Organisation and regulation
The financial services industry is organised very differently in France to the UK. There is no one equivalent of the ‘Financial Conduct Authority’ – which regulates all financial services in the UK – and separate rules and regulations exist for the three main industries offering financial products – banks, insurance companies and stockbrokers (sociétés de bourse).
For historical reasons, around 80% of financial services are provided by banks that offer a full range of deposit, loan, investment and insurance products.
Next come the insurance companies. Both sectors have made considerable progress in improving the level of training and ability of their staff. However, you must always remember that they are highly effective commercial operations, aimed at selling their range of products, and that the level of ability of staff remains very varied, especially in the country areas.
The ‘independent’ sector is only marginal in France at present and the notion of an ‘Independent Financial Adviser’ is more loosely defined than in the UK. The nearest French equivalent is the Conseil en Gestion de Patrimoine Independent (Adviser on the management of personal assets).
However, independent financial advice provided is currently an unregulated business!
The regulation comes at a second level – if the advice provided involves the presentation and recommendation of any form of investment product or legal structure, the adviser must be qualified to advise on the relevant ‘regulated business’, or ‘profession réglementée’.
The four main professions réglementées involved are:
1. Insurance broking – regulated by ACAM (l’Autorité de Controle des Assurances et des Mutuelles) under the control of the Finance Ministry, via the Code des Assurances. Registration as an insurance broker is necessary for anyone who gives any kind of specific recommendation of life assurance or protection products and has the right to receive commission on a transaction. An insurance broker can also recommend collective investment funds. The authorisation is based on the qualifications, training and morality of the adviser. All advice must now be presented in writing and there are statutory requirements for considerable professional indemnity cover and protection guarantees for client funds (even if client funds are not held). A new register of authorised insurance brokers, called “ORIAS” was introduced in January 2007 and will be available for consultation by the public. Any employee consultants must be listed by the manager of the business, confirming their acceptable level of training and experience, and taking full responsibility for their actions.
2. Estate agency – regulated by the Loi Hoguet Registration as an estate agent is necessary for any recommendation of property as an investment. Again the agreement is based on the individual, and involves a minimum level of French legal training. There are stringent requirements for financial guarantees to protect client funds.
3. Legal advice – regulated by the Ministry of Justice. Only legal practitioners can provide legal advice and consultations. However, due to the obvious link between financial advice, legal principles and modifications of the law, recent Government instructions have clarified the situation by giving the right to a Conseil en Gestion de Patrimoine to provide relevant legal advice if they have the Connaissance Juridique Appropriée (appropriate legal knowledge).
4. Other financial products, such as stocks and shares and banking products – regulated by the new rules governing the ‘CIF’ – Conseil en Investissements Financiers (Adviser on financial investments). With a view to European harmonisation, the CIF was created in France in 2004. Although governed by the legal framework of the stock exchange (Autorité des Marchés Financiers), the CIF is self-regulated through chosen professional associations of which all will have to be members. The CIF will have stringent rules on client information, similar to those in Britain and will again need professional indemnity insurance. This fourth category of regulated ‘adviser’ is still it its infancy, but the basic rule is that advice on these products should be made against the payment of a fee from the client and the CIF should not receive commission from any product provider.
It is therefore important to ensure that your adviser is regulated under at least one of the above headings, whilst it is often the case that advice given will cover various types of investment product, in which case the adviser should be regulated in each of the relevant categories.