Decision No. 2020-01 on the Sanction Procedure for Non-Compliance with Certain Monetary Policy Counterparty Obligations

Decision No. 2020-01 of January 1, 2020 on the sanction procedure in case of 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, as amended,
• ECB Regulation (EC) No 2157/1999 of 23 September 1999 on the powers of the ECB to impose sanctions (ECB/1999/4), as amended,
• ECB Guideline (EU) 2015/510 of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60), as amended,
• 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), as amended,
• the Monetary and Financial Code, and in particular Article L.142-8 thereof,
• the Decision of the Governor of the Bank of France No. 2015-01 of April 22, 2015 on the implementation of the monetary policy and intraday credit of the Bank of France, as amended,
• the Decision of the Governor of the Bank of France No. 2016-07 of December 30, 2016 on additional temporary measures concerning the refinancing operations of the Bank of France and the eligibility of collateral, as amended.

DECIDES

Article 1
Scope
This Decision applies solely to sanctions that may be imposed by the Bank of France in the exercise of its fundamental central bank missions, in the event of failure by one of its counterparties to comply with the obligations incumbent upon it under the Decision of the Governor of the Bank of France 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 "Decision of the Governor of the Bank of France" means the Decision of the Governor of the Bank of France No. 2015-01 of April 22, 2015 on the implementation of the monetary policy and intraday credit of the Bank of France, as well as any other Decision complementing, modifying 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 Decision of the Governor of the Bank of France.

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

Article 3
Preliminary documentary and on-site controls prior to a sanction procedure

1. The General Directorate of Financial Stability and Operations of the Bank of France (hereinafter "DGSO") organizes documentary and on-site controls of counterparties aimed at verifying compliance with the obligations provided for by the Decision of the Governor of the Bank of France. Documentary controls are conducted by the DGSO services. On-site controls are conducted on behalf of the DGSO by agents of the General Inspection of the Bank of France, possibly assisted by DGSO agents.
2. In the event of an on-site control, a report is drawn up. The draft report is brought to the attention of the management of the controlled counterparty, who may submit their observations, which are included in the final report. In cases of urgency or the need to proceed without delay to record findings regarding facts or conduct likely to constitute particularly serious 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 control revealing one or more breaches, its results are brought to the attention of the management of the controlled party by the DGSO services, who may submit their observations within a period of 15 working days from receipt.

Article 4
Initiation of a sanction procedure

1. When the Director General of DGSO considers that the facts identified by the results of documentary controls or, in the event of an on-site control, by the final report or by any other means, justify the initiation of a sanction procedure, he notifies the counterparty in writing of the grounds relied upon against it. This notification constitutes the initiation of the sanction procedure against the counterparty concerned.
2. The notification of grounds contains a statement of the facts that form the basis of the alleged breach(es) and indicates the sanction incurred in this regard. Where appropriate, it demands the cessation of the alleged breach(es). It specifies that the counterparty has the right to contest the notified grounds and the corresponding sanction within a period of thirty working days from its receipt.

Article 5
Procedure in case of non-contestation by the counterparty If the counterparty does not contest the notified grounds or the corresponding sanction proposal before the expiration of the thirty-day period set forth in paragraph 2 of Article 4, the Director General of DGSO imposes the sanction as indicated in the notification of grounds under the conditions provided for in paragraph 6 of Article 10, and the procedure is closed.

Article 6
Procedure with an investigation phase in case of contestation by the counterparty If the counterparty contests the notified grounds or the corresponding sanction proposal before the expiration of the thirty-day period set forth in paragraph 2 of Article 4, the procedure provided for in Articles 7 to 11 applies.

Article 7
Investigation Phase – Referral to an independent investigation unit

1. When the counterparty contests the notified grounds or the corresponding sanction proposal within the thirty working day period provided for in paragraph 2 of Article 4, the Director General of DGSO refers the matter to an internal investigation unit (hereinafter "the investigation unit") composed of independent investigators not belonging to the DGSO, transmits to it the contestation received from the counterparty, and informs the counterparty of this referral by written notification.

2. The investigation unit, based on the notification of grounds provided for in Article 4, has in particular the right, for the purposes of the investigation:
   a) to require the production of documents; b) to examine the books and archives of the counterparty; c) to take copies or obtain extracts from these books and archives; and d) to obtain written or oral explanations.

3. The powers conferred by this Decision on the investigation unit, within the framework of the investigation, include, for the purpose of obtaining any information relating to the alleged breach, the ability to search for various elements of information and the ability to conduct an on-site investigation without prior notification to the counterparty. Bank of France agents authorized, in accordance with applicable internal rules, to search for information in the premises of the counterparty, 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 investigation unit specifies the subject and objective of the investigation.

Article 8
Communication of additional grounds during the investigation phase

1. Within a period of thirty working days from the notification provided for in paragraph 1 of Article 7, the counterparty may communicate in writing to the investigation unit its additional comments on the grounds formulated, without prejudice to the possibility of presenting these comments during an oral hearing, if it requests this in its written comments.
2. After receipt of the comments mentioned in paragraph 1 of this Article, the investigation unit conducts additional searches if the facts are contested or to resolve any pending questions.
3. Additional grounds are communicated to the counterparty only if the results of the searches conducted by the investigation unit lead to attributing new facts to the counterparty concerned or to modifying the evidence of the contested breaches.
   Any modification of the grounds and any additional ground are notified in writing by the investigation unit to the counterparty, which has a period of thirty working days from this notification to communicate its comments on these new grounds.

Article 9
Rights and obligations of the counterparty during the investigation phase

1. The counterparty cooperates with the investigation unit throughout the investigation phase of said sanction procedure. The counterparty has in particular the right to submit all documents, books or archives, all copies or all 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 investigation unit in the exercise of its powers within the framework of the sanction procedure may constitute sufficient grounds for the application of the incurred sanction.

3. The counterparty has the right to be assisted by legal counsel throughout the investigation phase.

4. After receiving the notification provided for in paragraph 1 of Article 7 or that provided for in paragraph 3 of Article 8, the counterparty has the right to consult the documents and other items that serve as proof of the alleged breach.

5. If, during the investigation phase, the counterparty, 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 investigation unit. The hearings will take place in 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 may propose that the investigation 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 the person only for the parts relating to their own statements.

7. All opinions and summonses relating to hearings issued by the investigation unit are sent to their recipients by registered mail with acknowledgment of receipt, or handed over by courier against signature.

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 presumed 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 10
Submission of a sanction proposal to the Director General of DGSO

1. When the investigation unit considers, after having concluded the investigation procedure and notified it to the counterparty, that it is appropriate to impose a sanction on the counterparty, it submits a proposal to the Director General of DGSO. This proposal is based solely on the facts and grounds, regarding which the counterparty had the opportunity to present observations, establishing that the counterparty concerned has committed a breach of the obligations provided for by the Decision of the Governor of the Bank of France. It specifies the nature and, where appropriate, the amount of the sanction to be imposed. The amount of the pecuniary sanction is fixed in accordance with the provisions of the Decision of the Governor of the Bank of France.

2. The Director General of DGSO, if he considers that the file submitted by the investigation unit is incomplete, may return it to the investigation unit, with a reasoned request for additional information.

3. The Director General of DGSO, if he approves the proposal submitted by the investigation unit to impose a sanction on the counterparty, adopts a decision in accordance with the proposal submitted by the investigation unit and according to the procedures provided for in paragraph 6 of this Article.

4. The Director General of DGSO, if he considers that the facts described in the proposal of the investigation unit do not constitute sufficient evidence to establish a breach, may adopt a sanction decision based solely on the breaches he retains or pronounce the closure of the file. In the latter case, he notifies this closure decision to the counterparty.

5. The Director General of DGSO, if he considers that the counterparty has committed a breach, as established in the proposal of the investigation unit, but disagrees with the proposed sanction, adopts a decision fixing the appropriate sanction according to the procedures provided for in paragraph 6 of this Article.

6. When the Director General of DGSO establishes, based on a complete file, a breach, he adopts a reasoned decision specifying the sanction imposed and notifies it to the counterparty. This notification mentions the right to reconsideration provided for in Article 11 of this Decision. The sanction imposed may be based solely on the grounds for which the counterparty was able to express its comments. The decision is also notified to the competent authorities empowered to exercise prudential supervision over the counterparty.

Article 11
Reconsideration of the decision by the Governor of the Bank of France

1. The counterparty has the right to request a reconsideration 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 the notification of this decision and contain all information and allegations in support of the request. It is sent in writing by registered letter with acknowledgment of receipt to the Governor of the Bank of France.
2. The Governor of the Bank of France may request the counterparty or the Director General of DGSO to provide additional information in order to reconsider the decision of the Director General of DGSO.
3. The Governor of the Bank of France sets a mandatory deadline for the provision of information; this deadline may not 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 includes the reasons for this decision and is notified in writing to the counterparty as well as to the competent authorities empowered to exercise prudential supervision over the counterparty. The notification must inform the counterparty of its right to appeal.

Article 12
Execution of the decision

1. No sanction is executed against the counterparty before the decision becomes final, which is the case:
   a) When the thirty-day period referred to in paragraph 1 of Article 11 has elapsed without the counterparty having submitted a request for reconsideration to the Governor of the Bank of France, or b) When the Governor notifies his decision to the counterparty in accordance with paragraph 4 of Article 11, or c) When a period of two months has elapsed since the receipt of the counterparty's request provided for in paragraph 1 of Article 11 without the Governor having taken a decision.
2. Once the sanction decision has become final, the Director General of DGSO 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 Director General of DGSO takes into account the legitimate interest of the company concerned in protecting its commercial interests and any other particular interest.
3. 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.
4. The counterparty bears the costs of the sanction procedure if it has been decided that it committed a breach.
5. The Bank of France gathers all information relating to the determination and execution of the sanction in a file which is kept for at least five years from the day the decision to impose the sanction became final.

Article 13
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, namely:
   a) in the event of an on-site control, one year from the date of signature of the inspection report, or b) in the event of a documentary control, one year from the date its results are brought to the attention of the management of the controlled party, and, in all cases, 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 has been taken to initiate a sanction procedure.
3. The right to launch an execution procedure for the sanction decision expires six months after it has become enforceable pursuant to paragraph 1 of Article 12.
4. The time limits provided for in this Decision run from the day following the notification or the handing over of the same by courier. Any communication from the counterparty concerned must reach the recipient or have been sent by registered mail before the relevant time limit has expired. If this time limit expires on a Saturday, Sunday or public holiday, it is extended until the end of the following working day.

Article 14
Delegation of signature
The Director General of DGSO may delegate his signature to the Deputy Directors General of DGSO as well as to the Directors and Deputy Directors of the Monetary Policy Implementation Directorate (DMPM).

Article 15
Repeal
The Decision of the Governor of the Bank of France No. 2017-02 of July 21, 2017 is repealed as from the entry into force of this Decision.

Article 16
Publication and entry into force
This Decision is published in the Official Publication Register of the Bank of France. It enters into force on the day of its publication and applies to sanction procedures notified as from January 1, 2020.

Done in Paris, January 1, 2020
The Governor of the Bank of France
François Villeroy de Galhau