recommendation to the Decision-making Group, to review the Verification Team's report, to notify the applicant of the proposed recommendation before advising the Decision-making Group and to give the applicant the opportunity to be heard if he/she disagrees with the Recommendation.

On the occasion of the IOSCO Annual Congress held in Marrakech from 17 to 19 October 2022, the CCAF signed the multilateral cooperation agreement allowing it to become an ordinary member of IOSCO.

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Amendments to Law No. 1.338 on financial activities:

> Strengthening of the CCAF's missions, including supervision and investigation, and its status as an Independent Administrative Authority (amendment of Section II, Subsections I to IV: art. 10 to 15 L. 1.338);

> Clarification of the relationship of the CCAF with supervisory authorities and the exchange of information (amendment of Section II, Subsection V: Art. 16 to 20 L. 1.338);

> Modernisation of the statement of financial activities the exercise of which in Monaco requires authorisation by the CCAF (amendment of Article 1 L. 1.338), as follows:
1°) management of portfolios on behalf of third parties ;
2°) management of undertakings for collective investment under Monegasque law
3°) reception and transmission of orders on behalf of third parties
4°) advice and assistance in the matters referred to in 1°) to 3°) ;
5°) execution of orders on behalf of third parties
6°) management of undertakings for collective investment under foreign law
7°) trading on own account.

> Removal of the incompatibility of managing collective investment schemes under Monegasque law with portfolio management on behalf of third parties, receiving and transmitting orders on behalf of third parties, executing orders on behalf of third parties and dealing on own account (deletion of paragraph 2 of Article 4 L. 1.338);

> Reinforcement of the requirement to identify capital providers and shareholders of authorised companies, obligations to keep records and to record services and transactions (amendment to Article 5(1) L. 1.338);

> Prior authorisation of the CCAF for the modification of authorisations instead of simply informing the CCAF (amendment of Art. 8 L. 1.338);

> Stricter rules for authorised companies regarding conflicts of interest (new Articles 23-1 and 23-2 L.1.338). The rules for managing conflicts of interest must be laid down in writing and be appropriate to the size, organisation and nature of the activities of authorised companies, in accordance with the procedures defined by Sovereign Order. Licensed firms must keep relevant information and a record (including telephone conversations and electronic communications relating to transactions) of any services they provide and any transactions they undertake, enabling the CCAF to monitor compliance with their obligations.

> Replacement of the general obligation for authorised companies to communicate to the CCAF documents relating to their activities and intended for their clients or the public prior to their publication or dissemination, the initiative for this communication being given to the CCAF (amendment of Art. 28 L. 1.338).

> More precise regulation of the conditions under which advertising aimed at proposing, by whatever means, financial services or products may or may not be carried out on the territory of the Principality (amendment of Art. 29 L. 1.338);

> Removal of the exemption granted to credit institutions with regard to canvassing [Art. 29 L. n° 1.338] and the communication of documents relating to their activities and intended for their clients or the public prior to their publication or distribution to the CCAF [Art. 28 L. n° 1.338] (amendment of Art. 32 L. 1.338);

> Modification of the deadlines for sending to the CCAF the annual activity report and the certificate [4 months instead of 6], the annual accounts and the auditors' reports [at the latest 15 days after the approval of the annual accounts] (amendment of Art. 30 L. 1.338);

> Inclusion of a new obligation for auditors to report to the CCAF any fact concerning an authorised company that is likely to affect the company's financial situation or that could lead to the issuance of reservations or the refusal to certify the accounts (new Article 31-1 of Law No. 1.338);

> Extension of the CCAF's jurisdiction over companies that engage in financial activities without prior authorisation, which will be entitled to give the company concerned formal notice to cease such activities (new Article 33-1(2) of Act 1.338);

> From now on, the CCAF may order the temporary suspension of the authorisation or its definitive withdrawal if the authorised company has not engaged in any significant activity for a period of six months (instead of 12 months) without legitimate reason (amendment of Article 34(2)(1) of Law 1.338);

> Automatic publication of decisions to suspend or revoke authorisation issued by the CCAF, not only in the Journal de Monaco but also on the CCAF website; publication of other decisions to impose sanctions is optional (amendment of the last paragraph of Article 39 L. 1.338);

> With regard to the criminal penalties incurred by the directors of companies authorised under Art. 48 of Law No. 1.338 [obstructing the audits or controls of the auditors or refusing to provide them with documents useful for the performance of their duties; refusing to provide the CCAF or the persons it authorises under Art. 13 with documents useful for the performance of their duties; failing to provide the information provided for in Art. 28 or publishing or causing to be published, distributing or causing to be distributed documents in disregard of a decision of the CCAF requiring the modification or prohibition thereof; in violation of the provisions of Art. 29, making or causing to be made available to the public the documents required by the CCAF for the performance of its duties. 28 or publish or cause to be published, disseminate or cause to be disseminated documents in disregard of a decision of the CCAF prescribing their modification or prohibition; in violation of the provisions of Art. 29, take steps or cause to be taken steps, or cause to be taken steps, or cause to be inserted prohibited advertising information], increase of the maximum criminal penalty incurred, which may be increased to three times the figure 4°) of Art. 26 of the Criminal Code (amendment of the first paragraph of Art. 46 of L. 1.338);

> Clarification that offences consisting of obstructing the CCAF's checks and investigations or providing it with inaccurate information, as well as breaches of the prohibitions on commercial approaches or advertising mentioned in Article 29, may be prosecuted against any person and not only against the directors of approved companies (amendment of numbers 2°) and 4°).

> Clarification that the offences of obstructing the CCAF's checks and investigations or providing it with inaccurate information, as well as breaches of the prohibitions on commercial approaches or advertising mentioned in Article 29, may be prosecuted against any person and not only against the directors of authorised companies (amendment of paragraphs 2°) and 4°) of Article 46 of L. 1.338);

> Increasing the criminal penalties provided for in Art. 48, moved to point 4°) of Art. 26 of the Criminal Code [for any person, not responding to the CCAF's summons, without legitimate reason, for a hearing; for the directors of authorised companies, not transmitting to the CCAF the documents mentioned in Art. 30; for any person other than the directors of approved companies, obstructing the audits or controls of the auditors or refusing to provide the latter with documents useful for the performance of their duties] (amendment of 1st para, 1°) and 2°) of Art. 48 L. 1338);

> New provision on criminal penalties for legal persons held criminally liable for the offences defined by Law 1.338 under the conditions of Article 4-4 of the Criminal Code [fine provided for in Art. 29-2 of the Criminal Code and penalties provided for in Art. 29-3 and 29-4 of the Criminal Code] (amendment of Art. 49 L. 1338);

> Creation of a new section on market abuse offences (insider dealing, market manipulation) based on the model of French law (derived from European Union rules*), taking into account the absence of a stock exchange in Monaco (no definition of "accepted market practice"): full definition of insider dealing (three categories: internal, external, tertiary), disclosure of privileged information, dissemination of false or misleading information; introduction of offences of market manipulation (three categories: related to orders and behaviour, resulting from dissemination of false or misleading information, concerning benchmarks) (new Section VI. L. 1338).

* Directive 2014/57/EU of 16 April 2014 on criminal sanctions for market abuse; Regulation (EU) No 596/2014 of 16 April 2014 on market abuse.