If government let the market forces to play freely though the relaxation of regu- lation to give access to the financial markets to many more players, consumers might fall victim to the negative consequences offinancial inclusion. The damages
suffered may include debt distress linked to excessively high interest rates, to undue grating of loans, the loss of savings or assets pawned in the hands of unscrupulous players who enter the market seeking short term profits. It can be acceptable that high interest rate are charged in difficult to serve markets, with high risks, but in the absence of control and oversight somefinancial institutions would be inclined to overbill for services.
When buyers and sellers conclude a transaction, information is a key element in establishing a relationship of powers. Consumers, especially if they are new to financial markets, lack knowledge offinancial transactions and more generally the inner works offinancial markets. On the other hand, service providers legitimately try to obtain as much information as they can to evaluate the risk a client may pose to them.
Market transparency encourages institutions to compete on the basis of best products and services offered at lower prices. The development of high quality financial services will attract new consumers and, ultimately, expand the market.
Promoting rights, prosperity and well being of consumers are essential Values of the EU and are intertwined in all its legislative effort. Belonging to the EU offers a better protection to consumers. There are 10 principles7on which the Union leg- islation rests in order to protect consumers wherever they happen to be.
2.3 Ex-ante Protection
2.3.1 Consumer Literacy and Education
During the last ten years, European governments became aware of the importance of consumers’financial culture as a necessary condition for the stability of Financial Markets. At a time when capital markets become more and more sophisticated and when households bear more responsibilities and risks when they make financial decisions,financial education is a necessity for individuals, not only for their own personalfinancial wellbeing, but also to enhance the effective functioning of capital markets and the economy.
In the context of post-financial crisis, one domain for which improving con- sumers’financial culture has become strategic for all countries and raisingfinancial issues awareness is credit. Innovations and increasing complexity of credit markets transfer morefinancial risk on the consumers who have difficulties in discerning the contractual conditions in credit products and selecting the best offer for them.
Several surveys conducted in OECD members states have concluded that the consumers have scant financial knowledge and often overestimate their compe- tencies, their knowledge, and their sensitivity concerning credit offerings. Making ill informed decisions in this area could have disastrous consequences, especially when it comes to mortgage which is probably the most importantfinancial decision an individual or a household may make.
Iffinancial culture is a necessary condition for efficient capital markets, it is however only one component of the authorities’effective answers to the issue of consumers’ accountability in financial markets. It is not a substitute for market regulation and consumer protection as mentioned in paragraph 2.1 here above. The financial crisis of 2007–2008 has illustrated the necessity to monitor the “market behaviour”; this proved that ill informed consumers can become easy prey to unfair sales practices and be old credit products clearly not appropriate for their condition.
In the current context, financial education for credit issues should allow indi- viduals to:
• develop the knowledge, the understanding, the competencies, and the confi- dence needed to assess carefully and understand their rights and duties as borrowers and the various credit solutions they are offered;
• know where to find the important information, objective advice and help, if needed;
• make informed decisions on the best solutions to protect their interest and their relatives’, to engage in a pro-active behaviour and be responsible regarding loans and credit lines;
• acquire elementary skills offinancial planning regarding their loans taking into account future income and the potential changes in their life cycle;
• understand the consequences of their choices, decisions, and behaviour regarding credit.
2.3.2 Product andj Price Regulation—Information Disclosure Control As mentioned in paragraph 3, both AMF, for banks and otherfinancial institutions, and ACAM, for insurance organisations, have broad and significant investigative powers but they products and services offered do not need their stamp of approval prior to being marketed, neither at the wording level nor at the pricing level.
The control is a posterior control with strong emphasis on transparent and truthful information so that consumers can make informedfinancial decisions.
2.3.3 Salesperson Qualification Control, Legal/Contractual Authority of Salesperson
Marketingfinancial products leads most of the time the provider to supply one or more investment services such as receiving and transmitting order for the account of third parties or servicing not-guaranteed investments. This commercialisation is carried out directly or through other service providers such as:
• agents associated acting on behalf of an investment service provider,
• Financial investments Advisors,
• Direct bank,financial, or insurance sellers.
All the persons selling financial and insurance products are requested to hold a professional qualification that is aimed at assuring the consumers that the persons that propose such products are qualified and have their best interest in mind. Both can work with a certificate of professionalqualification (Certificat de Qualification Professionnelle
—CQP) that is a diploma created within a given branch by representatives of both employers and employees and is recognised by the Collective Convention of the branch that set it up. It certifies the ability to hold a job in the concerned profession.
Holder of university bachelor and master degrees in appropriatefields can access the different positions without being requested to pass the CQP. More and more staff is hired with Engineering degree, Master in Law, Economy, Finance, Marketing, and even MBA.
Actuaries are hired for their specific competencies both by Banks and Insurance/
Reinsurance companies.
However when it comes tofinancial services, the AMF and the ACAM have a mission to ensure that the persons sellingfinancial services to consumers have the proper competencies:
• BANK and Otherfinancial institutions—The general regulation of the AMF request that investment service providers working for them in some position in relation with the public have minimum knowledge in 12 domains pertaining to regulations, deontology, and financial techniques. The validation may result from internally organised examinations or external controls certified by the AMF. External exams must be delivered by certified organization that files a written application with the AMF and follow the rules published by it. The exam consists in a 100 questions objective examination (multi-choice) that cover the 12 domain defined with proper weight. The AMF High Council for certification must approve the exam submitted.
Both channels have very different consequences for the licensee:
– When holding a certified qualification, the employee does not need a new validation when changing employer;
– When holding an internal qualification, the employee needs to pass the validation process organized by his/her new employer when he/she changes.
• Insurance—Brokers were the pilots of the curriculum leading to the delivery of a professional certification in Insurance (CQP). The graduate of the CQP— Insurance is recognised by the profession and thus can access responsible positions within insurance organisation thanks to the assurance the employers have. When holding a secondary education certificate (Baccaluréat) or higher, the candidate can further attend a one year program leading to 4 different positions, i.e. contract administration, claims manager, underwriter, sales rep- resentatives or adviser.
The parity national commission for insurance professional education(commis- sion paritaire nationale de la formation professionnelle et de l’emploi—CPNE) and the French federation of Insurers of Insurance companies (FFSA)8confers the qualification.
2.3.4 Appropriateness Principle, Good Faith and Fair Treatment Rule The rapid development of international litigation concerning investments has given rise to constant refinement of the law relevant to economic operations. Therefore French courts have been inclined to adopt legal principles, sometimes imported from the Anglo-Saxon Common Law.
Arbitral jurisprudence has devoted more and more room to the principle of just and equitable treatment which is part of the protection of legitimate investors’ expectations. It is the underlying principle when the authorities insist on fair and transparent information for the investing consumer.
Good faithis the fact that a person act thinking really that his/her facts and acts comply with the law and do not infringe on third party rights and in French law it is assumed as article 2274 of the French Civil Code reads as follows:“Good faith is always assumed, and it falls on the party arguing bad faith to prove it.”
Good faith is a legal standard by which a judge can assess litigants’behavior. In contractual law since the 2016 reform good faith is requested to contract as stated in the new article 1104. This requirement is part of the cardinal requests like freedom to contract (Article 1102) or the binding effects of contracts (Article 1103).
However, good faith is continuously questioned by jurisprudence when it comes to protecting consumers against professionals. That means that courts consider generally that the professional sales person (offinancial services) is aware of the defects in the products or services he/she has sold.
In the case of insurance contract, there are sanctions if the insured has misrepresented the risk, reduction of compensation if the misrepresentation was involuntary, contract nullity if the misrepresentation was voluntary. However, in both cases the insurer must prove the reality of the misrepresentation and further that the misrepresentation had an impact on the choice to underwrite or not, and/or the level of the premium.
Note that good faith in France differs from the utmost good faith in the UK contracts where relevancy to the conditions of the insurance policy does not have to be proven by the insurer. Some modifications have occurred since the enactment of the new British insurance Act9(August 12, 2016).
Pertinence is the link that the judge must find between the evidence a party offers to enter and the subject of the dispute. If the offer is deemed not pertinent the judge does not admit it. When examining the element the judge must ask himself/
herself whether if accepted the evidence would present an interest in the resolution of the dispute(see NCPC article 143 and following, 222 and followings).
Just and equitable treatmentis a conventional regulation technique; it would constitute a minimum standard specific to international investment. It has con- tributed to the advance of good governance through arbitration sentencing.
2.3.5 Abuse of Dominance and Monopoly
It is a firm’s ability to raise its prices is usually constrained by competitors and the possibility that its customers can switch to alternative sources of supply.
When these constraints are weak, a firm is said to have market power and if the market power is great enough, to be in a position of dominance or monopoly (the precise terminology differs according to the jurisdiction). While mere possession of monopoly power does not in itself constitute violation of competition laws, the abuse of such power—particularly if it is used to weaken competition further by excluding rivals—calls for intervention from competition authorities. It is prohib- ited by article L. 420-2 of the Commerce Code.
Article L. 464-2 of the Commerce commissions the Competition Authority (Autoritéde la concurrence)to potentially decide on injunctions and penalties for the authors of incriminated practices. When several providers are involved each will receive a justified penalty and will need to be motivated. The maximumfine can be 10% of the worldwide turnover of the highest result in the years since the imple- mentation of non-compliant practices.
Abuse of dominance can be sentenced in civil courts following a legal action on unfair competition. Article L. 420-6 of the Commerce Code, a charge could befiled in criminal court that could sentence any physical person having taken an individual part in the development, the organisation, or the implementation of practices per- taining to article L. 420-2.
2.4 Ex-post Protection
2.4.1 Sanction and Role of the APCR
The Prudential Control and resolution Authority (Autoritéde Contrôle prudentielle et de résolution—ACPR) is the branch of the AMF in charge of sanction should a financial service provider fail to comply with al laws and regulations. The authority clarifies the rights of the member at the control stage, prior to the disciplinary stage.
Controllers are held by a duty of loyalty in their search for evidence, so that the defense rights are preserved for the disciplinary stage. The commission makes sure that no irreparable infringement to these rights has been committed prior to the disciplinary stage. The Monetary andfinancial Code does not condition the opening of the disciplinary stage by the failure of an ACPR recommendation or, even, by the lack of cooperation of thefinancial institution.
The pursuing authority must establish the evidence of the breaches in front of the Sanction Commission. When there are elements of prima facie evidence resulting from control operations, the defendant must offer contrary evidence. Failing that the probable breach will be considered as proven, even in case of unjustified protests.
This is an improvement over the article 9 of the civil procedure code.
As a reminder, the authority reminds all interested parties that the proceedings benefit from no prescription as the Financial and Monetary Code has no explicit provision to this effect. This is considered in compliance with the French Constitution. Any breach, whenever it was committed can lead to prosecution.
Proportionality of sanctions (essentially fines) will allow taking into account the
fact that breaches may have been committed a long time ago. However, the absence of prescription in a context of rapidly evolving legal environment for bank and insurance practices bears heavily on the activities offinal institutions.
The commission does not believe a prejudicial question should be transmitted to the European Court of Justice to the extent that the French State Council (Conseil d’Etat) has full authority to assess its decisions. Several cases are currently pending in the French State Council, which has refused in January 2015 to transmit to the Constitutional Council—French Supreme Court in constitutional matters (Conseil Constitutionnel) the“priority question of constitutionality”as it deems the sanctions of the Sanction commission of the ACPR to comply with the Constitution.
The rules for the proceedings in the Sanction Commission are gaining in quality through experience with a better respect for defense rights. Dematerialized so far, the proceedings should take place in a new court room. However, there remains the issue of publicity for the commission audition agenda to ensure the public nature of the proceedings in accordance with article 22 of the Civil Proceedings Code.
Improving commercial practices remains a high priority for the ACPR as the duty of advice rests on intermediaries in insurance as well as in the marketing of credit products.
2.4.2 Complaints and Dispute Settlement
As mentioned here below(paragraph 3.4)thefinancial institutions have complied with the injunction of EU authorities and set up mediating agencies. Most insurers have adopted the Insurance mediator whereas banks are slowly moving in that direction while most major players still have their internal independent solution.
2.4.3 Consumers’Protection Scheme
The legal insurance schemes to cover the consequences of acts of terrorism and of natural catastrophes are not developed here.
There are two schemes under which a victim can be compensated, one for bank deposit and one for traffic accident:
Bank Deposit Balance The deposit guarantee and resolution fund (Fonds de garantie des dépôts et de résolution—FGDR) allows the depositors (individuals, enterprises, associations, trade associations), in case of the bank failure to be covered for up to €100,000 for the sums deposited on their checking account, savings account, and term deposits. The limit is for a given person in a given institution.
Note that the fund will not compensate for legal savings book—Livret A—Sustainable Development books, and Popular Savings Book). For these savings books, the government grants a direct guarantee up to€100,000.
Traffic Accident The Guarantee fund for compulsory damage insurances (Fonds de garantie des assurances obligatoires de dommages—FGAO) compensate vic- tims of a traffic accident when the person responsible is not identified, is not insured or when his insurer is unsolvable. Under all other cases, the insurance company will indemnify.
The FGAO get involved only under certain cumulative conditions:
• Site of the accident: the accident occurred in France or within the European Economic Area (EEA).
• Circumstances: the traffic accident must occur in France or within the EEA, and not on private premises.
• Who can seize the fund? The victim of his/her claimants, when the person responsible for the accident is unknown or uninsured.
However some individuals will not be compensated the driver if responsible for the accident, the car robber(s) or his accomplices, foreigners not residing in France of the EEA.
• What damages can be covered?
– Bodily injury without monetary limit
if the person responsible for the accident (or the animal owner) is unknown, if the person responsible for the accident (or the animal owner) is not insured,
the accident has been caused by a wild animal.
– Property damages: if the person responsible for the accident is unknown or uninsured and the victim has also suffered bodily injury or if the person responsible for the accident is identified but not insured. For property damages the compensation total limit is€1,220,000.
3 Financial Consumers Protection — Regulation Agencies 3.1 Financial Supervision Organizations
There are two major supervisory authorities in France. However, the Commission Bancaire cooperate with France’s insurance industry supervisor, the Autorité de Contrôle des Assurances and des Mutuelles—ACAM in all common issues as both aim at protecting consumers and making sure the financial markets operate smoothly.
Autoritédes marchésfinanciers—AMF The Financial Markets Authority is the organisation responsible for the supervision offinancial markets in France. This public authority has legal personality and was created in 2003 as a result of the merger of the Financial Markets Council(Conseil des marchésfinanciers—CMF),
of the stock exchange commission (Commission des opérations de Bourse—COB), and the Discipline and Financial Management Council(Conseil de discipline et de gestion financière—CDGF). Part of the Financial Security Act (Loi de sécurité financière—LSF) promulgated on August 1, 2003, this merger aimed at setting up a central regulatory body to enhance its efficiency on the wake of a number of financial scandals (WorldCom, Enron, Altran, Vivendi Universal) often linked with the Internet Financial Bubble at the end of the Twenty-first Century (1999–2000).
The Financial Markets Authority ensures the proper functioning of the markets, the truthful information of the investors, and the protection of their savings. As an illustration, asset management companies must seek the AMF’s authorisation prior to marketing such products as Unit trust or Mutual funds. The AMF’s stamp of approval is also requested for some operations concerning listed companies such as capital increases, takeover bid, initial public offerings, etc. All these decisions are made by a panel of sixteen members of which one half is renewed every thirty months. The chair is appointed by a presidential decree.
The Financial Markets Authority hasfinal say in the decision to impose fine upon offenders that breach financial markets rules, be they individuals, listed companies, or asset management companies. A penalty committee, consisting of members all non-members of the accreditation panel, is in charge of making decisions on the penalties. In 2011 for instance, the Financial Markets Authority has published 20 sanction decisions within its mandate, half concerning service pro- viders’ commercial practices. The remaining sanctions were related to failure to comply with the information obligations of listed companies, cases of insiders’ trading or of share prices manipulation (actions aiming at artificially influencing share prices).
The AMF was created as a fusion of two previous supervisory authority and all the missions were transferred to the new agency:
• Commission des opérations en bourse (COB): Created in 1967, the COB, or stock exchange commission, was a specialised public establishment aiming at sound operations of thefinancial markets. Since an act (August 2, 1989) it was made more in dependent from the authorities. It was in charge of handling citizens’complaints, investigate abnormal movements in share prices, insiders’ trading; it controls also the information provided by listed companies and the companies raising public capitals; it was also supervising management funds.
• Conseil des Marchésfinanciers (CMF): Created by the act of 1996 aiming at the modernization offinancial activities, the CMF was in charge of the general principle of the operating rules forfinancial markets in.
Autorité de Contrôle des Assurances and des Mutuelles—ACAM Thus, ACAM is the authority in charge of prudential supervision of insurance and rein- surance companies, Mutuality, and welfare institutions. Prudential control means making sure that insurance organisations are not threatened with bankruptcy. To deliver the ACAM lakes sure that the organisations have a proper assessment of their commitments towards insured or members. ACAM controls also thefinancial