In the French financial world, not all activities are open to all players. The legal system puts in place strict safeguards to protect the public and financial stability. The banking monopoly is one of the pillars of this protective architecture.
Supervision of banking activities
The French legislator has chosen to restrict banking activities to authorised institutions. This restriction is designed to protect public savings and control systemic risks.
The Monetary and Financial Code sets out the precise rules governing who may receive funds from the public or grant loans. These operations, which are essential to the economy, are reserved for professionals who are subject to prudential supervision.
The banking monopoly: scope and foundations
Definition and scope of application
The banking monopoly prohibits any unauthorised person from carrying out banking transactions on a regular basis. Article L.511-5 of the French Monetary and Financial Code sets out this fundamental principle.
Three categories of operations are concerned:
- Receiving funds from the public
- Credit transactions
- Providing or managing means of payment
The ban is particularly aimed at sight deposits and term deposits of less than two years, considered to be the most sensitive activity in the banking sector.
Legal basis
The founding text is Article L.511-5 of the Monetary and Financial Code, which clearly states: "It is prohibited for any person other than a credit institution to carry out banking transactions on a regular basis. It is also forbidden for any undertaking other than a credit institution to receive funds from the public at sight or with a term of less than two years.
Authorisation is granted by the Autorité de contrôle prudentiel et de résolution (ACPR), which then monitors authorised institutions on an ongoing basis.
Exceptions to the banking monopoly
The legislator has provided for several exceptions to this principle of monopoly.
Organisations expressly excluded
Some institutions are by nature outside the banking monopoly:
- The Treasury
- Banque de France
- Caisse des dépôts et consignations
- Insurance companies
- Undertakings for collective investment in transferable securities
These exclusions can be explained by the specific missions of these institutions or by the existence of other control systems.
Legal exemptions for companies
Article L.511-7 of the French Monetary and Financial Code authorises certain transactions:
- Payment periods and advances between companies
- Lease contracts with purchase option
- Cash transactions between companies in the same group
- The issue of securities
These exceptions meet the practical needs of business life.
Inter-company loans since the Macron Act
Act no. 2015-990 of 6 August 2015 (known as the Macron Act) broadened the scope for inter-company loans. Article L.511-6 of the French Monetary and Financial Code now allows certain commercial companies to grant loans of less than two years to other companies with which they have "justifiable economic links".
A decree of 22 April 2016 sets out the conditions:
- The lender must be a company limited by shares or a limited liability company (SARL)
- Its accounts must be certified by an auditor
- The borrower must be a VSE, SME or ETI
This legal innovation represents a significant break with the traditional banking monopoly.
Loans between associations
More recently, Act no. 2021-875 of 1 July 2021 introduced a new exception for associations. Article L.511-6 of the French Monetary and Financial Code now authorises associations with common membership of a union or federation to grant each other interest-free cash loans for periods of less than two years.
This provision, included in 1a of the article, is designed to solve the cash flow problems of associations without systematically using bank credit.
Penalties for breaches
Failure to comply with the banking monopoly exposes you to a substantial arsenal of penalties.
Criminal penalties
Article L.571-3 of the French Monetary and Financial Code states:
- Three years' imprisonment
- 375,000 fine
The court may also order that the decision be posted or broadcast.
Administrative penalties
The ACPR has sanctioning powers ranging from warnings to financial penalties of up to €100 million or 10% of turnover.
Fate of contracts concluded
For a long time, case law hesitated over the nullity of contracts concluded in breach of the banking monopoly. The Commercial Chamber of the Cour de cassation considered such contracts to be null and void, while the First Civil Chamber rejected this sanction.
The Assemblée plénière ruled on 4 March 2005 (no. 03-11.725): "the mere failure of a credit institution to comply with the authorisation requirement [...] is not such as to render the contracts it has entered into null and void"..
This position was recently confirmed by the Commercial Chamber in a ruling dated 15 June 2022 (no. 20-22.160), which reaffirmed that a credit transaction entered into in disregard of the prohibition on the banking monopoly is not void for this reason alone.
This established case law protects contractors acting in good faith, but does not exempt offenders from criminal and administrative penalties.
Practical advice
For companies and associations wishing to take advantage of the exemptions to the banking monopoly:
- Carefully check the conditions laid down by law
- Ensure compliance with financial thresholds and required links
- Precise documentation of the "economic links" justifying an intercompany loan
- Formalise loans in writing, even between associations
- Consult a legal professional to secure operations at the frontier of the monopoly
The line between authorised operations and breach of monopoly can be a fine one. The consequences of an error of assessment can be severe. Caution is still called for.
Sources
- Monetary and Financial Code, articles L.511-5 to L.511-8, L.511-33, L.571-3 et seq.
- Law no. 2015-990 of 6 August 2015 for growth, activity and equal economic opportunities (Macron Law)
- Law no. 2021-875 of 1 July 2021 aimed at improving the cash flow of associations
- Decree no. 2016-501 of 22 April 2016 on business-to-business loans
- Court of Cassation, Plenary Session, 4 March 2005, no. 03-11.725
- Court of Cassation, Commercial Division, 15 June 2022, no. 20-22.160
- Decree no. 2018-1008 of 19 November 2018 on financing bodies
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