The atypical nature of the property investment sector attracts many savers looking for a return. However, this world is strictly regulated to protect investors. Intermediaries in miscellaneous assets (IBDs) and financial investment advisers (CIFs) operating in this market are subject to precise rules, failure to comply with which can have severe consequences. Understanding the regulatory framework for general merchandise intermediaries is a first step, but it is just as essential to be aware of the nature and scope of the applicable penalties. This article details the criminal and disciplinary risks incurred by professionals who fail to meet their obligations.
Criminal penalties for intermediaries in various goods
In addition to administrative sanctions, the most serious breaches of the regulations governing intermediaries in various goods expose their perpetrators to criminal prosecution. The Monetary and Financial Code (CMF) provides for a repressive arsenal designed to punish offences that undermine investment security and market transparency.
Non-compliance with statutory and information obligations
The legislator has made certain types of behaviour criminal offences in order to ensure compliance with the fundamental rules governing IBD status. Article L. 573-8 of the Monetary and Financial Code is at the heart of this system. It punishes failure to comply with the obligations set out in articles L. 551-3 and L. 551-4 of the same code with up to five years' imprisonment and a fine of €18,000.
What does this mean in practice? An intermediary is liable to prosecution if he fails to submit the mandatory information document to the Autorité des marchés financiers (AMF) prior to any marketing. Similarly, an asset manager who fails to submit his annual activity report and accounts to the supervisory authority is committing a criminal offence. These penalties mainly concern failure to comply with specific obligations imposed on intermediariesThese are the cornerstones of investor protection.
A penalty of two years' imprisonment and a €9,000 fine is also provided for managers who fail to comply with the provisions relating to the appointment and mission of the statutory auditor, a key guarantor of the reliability of financial information.
Case law and concrete examples of convictions
The courts do not hesitate to apply these penalties to punish circumvention of the law. Case law provides clear illustrations of how these texts are interpreted. In an old but still relevant ruling, the Cour de cassation upheld the conviction of the director of a company who had substituted himself for another manager to operate an asset (a hydroelectric power station) without informing the regulatory authority, which at the time was the COB (Commission des opérations de bourse).
The court ruled that failure to submit a new information document and to notify the change of manager constituted a criminal offence. This decision is a reminder that information obligations are not mere administrative formalities. They are the very condition for the legality of the activity, and their breach can lead directly to criminal proceedings.
The AMF's disciplinary powers and sanctions
In addition to criminal proceedings, the AMF has powers of control and administrative sanction. The AMF Enforcement Committee, its disciplinary arm, can take action against IBDs that fail to comply with their professional obligations.
Scope of the AMF's disciplinary powers
The AMF has broad powers. Under Article L. 621-9 of the Monetary and Financial Code, it monitors compliance with the professional obligations of intermediaries. Any breach, whether relating to organisational rules, internal procedures, sales documentation or customer relations, may trigger sanction proceedings.
The Enforcement Committee has jurisdiction to examine any breach of the applicable laws and regulations, as well as the professional rules that the AMF itself has approved. This includes all the provisions of the Monetary and Financial Code relating to IBDs, Articles L. 551-1 to L. 551-5. The aim is to ensure that professionals act competently, diligently and loyally, in the interests of their customers.
Types and amounts of disciplinary penalties
The range of sanctions that the commission can impose is varied and adapted to the seriousness of the offences. It includes :
- The warning;
- Blame;
- Temporary or permanent disqualification ;
- A financial penalty.
The amount of the fine can be particularly dissuasive, since it can be as high as €100 million or, if that figure is higher, ten times the amount of any profits made as a result of the breach. To set the amount, the Enforcement Committee takes several criteria into account: the seriousness of the breaches, the advantages or profits derived from them, the damage suffered by investors and the financial situation of the person penalised.
Emblematic AMF decisions
Several decisions by the Enforcement Committee illustrate how this power is exercised. In the Azkenta case, a distributor was fined €200,000 for marketing an atypical investment product without any AMF supervision.
In the Solabios case, a company offering to invest in photovoltaic panels via joint ventures was sanctioned. The AMF ruled that the offer fell within the scope of the miscellaneous asset regime and that the intermediary should have complied with all the relevant requirements, notably the filing of an information document.
Finally, the Marble Art Invest case is also revealing. A network of asset management advisers was heavily penalised for distributing an investment product in works of art that guaranteed a capital gain, without complying with IBD regulations. The penalties were as high as €1 million for some members of the network, showing that the AMF is looking at the responsibility of the entire marketing chain.
Penalties applicable to financial investment advisers (FIAs)
When the financial investment advisers (CIF) operate in the miscellaneous goods sectorHowever, they are also exposed to a range of sanctions if they fail to meet their own obligations. Their regulated status implies strict duties, the breach of which is punishable under both criminal and disciplinary law.
Criminal penalties for illegal or non-compliant practice
The practice of financial investment advice is protected by law. Article L. 573-9 of the French Monetary and Financial Code severely punishes the illegal practice of this profession. Any person who provides investment advice as a regular occupation without having FIA status, or without complying with the conditions of access and practice (good repute, competence, civil liability insurance, membership of a professional association), incurs the same penalties as those laid down for the offence of fraud.
This means a potential penalty of five years' imprisonment and a fine of 375,000 euros. This penalty underlines the legislator's intention to restrict this activity to identified and supervised professionals, in order to exclude those who do not offer the necessary guarantees to advise investors.
AMF disciplinary sanctions against FIAs
Like IBDs, FIAs are supervised by the AMF, which can sanction them for any breach of their obligations. The Enforcement Committee can rule on several types of misconduct. A FIA could be sanctioned for recommending an investment in miscellaneous assets that is unsuited to his client's risk profile or objectives. The simple fact of not having made sufficient enquiries into the investor's situation constitutes misconduct.
Similarly, the use of sales documentation that is not compliant, misleading or does not clearly present the risks is a punishable offence. Another major risk for an FIA is carrying out an activity that exceeds the limits of his status. For example, if they themselves engage in fund-raising or asset management, they fall outside the scope of advice and encroach on the prerogatives of IBDs, thereby exposing themselves to penalties for non-compliance with their own status.
Prevention and compliance: reducing the risk of sanctions
Faced with complex regulations and severe penalties, a proactive approach is the only viable strategy for professionals. Risk prevention requires rigorous internal organisation and, often, external support.
The importance of a compliance audit
Setting up a regular compliance audit is an essential step. It's like a regulatory health check for the company. This audit enables us to check that marketing procedures, contractual and promotional documents, and customer knowledge processes are properly aligned with legal requirements and AMF positions.
This kind of diagnosis makes it possible to identify areas of weakness and implement corrective action before an inspection by the authorities reveals any shortcomings. It's an investment that secures your business over the long term and demonstrates the seriousness of your compliance approach in the event of an inspection.
The role of specialist legal advice
The legal environment for atypical investments is constantly changing. The texts are complex, the AMF's doctrine is evolving and the case law is sometimes subtle. In this context, trying to navigate alone is a risky business.
Calling on a lawyer with a practice dedicated to these issues not only ensures that transactions are compliant, but also anticipates regulatory changes. The lawyer intervenes upstream to structure the offer, validate the documentation and secure the distribution chain. In the event of an inspection or dispute, they are the natural point of contact for defending the professional's interests and putting forward their arguments. Their involvement is a guarantee of security and professionalism.
Navigating the regulatory maze of miscellaneous goods is a high-risk exercise for intermediaries and advisers. To secure your activities and protect yourself against these sanctions, it's a good idea to work with a law firm. Our team, experts in financing law and regulatory compliance, is available to carry out an audit of your procedures and provide you with tailor-made advice.
Sources
- French Monetary and Financial Code, in particular articles L. 551-1 et seq. and L. 573-8 et seq.
- Commercial Code, for provisions relating to statutory auditors.
- General regulations of the Autorité des marchés financiers (AMF).
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