Updated: Sept. 25, 2012 (Initial publication: March 22, 2010)

Sectorial Analysis

II-6.7 : The Ordinance of 21 January 2010 merges the regulatory authorities for the banking and insurance sectors.

by Marie Cullin


Main information

Ordinance n° 2010-76 of 21 January 2010 establishes a new independent administrative authority designated as the Autorité de contrôle prudentiel (Prudential Control Authority), resulting from the merger of the approval and monitoring authorities of the banking and insurance sectors.

Context and Summary

Following the conclusions of the General Finance Inspectorate advising a merger of the monitoring authorities for banks and insurance companies, Ordinance n° 2010-76 of 21 January 2010 establishes a new monitoring authority designated as the Autorité de contrôle prudentiel (Prudential Control Authority)  in charge of ensuring (i) consumer protection, (ii) financial stability at a national and European scale, and (iii) French influence on international negotiations on the reform of financial regulation. The establishment of the Autorité de contrôle prudentiel thus leads to an in-depth modification of the face of financial and banking regulations. Previously, four authorities coexisted:

(i) The Commission bancaire (Banking Commission) in charge of (i) controlling the compliance of credit establishments and investment companies with applicable provisions and (ii) sanctioning any misconducts;
(ii) The Autorité de contrôle des assurances et des mutuelles (Insurance Companies Monitoring Authority), whose main function is to ensure the prudential control of insurance companies. It was granted the power to make recommendations, to take conservatory measures, and, in case of emergency, to take recovery measures and to pronounce sanctions if necessary.
(iii)  The Comité des Etablissements de crédit et des entreprises d'investissement (Credit Establishments and Investment Companies Committee), (charged with making decisions and granting authorisations or individual derogations according to the terms of the regulatory and legal provisions applying to credit establishments and investment companies, except in cases where the Commission Bancaire is competent,
(iv) The Comité des entreprises d'assurance (Insurance Companies Committee), which grants authorisations to insurance companies except in cases where the Autorité de Contrôle des assurances et des mutuelles is competent.
These four authorities have been merged into a single, new independent administrative authority (Article 1 of the Ordinance of 21 January 2010) without legal personality, in charge of verifying proper application of rules applicable to the banking and insurance sectors. In order to fulfil this mission, the Prudential Control Authority has not been granted a regulatory power but rather (i) monitoring and administrative police powers, which will be exercised by the College and (ii) a disciplinary power, assigned to the Sanctions Commission. These powers are limited by the principles derived from Article 6 of the European Convention of Human Rights (ECHR) relating to the fair trial, including the respect of the adversarial trial, transparency, and the presumption of innocence. Consequently, not only shall monitoring reports be established in a contradictory and transparent manner, but also prosecution and judgements are performed by two separate entities within the Authority. Moreover, any decision handed down by the Sanctions Commission can be subject to an appeal before the Conseil d’Etat (State Council) made either by the sanctioned party or the President of the Authority within two months following the decision's notification.

The establishment of the Autorité de contrôle prudentiel also aims at reinforcing monitoring of consumer financial products. Therefore, a structured collaboration between the Authority and the Autorité des Marchés Financiers has been established. It involves a “ common pool” (Article 1 of the Ordinance of 21 January 2010) in charge of monitoring changes in financial products, ensuring common supervision of financial products advertising, and implementing a single help-desk for all questions concerning consumer financial products.

Brief commentary

The Ordinance of 21 January 2010 results in an in-depth modification of the previous regulatory system, for it merges the four previous insurance and banking authorities into the new Autorité de contrôle prudentiel (Prudential Control Authority). This new, single authority is a perfect illustration of the subprime crisis' major consequences for regulation: the development of macroprudential regulation. The subprime crisis indeed highlighted the interconnections between the financial, banking and insurance sectors and highlighted the necessity of reshaping regulation in order provide a coherent response to financial issues. However, it must be emphasized that the merger did not include the Autorité des Marchés Financiers (the Financial Markets Authority). Parliament preserved the independence of the Autorité des Marchés Financiers and preferred an active collaboration through the concept of a 'common pool', rather than a complete merger. This corresponds to the well-tried scheme of regulator networks.

Therefore, in opposition to the microprudential conception that is concerned with the individual institutional default risk, a macroprudential approach that aims at limiting the systemic risk affecting the whole financial sector is today favoured. Nevertheless, the prudential perspective and the regulatory approach are not the same, for the former favours internal risks affecting actors, whereas the latter focuses on external risks proper to the markets, and that because regulation is naturally linked to sectors and markets, it does not concern itself with corporations, governance, internal control and ratios… In the future, one of the major issues at stake shall certainly be to find the best articulation between the prudential and the regulatory approach.

The Prudential Control Authority offers a basis to these promises for better interregulation. On one hand, the merger of the banking and insurance authorities, and their reinforced collaboration with the Autorité des Marchés Financiers offers a possibility to overcome a sectorial approach and to systemically conceive regulation. On the other hand, this approach favours dialogue between the different branches of the financial area lato sensu, and achieving a common response that takes into account the special risks affecting each sector.

It should finally be underlined that the Ordinance includes financial stability at the European level among the missions of the Prudential Control Authority. Macroprudential regulation therefore illustrates the scope of a systemic conception, where the financial sector has no borders. The European Union thus offers a favourable field for common action in order to prevent correlated risks. The problem may however be that the financial market is larger than the European Union, for it is a global market. In this regard, American banking and financial regulation schemes are built on very different bases than in Europe. For instance, American regulation uses direct and frontal intervention in banking and insurance companies, regulating their size and business. This fundamental difference within Western markets, whose business is naturally unified, is a major regulatory issue.

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