Law 1.515 of 23rd December 2021, resulting from Bill 1.035 and amending law 1.338 of 7th September 2007 on financial activities in the Principality, came into force on 7th January 2022.
The reform is part of the objective to obtain the status of ordinary member of the International Organization of Securities Commissions (IOSCO) for the Commission de Contrôle des Activités Financières (CCAF).
We had already commented on the provisions of Bill 1.035 with respect to the marketing of financial services and products in the Principality at the time of the publication of Monaco for Finance 2021.
Historically, these rules are based on the monopoly granted to entities duly authorized by CCAF to carry out financial activities in the Principality, which has as a corollary the strict prohibition of direct marketing of financial products by non-authorized entities.
However, whereas Bill 1.035 provided for a prohibition of the marketing of financial services and products by unauthorized companies towards "non-professional individuals" only, Law 1.338, as amended by Law 1.515, confers to such prohibition a much broader scope, thereby strengthening the licensed entities’ protection.
A licensed entities’ monopoly which has no exceptions...
Paragraph 1 of Article 29 of Law 1.338, resulting from the reform, provides that "unsolicited or unsolicited approaches aimed at offering financial services or products, regardless of the place or means used, are prohibited for companies that are not authorized under the present law.”
It is now therefore irrelevant whether the potential client is a natural person or a legal person, a professional or not.
This provision introduces for the first time in the Monegasque legal framework the prohibition of the marketing of financial services or products by unlicensed companies, which was previously only mentioned on the CCAF website.
Such prohibition, as it results from the reform, does not seem to have any exceptions considering its broad drafting.
Indeed, the terms "solicitation" and "financial products" are not defined in Monegasque law, which - pending potential further clarification - calls for the utmost caution.
Above all, the prohibition "regardless of the place or means used" of approaches aimed at offering financial services or products provides the Monegasque authorities considerable leverage to combat the sophistication of certain abusive practices.
Thus, the new drafting apprehends the effects of market globalization, new means of communication and the development of electronic commerce, which render the protection of investors, particularly inexperienced investors, increasingly complex.
It should be noted that the scope of application of Article 29 is so broad that the prohibition would apply, by adopting a literal interpretation of the text, to situations where a non-Monegasque entity solicits or is solicited by a financial actor duly authorized in the Principality for services or products. This could therefore impact cross-border relations between financial actors.
This is all the more so as new sanctions, provided for in Article 46 of Law 1.338, amended by Law 1.515, apply in case of non-compliance with the prohibition. Such Article notably states that "The following shall be punished by imprisonment of between one and five years and the fine provided for in point 4) of Article 26 of the Criminal Code, the maximum of which may be increased up to three times, or by one of these two penalties only: [. ...] 4°) any person who, in violation of the provisions of Article 29, takes steps or causes steps to be taken, or causes prohibited advertising to be inserted”.
...which should put a stop to the controversial practice of reverse solicitation
Reverse solicitation, also known as "passive marketing", refers schematically to the circumstances in which a potential client approaches a financial institution, exclusively on his own initiative, with a view to subscribing to a financial product or service.
In the Principality, there was no text governing the use of reverse solicitation in situations where a Monegasque investor initiated a business relationship directly with an offshore entity without any commercial approach by the latter.
By referring to "solicited or unsolicited" approaches, the new wording of Article 29 seems to purely and simply prohibit the use of reverse solicitation in Monegasque law.
This reflects a legitimate concern. There is no doubt that reverse solicitation has given rise to dubious or abusive practices by financial players based in foreign countries, with the sole aim of circumventing local rules on the marketing of financial services or products.
At the European Union level, the issue is more topical than ever, with, for example, ESMA denouncing the use of reverse solicitation as a means of circumventing the provisions of MIFID II, particularly in the post-Brexit context.
The fact remains that if the new wording of paragraph 1 of Article 29 enshrines the refusal to make an exception to the duly licensed entities’ monopoly, this solution, in the absence of clarification, could weaken commercial relations between Monegasque residents and foreign financial players.