Decision No. 2017-02 of July 21, 2017 on the Sanction Procedure for Failure to Comply with Certain Monetary Policy Counterparty Obligations

Decision No. 2017-02 of July 21, 2017 on the Sanction Procedure for Failure to Comply with Certain Obligations of Monetary Policy Counterparties

THE GOVERNOR OF THE BANK OF FRANCE

Having regard to:

• the Treaty on the Functioning of the European Union, and in particular Article 127(1) and Article 127(2), first indent,
• the Statute of the European System of Central Banks and of the European Central Bank (ECB), and in particular Articles 3.1, first indent, 12.1, 14.3 and 18.2 thereof,
• Council Regulation (EC) No 2532/98 of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions,
• ECB Regulation (EC) No 2157/1999 of 23 September 1999 on the powers of the ECB to impose sanctions (ECB/1999/4),
• ECB Guideline (EU) 2015/510 of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60),
• ECB Guideline (EU) 2014/528 of 9 July 2014 on additional temporary measures concerning Eurosystem refinancing operations and the eligibility of collateral and amending Guideline ECB/2007/9 (ECB/2014/31),
• the Monetary and Financial Code, and in particular Article L.142-8 thereof,
• the Governor of the Bank of France Decision No. 2015-01 of 22 April 2015 on the implementation of the monetary policy and intraday credit of the Bank of France,
• the Governor of the Bank of France Decision No. 2016-07 of 30 December 2016 on additional temporary measures concerning the refinancing operations of the Bank of France and the eligibility of collateral,

HEREBY DECIDES:

Article 1
Scope
This Decision applies solely to sanctions that may be imposed by the Bank of France in the exercise of its central bank core tasks, in the event that one of its counterparties fails to comply with the obligations incumbent upon it under the Governor of the Bank of France Decision as defined in Article 2 of this Decision. It does not apply to sanctions that the ECB is empowered to impose directly in the event of non-compliance with its regulations and decisions.

Article 2
Definitions
For the purposes of this Decision:

• the expression "Governor of the Bank of France Decision" means the Governor of the Bank of France Decision No. 2015-01 of 22 April 2015 on the implementation of the monetary policy and intraday credit of the Bank of France, as well as any other Decision complementing, amending or replacing this Decision and adopted by the Governor of the Bank of France;
• the term "sanction" means the pecuniary and non-pecuniary sanctions provided for by the Governor of the Bank of France Decision.

The other terms used have the same meaning as in the Governor of the Bank of France Decision.

Article 3
Prior documentary and on-site inspections and referral to an independent investigative unit

1. The General Directorate of Financial Stability and Operations of the Bank of France (hereinafter "DGSO") organizes documentary and on-site inspections of counterparties aimed at verifying compliance with the obligations provided for by the Governor of the Bank of France Decision. Documentary inspections are conducted by the DGSO services. On-site inspections are conducted on behalf of the DGSO by agents of the Bank of France General Inspectorate or by DGSO agents.
2. In the event of an on-site inspection, a report is drawn up. The draft report is brought to the attention of the management of the inspected counterparty, who may submit their observations, which are included in the final report. In cases of urgency or other necessity to proceed without delay with recording observations regarding facts or conduct that may constitute breaches, investigators may draw up official reports. On-site investigators transmit the final report to the Director General of Financial Stability and Operations of the Bank of France (hereinafter "the Director General of DGSO") and to the management of the counterparty.
3. In the event of a documentary inspection revealing one or more breaches, the results are brought to the attention of the management of the inspected party, who may submit their observations.
4. If the Director General of DGSO considers that the facts revealed by the results of the documentary inspections or, in the case of an on-site inspection, by the final report or by any other means, are likely to justify the initiation of a sanction procedure and if he considers that the applicable sanction could exceed the threshold provided for in Article 10.1, in which case the simplified procedure provided for in Article 10 does not apply, he refers the matter to an internal independent investigative unit (hereinafter "the investigative unit") composed of investigators exercising their functions independently of the DGSO and the Governor of the Bank of France.

Article 4
Initiation of a Sanction Procedure – Notification of Allegations and Investigative Phase

1. Before taking the decision to initiate a sanction procedure, the investigative unit may request the counterparty concerned to provide any information relating to the alleged breach.
2. The decision to initiate a sanction procedure is taken by the investigative unit if it considers that there are grounds to suspect that one or more breaches of the obligations provided for by the Governor of the Bank of France Decision have been committed.
3. The decision to initiate a sanction procedure is notified in writing to the counterparty concerned by the investigative unit. It details the allegations made against the counterparty, indicates the evidence on which these allegations are based, and specifies that the counterparty may be subject to a sanction. Where appropriate, the decision requires the cessation of the alleged breach.
4. In the context of this procedure, the investigative unit has, in particular, the following rights for the purposes of the investigation:
   a) to require the production of documents; b) to examine the books and records of the counterparty; c) to take copies or obtain extracts from these books and records; and d) to obtain written or oral explanations.
5. The powers conferred by this Decision on the investigative unit, in the context of the investigation, include, for the purpose of obtaining any information relating to the alleged breach, the power to seek various pieces of information and the power to conduct an on-site investigation without prior notification to the counterparty. Bank of France agents authorized, in accordance with applicable internal rules, to seek information at the site of the counterparty concerned, exercise their powers upon production of a formal written authorization issued in accordance with their respective internal rules. Any request addressed to the counterparty based on the powers conferred on the investigative unit specifies the subject and objective of the investigation.

Article 5
Communication of Allegations during the Investigative Phase

1. In the context of the sanction procedure, the investigative unit notifies in writing to the counterparty concerned the factual results of any verification carried out, as well as the allegations formulated against it, before taking any decision regarding the application of a sanction.
2. At the time of communicating the allegations, the investigative unit sets a deadline before which the counterparty concerned may communicate its comments on the allegations formulated in writing, without prejudice to the possibility of presenting these comments during an oral hearing, if requested in its written comments. This deadline is not less than thirty working days and begins to run from the receipt of the notification referred to in paragraph 1 above.
3. After receiving the response from the counterparty concerned, the investigative unit decides whether further research is necessary to resolve any pending questions. Additional allegations, in accordance with paragraph 1 above, are communicated to the counterparty concerned only if the results of new research conducted by the investigative unit lead to attributing new facts to the counterparty concerned or to modifying the evidence of the contested breaches.
4. In taking the decision to impose a sanction, the Bank of France takes into account only the allegations communicated in the manner provided for in paragraph 1 above and regarding which the counterparty concerned has been able to express its comments.

Article 6
Rights and Obligations of the Counterparty Concerned during the Sanction Procedure

1. The counterparty concerned cooperates with the investigative unit throughout the investigative phase of said sanction procedure. The counterparty concerned has, in particular, the right to submit all documents, books or records, all copies or extracts thereof, and to provide all written or verbal explanations.
2. Obstruction, non-compliance or non-execution by the counterparty concerned of obligations imposed by the investigative unit in the exercise of its powers within the framework of the sanction procedure may constitute sufficient grounds for the application of the sanction incurred.
3. The counterparty concerned has the right to be assisted by legal counsel during the sanction procedure.
4. After receiving the notification provided for in Article 4, paragraph 1 above, the counterparty concerned has the right to consult the documents and other items collected by the investigative unit that serve as evidence of the alleged breach.
5. If, during the investigative phase, the counterparty concerned, in its written comments, requests to be heard orally as well, this hearing will be conducted, on the date set, by the persons designated for this purpose by the investigative unit. The hearings will take place at the premises of the Bank of France. They are not public. Persons are heard separately or in the presence of other persons summoned to the hearing. The counterparty concerned may propose, within reasonable limits, that the investigative unit hear persons likely to corroborate any element of its written comments.
6. The essence of the statements of each person heard is recorded in the official report, which is read and approved by that person only for the parts relating to their own statements.
7. All notices and summonses relating to hearings issued by the investigative unit are sent to their recipients by registered mail with acknowledgment of receipt, or handed over by courier against receipt.
8. Any sanction procedure is conducted in respect of the principles of confidentiality and professional secrecy. The Bank of France may, however, communicate all information relating to the sanction procedure to the Eurosystem as well as to the competent authorities empowered to exercise prudential supervision over the counterparty. Without prejudice to paragraph 4 of this Article, the counterparty concerned does not have access to documents and other items in the possession of the Bank of France or another Eurosystem central bank, which are intended to remain confidential in the interest of third parties or the Eurosystem. Among these documents are, in particular, documents or other items relating to the commercial interests of other companies or internal documents of the Eurosystem, other institutions or bodies of the Community, such as notes, drafts or other working documents.

Article 7
Submission of a Sanction Proposal to the Director General of DGSO

1. If the investigative unit considers, upon completion of the investigative procedure, that a sanction should be imposed on the counterparty concerned, it submits a proposal to the Director General of DGSO establishing that the counterparty concerned has committed a breach of the obligations provided for by the Governor of the Bank of France Decision and specifying the nature and, where applicable, the amount of the sanction to be imposed. The amount of the pecuniary sanction is fixed in accordance with the provisions of the Governor of the Bank of France Decision.
2. The investigative unit bases its proposal solely on the facts and allegations regarding which the counterparty concerned had the opportunity to present observations.
3. If the Director General of DGSO considers that the file submitted by the investigative unit is incomplete, he may return it to the investigative unit, with a reasoned request for additional information.
4. If the Director General of DGSO, on the basis of a complete file, approves the proposal submitted by the investigative unit to impose a sanction on the counterparty concerned, he adopts a decision in accordance with the proposal submitted by the investigative unit.
5. If the Director General of DGSO, on the basis of a complete file, considers that the facts described in the investigative unit's proposal do not appear to constitute sufficient evidence to establish a breach, he adopts a decision closing the file.
6. If the Director General of DGSO, on the basis of a complete file, agrees that the counterparty concerned has committed a breach, as established in the investigative unit's proposal, but disagrees with the proposed sanction, he adopts a decision specifying the sanction he considers appropriate.
7. If the Director General of DGSO, on the basis of a complete file, disagrees with the investigative unit's proposal but concludes that a different breach was committed by the counterparty concerned, or that the investigative unit's proposal is based on different facts, he informs the investigative unit and the counterparty concerned in writing of his conclusions and the allegations made against the latter. The investigative unit must submit a new proposal to the Director General of DGSO after giving the counterparty the opportunity to respond adversarially in accordance with Article 6.
8. The Director General of DGSO adopts a reasoned decision establishing whether the counterparty concerned has or has not committed a breach and specifying the sanction to be imposed, where applicable. Decisions adopted by the Director General of DGSO are based solely on the facts and allegations regarding which the counterparty concerned had the opportunity to present its observations.

Article 8
Review of the Decision by the Governor of the Bank of France

1. The counterparty concerned has the right to request a review by the Governor of the Bank of France of the decision taken by the Director General of DGSO. This request must be submitted within thirty days following receipt of the notification of this decision and contain all information and allegations in support of the request. It is addressed in writing to the Governor of the Bank of France.
2. The Governor of the Bank of France may request the counterparty concerned or the Director General of DGSO to provide additional information in order to review the decision of the Director General of DGSO.
3. The Governor sets a mandatory deadline for the provision of information; this deadline cannot be less than ten working days.
4. Any decision taken by the Governor of the Bank of France in response to a request submitted under paragraph 1 above sets out the reasons for this decision and is notified in writing to the counterparty and to the competent authorities empowered to exercise prudential supervision over the counterparty. The notification must inform the counterparty of its right to appeal. In the absence of a decision by the Governor within two months following the request for review, the counterparty may appeal against the decision of the Director General of DGSO.
5. No sanction is enforced against the counterparty before the decision becomes final, which is the case:
   a) When the thirty-day period referred to in paragraph 1 above has elapsed without the counterparty having addressed a request for review to the Governor of the Bank of France; or b) When the Governor notifies his decision to the counterparty, or when the period referred to in paragraph 4 has elapsed without the Governor having taken a decision.
6. A counterparty bears the costs of the sanction procedure if it has been decided that it committed a breach.

Article 9
Enforcement of the Decision

1. Once the decision on the application of a sanction has become final, the Governor may decide to publish the decision or any information concerning it on the Internet site of the Bank of France. In deciding whether to publish the final decision, the Governor takes into account the legitimate interest of the company concerned in protecting its commercial interests and any other particular interest.
2. The decision of the Director General of DGSO establishes the method of payment of pecuniary sanctions and determines the conditions for the application of non-pecuniary sanctions.
3. The Bank of France gathers all information relating to the determination and enforcement of the sanction in a file that is kept for at least five years from the date on which the decision to impose the sanction became final.

Article 10
Simplified Procedure for Minor Breaches

1. In the case of minor breaches, the Director General of DGSO may decide to implement a simplified sanction procedure. The sanction to be imposed under this procedure cannot exceed 1,000 euros.
2. The simplified procedure includes the following steps:
   a) The Director General of DGSO notifies the counterparty concerned of the alleged breach; b) the notification contains all facts constituting proof of the alleged breach and the corresponding sanction; c) the notification specifies to the counterparty concerned that the simplified procedure is being implemented and that the counterparty has the right to challenge this procedure within ten working days from receipt of the notification; and d) if an objection is submitted before the expiration of the deadline set in point c) above, the sanction procedure is considered initiated, and the thirty-working-day period during which the right to be heard may be exercised begins to run from the expiration of the deadline set in point c) above. If no objection is submitted before the expiration of the deadline set in point c) above, the decision of the Director General of DGSO regarding the application of a sanction becomes final.

Article 11
Time Limits

1. The right to take the decision to initiate a sanction procedure expires one year after the Bank of France first became aware of the existence of the alleged breach and, in any case, five years after the breach was committed or, in the case of a continuing breach, five years after its cessation.
2. The right to take the decision to impose a sanction following a breach, as provided for by this Decision, expires one year after the decision was taken to initiate a sanction procedure.
3. The right to launch an enforcement procedure expires six months after the decision became enforceable pursuant to Article 8, paragraph 5.
4. The time limits provided for in this Decision run from the day following the receipt of their notification or their delivery by courier. Any communication from the counterparty concerned must reach the recipient or have been sent by registered mail before the relevant deadline has expired. If this deadline expires on a Saturday, Sunday or public holiday, it is extended until the end of the next working day.

Article 12
Publication and Entry into Force

1. This Decision is published in the Official Publication Register of the Bank of France.
2. It enters into force on the day of its publication.
3. This Decision is applicable in the overseas departments and regions, in Saint-Barthélemy, in Saint-Martin, in Saint-Pierre-and-Miquelon, as well as in the Principality of Monaco.

Done in Paris, July 21, 2017
The Governor of the Bank of France
François VILLEROY DE GALHAU