French banking law has undergone significant changes in recent years, particularly with regard to financial engineering. Faced with increasing litigation relating to structured loans and complex financial arrangements, case law has gradually defined a framework for assessing the risk involved. banker's liability. Understanding this framework is essential for clients navigating these sophisticated transactions. For a more in-depth analysis of the mechanisms involved, see our article on thedetailed financial engineering.
The legal foundations of bank liability
The distinction between lender and financial service provider
The first step in analysing a bank's liability is to define its precise role. Does it act as a simple lender or as a financial services provider (FSP)? This distinction is fundamental because it determines the extent of the bank's obligations and the applicable rules.
If the bank is simply a lender, its liability is mainly governed by the classic rules of credit law. On the other hand, if it acts as an FSP, it is subject to the stricter obligations defined by the French Monetary and Financial Code, in particular articles L. 533-12 and L. 533-13, as detailed in our article on the liability of the banker as ISP. The Court of Cassation emphasised this need for classification in a ruling of 12 July 2011, stating that it must be determined whether the institution is a mere lender or an FSP with a genuine duty to advise. This distinction is all the more important as the bank's multiple roles can give rise to conflicts of interest, where the bank's interests conflict with those of a customer, or those of two customers conflict with each other. Regulations (in particular article L. 533-10 of the French Monetary and Financial Code) require banks to take steps to detect, avoid or manage such conflicts.
The principle of non-interference with the duty to advise
Historically, French banking case law relied heavily on the principle of non-interference. According to this principle, the bank should not interfere in its customer's affairs or judge the appropriateness of his financial decisions. The underlying idea is to respect the customer's autonomy and limit the bank's liability. The Court of Cassation has ruled that the bank "does not have to be the judge of the use of the funds lent" (Cass. 1re civ., 18 November 1997). It is therefore not automatically liable if a financed investment does not produce the expected return or tax benefits.
However, this principle has been progressively qualified by recent case law, which has recognised that banks have an increasingly strong duty to provide advice, especially given the growing complexity of financial products.
Hierarchy of obligations: information, warnings, advice
Banking law establishes a gradation in the duties of the bank towards its customer:
- The obligation to provide information This is the basic duty. The bank must provide the customer with objective, clear, accurate and non-misleading information on the characteristics of the product or service offered, as required by article L. 533-12 of the French Monetary and Financial Code.
- The duty to warn More intense, it is required when the planned transaction presents particular risks for the customer, either because it is speculative or because it is unsuited to the customer's financial situation (repayment capacity, assets, objectives). In such cases, the bank must actively alert the customer to these dangers.
- The duty to advise This is the highest level of requirement. It applies only in specific circumstances, for example when the Bank has itself initiated the investment transaction or when it has been explicitly mandated to provide advice. In such cases, the bank must guide the customer towards the solution best suited to his needs and personal situation.
It should be noted that the courts sometimes use these concepts interchangeably. A Court of Cassation ruling on 9 July 2013, for example, sanctioned "a breach of the duty to inform, warn or advise" without making a clear distinction.
Qualifying the customer: informed or uninformed
The extent of the bank's obligations also depends on the status of the customer. Case law distinguishes between "informed" and "uninformed" customers.
A customer is considered to be informed if he has the knowledge and experience necessary to understand the nature of the proposed transaction and to assess the risks independently. The Court of Cassation has clearly stated that "informed status cannot be established by deduction or by presumption based on professional qualities" (Cass. com., 8 March 2011). Specific competence in the relevant field is required.
When dealing with an unsophisticated customer, the bank's duty to warn is reinforced, especially if the transaction is complex or speculative in nature. In principle, the burden of proving that a customer is uninformed lies with the customer, but this is generally accepted where the transaction is clearly outside the customer's usual area of expertise or experience.
Criteria for assessing bank liability
To determine whether a bank has breached its obligations in a financial engineering transaction, the courts look at a number of specific criteria.
The complexity of editing: between banality and sophistication
An essential criterion is the intrinsic complexity of the financial arrangement. Judges distinguish between 'ordinary' transactions, based on classic, well-understood schemes, and 'sophisticated' or 'complex' arrangements, which use innovative mechanisms, difficult mathematical formulae or an unusual combination of products.
The more complex the arrangement, the greater the bank's obligations to provide information, warnings and, potentially, advice. The Riom Court of Appeal (17 April 2013), for example, analysed the structure of a loan in detail to qualify it as "complex". Structured loans, with rates indexed to complex formulae, are typically considered sophisticated, unlike a simple loan. in fine backed by traditional life insurance.
The experience and quality of the investor
As mentioned above, whether you are a sophisticated or unsophisticated person is a determining factor. The courts assess in concreto the customer's actual experience in relation to the specific type of transaction concerned. It is not enough to be a professional or to have substantial assets.
Assessments can sometimes seem to vary from one case to another, reflecting the difficulty of assessing a client's real competence in relation to a given product. A chartered accountant may have been deemed knowledgeable for a PEA investment (CA Paris, 14 September 2006), while a nurse investing in a property tax exemption scheme was deemed uninformed (CA Lyon, 15 January 2013). Familiarity with the specific product is key.
The quality of the information provided
Judges scrutinise the information provided by the bank. According to the Cour de cassation, it must be "delivered in clear terms that the borrower is able to understand" (Cass. 2e civ., 27 March 2014).
- The clarity and accessibility of the language used.
- Complete information on characteristics and risks.
- Consistency between advertising documents (often optimistic) and contractual documents (more technical).
- Explicitly highlighting the less favourable aspects and risks of loss.
- The possible provision of costed simulations illustrating unfavourable scenarios.
The burden of proof that adequate information has been provided lies with the bank.
The speculative nature of the product
The speculative or non-speculative nature of the financial product has a direct influence on the existence and intensity of the duty to warn. The Court of Cassation has ruled that a PSF banker "is not bound by a duty to warn his client, even an unsophisticated one, if he offers him financial products that are not speculative in nature, regardless of whether they are subject to the variability of the financial markets" (Cass. com., 28 January 2014).
This position has been debated because it seems to limit the duty to warn to the riskiest products. In practice, the term 'speculative' is often reserved for transactions on futures markets or for particularly complex and risky arrangements.
The indivisibility of the assembly
In financial engineering transactions, several contracts are often linked (loan, insurance, investment). The courts analyse whether these contracts form an indivisible whole. Indivisibility may be :
- Objective If the contracts are structurally interdependent, one is meaningless without the other.
- Subjective if the common intention of the parties was to consider the whole as a single transaction.
The judges take into account the concomitance of the signatures, the identity of the parties, the overall object pursued and the explicit or implicit links between the contracts.
Recognising indivisibility has important consequences. For example, if one of the contracts (the investment) is cancelled or disappears, the whole package, including the loan contract, may be called into question. This global approach allows a more realistic assessment of the risks inherent in complex arrangements.
The complexity of these arrangements and the assessment of bank liability often require specialised legal expertise. If you run into difficulties as a result of a financial engineering operation, the assistance of a financial litigation lawyer can be decisive in analysing your situation and defending your rights.
For an in-depth analysis of your situation and tailored advice, contact our team of lawyers.
Sources
- Monetary and Financial Code, in particular articles L. 533-10, L. 533-12, L. 533-13
- Civil Code, in particular articles 1231-1 (contractual liability)
- Case law of the Court of Cassation (Commercial and Civil Chambers)
- JurisClasseur Commercial, Fasc. 346-1: Bank liability and financial engineering
EN 
FR