II-6.2 : A bill on Banking and Financial Regulation was registered with the Presidency of the Assemblée Nationale on December 16th 2009.

Context and Summary

This bill follows the G20 negotiations that took place in Pittsburgh, as well as the European Union initiative and the conclusions of the January 2009 Rapport Deletré (Deletré Report), which proposed the merger of the Commission bancaire (French Banking Commission), the Autorié de contrôle des assurances et des mutuelles (ACAM – French Insurance Company Supervision Authority), the Comité des entreprises d’assurances (CEA—Committee of Insurance Companies), and the Comité des établissements de credit et des entreprises d’investissement (CECEI – the Banking and Investment Firms Committee). Therefore, the outcome of this project is the creation of the Conseil de la régulation financière et du risqué systématique (Financial Regulation and Systemic Risk Council), which will be in charge of advising the Finance Minister on preventing and managing systemic risk. This council would be composed of the Governor of the Banque de France (Bank of France), the President and Vice-President of the Autorité de contrôle prudentiel (The Prudential Control Authority), and the President or a representative of the Autorité des normes comptables (The Accounting Standards Authority). It would be presided by the Finance Minister, or his representative. Even though the new Council will be able to audition finance professionals, the major part of its mission will be coordinating sector-specific regulation through the implementation of brainstorming and idea-sharing structures, which will be responsible for the following: (i) cooperation and information sharing between the participating institutions; (ii) a mission of surveillance and evaluation of the situation of financial markets and their systemic risks, as well as (iii) cooperation in elaborating international and European norms for the financial sector, on which the Conseil de la régulation financière et du risque systématique will be authorised to make any comment or publish any opinion it deems necessary.

Brief commentary

This major Parliamentary project has three major implications. The choice to create this new council reveals the limits of hermetic sector-specific regulation to cope with systemic risk in the financial sector, especially since the true borders between the different branches of financial law are porous. Without going so far as to reconsider the dualist structure of French financial regulation, the bill proposes a practical way to increase discussion between different regulators, by setting up an institutionalised forum for discussion, which should allow for a more global understanding of issues facing the financial sector. Secondly, this bill reflects the European Union’s role in managing the subprime crisis, and in defining the way to get out of it. Many propositions in the bill come from European Directives, like the implementation of a registration and supervisory system for credit rating agencies, with which this bill would entrust the Autorité des marchés financiers (AMF – French Financial Markets Authority). It also includes other propositions set forth by the European Union, such as the creation of a European system of supervision and control of the financial sector, and hedge fund regulation. Lastly, the bill shows the growing tendency towards more government intervention in the financial sector: it unabashedly combines politics and regulation by making the Finance Minister the President of this new Council that is supposed to advise him or her. However, we must highlight the strength of this new Council’s informal power, which is a result of the force of its regulators: the principle of coherency that guides their action.