BANKING & ALERT

DEFINITIONS OF ENTITIES OPERATING IN THE FINANCIAL SECTOR FEBRUARY 2016

A number of parent of industrial and • Parent Undertaking which: commercial groups have recently been notified by undertaking - has a majority of the the ACPR of their status as a "mixed-activity Article 4, point 15 ' or members' holding ", thereby discovering the jungle of the CRR voting rights in an of statuses related to financial activities. undertaking (), - or has the right to appoint or Context and scope of the memorandum remove a majority of the members of the The "CRD IV Package", composed of Directive No. administrative, 2013/36/EU of June 26, 2013 (hereinafter the or supervisory CRD IV Directive), and EU Regulation No. 575/2013 body of the subsidiary, and of June 26, 2013 (hereinafte r C RR), has modified is at the same time a the definitions of the different entities carrying out in or member of an activity in the financial sector, either directly or that subsidiary, through companies controlled or in which they hold - or has the right to exercise a a stake. dominant influence over the The purpose of this alert is to review these new subsidiary pursuant to a definitions, often little known, and the scope of or to a provision in these statuses. its , - or is a shareholder or Definitions resulting from the CRD IV member and a majority of Package the members of the administrative, These definitions can be found both in the CRR management or supervisory bodies of the subsidiary Regulation and in the Monetary and Financial Code have been appointed solely (MFC). as a result of the exercise of We have focused on the definitions as set out in its voting rights, or it Chapter VII, Title 1, Chapter VII of the MFC (i.e. controls alone a majority of financial holding companies, parent undertakings of shareholders' voting rights. finance companies, mixed financial holding companies, financial conglomerates, mixed holding • Institution A credit institution or an companies and mixed parent undertakings of investment firm. finance companies). These are regulated entities However, to fully grasp these concepts, we have within the meaning of the MFC also added some definitions from the CRR. (Article L 517-2, 1°)

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• Financial An undertaking, other than an - Safekeeping and Institution institution, the principal activity administration of securities, of which is to acquire holdings (Article 4 point - Issuing electronic money. or to pursue one or more of the 26 of the CRR) Financial institutions include following activities: financial holding companies,

- Lending including, inter alia: mixed financial holding consumer credit, credit companies, payment institutions agreements relating to and portfolio management immovable property, companies, but exclude , with or without holding companies recourse, financing of and mixed-activity insurance commercial transactions holding companies. (including forfeiting),

- Financial leasing,

- Payment services, - Issuing and administering • Credit Company whose is to other means of payment, institution receive repayable funds from the public AND to grant loans. - Guarantees and Article L 511-1 of commitments, the MFC - Trading for own account or (new definition for account of customers in since January 1, any of the following: money 2014) market instruments • Regulated - Credit institution (cheques, bills, certificates entity of deposit, foreign - Insurance company exchange, financial futures Article L 517-2 of - Reinsurance company and options, exchange and the MFC - Mutual insurance company interest-rate instruments, - Provident institution transferable securities). - Investment firm - Participation in securities issues and the provision of The CRD IV Directive also services relating to such includes in this list: issues, - Portfolio management - Advice to undertakings on company capital structure, industrial - Alternative investment fund strategy and related manager questions and advice as well as services relating to mergers and the purchase of undertakings, • Investment firms Legal entities, other than credit institutions, which provide - Money broking, investment services on a - Portfolio management and habitual basis. advice,

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• Finance Companies, other than credit • Mixed financial , which is company institutions, which carry out holding not a regulated entity, but has at credit operations on a habitual company least one subsidiary that is a Article L 511-1 of basis and for their own account, regulated entity and which the MFC under the conditions and within constitutes, with this subsidiary, the limits defined by their a financial . approval. To form a financial In addition to these operations, conglomerate, the mixed finance companies may carry company and its out one of the following must participate in the banking operations: and insurance sector and - provide payment services, exceed the thresholds set out below. - issue and manage electronic money, • Financial This is a group of companies in conglomerate which: - provide investment services. - A regulated entity is the Finance companies are not Article L.517-3 of of the group or at least authorised to receive funds from the MFC one of the subsidiaries of the the public. group is a regulated entity and: (a) Where a regulated entity is • Financial Financial institution whose the head of the group, it must be holding subsidiaries are exclusively or either the parent undertaking of company principally: an entity of the financial sector, or an entity that holds a stake in - credit institutions, or an entity in the financial sector, - investment firms, or or an entity related to an entity - financial institutions. of the financial sector, And which is not a mixed (b) Where there is no regulated financial . entity at the head of the group, • Parent Financial institution whose the activities of the undertaking of subsidiaries, exclusively or conglomerate must be exercised finance principally, consist of one or primarily in the financial sector. companies more: - At least one of the group's entities belongs to the - finance companies, insurance sector and at - financial institutions. least one belongs to the The difference with the financial banking sector or to the holding company is that the investment services sector. parent undertaking of finance - The consolidated or companies does not have a aggregated activities of the credit institution among its group's entities in the subsidiaries. insurance sector, or in the And which is neither a financial banking sector or holding company, nor a mixed investment services sector financial holding company, nor a are significant. mixed holding company.

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The thresholds to consider The activities of the sectors of a whether a group carries out its group are also considered activity primarily in the financial significant when the balance sector are defined by decree. 1 sheet total of smallest sector A group primarily operates in the within the group exceeds 6 financial sector when the ratio billion Euros. between the total If a group does not reach the of the regulated and non- threshold of 10% but reaches regulated entities in the that of 6 billion Euros, the ACPR financial sector of the group and may decide not to consider this the balance sheet total of the group as a financial group exceeds 40%. conglomerate. An activity is considered • Mixed holding Company whose subsidiary is a significant when the average company credit institution or a finance value of the two ratios below company. Article L 517-4-1 exceeds 10%: of the MFC AND which is not an institution, a - The ratio between the financial holding company or a balance sheet total of the mixed financial holding company. insurance sector on the one • Mixed parent Parent undertaking which has at hand, and the banking and undertaking of least one finance company among investment sectors taken a finance its subsidiaries. together on the other hand, company and the balance sheet total AND which is not a parent of the entities of the group's Article L 517-4-1 undertaking of a finance entire financial sector, of the MFC company, a financial holding company, a mixed financial - the ratio between the holding company or a credit solvency requirements of institution, an investment firm or the insurance sector on the a finance company. one hand, and of the banking and investment • Mixed group All the subsidiaries, direct or services sectors taken indirect, of a mixed holding together on the other hand, company. and the total solvency requirement of the entities of the group's entire financial sector.

1 Order of November 3, 2014 on the supplementary supervision of financial conglomerates: https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000 029706601

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Contacts

• Dana Anagnostou, Partner, Lawyer at the New York and Paris Bars, [email protected] • Hugues Bouchetemble, Partner, Lawyer at the Paris Bar, [email protected] • Reid Feldman, Partner, Lawyer at the Paris and Washington D.C. Bars, [email protected] • Gilles Kolifrath, Partner, Lawyer at the Paris Bar, [email protected] • Jean-Pierre Mattout, Partner, Lawyer at the Paris Bar, [email protected] • Hubert de Vauplane, Partner, Lawyer at the Paris Bar, [email protected] • Wadie Sanbar, Counsel, Lawyer at the Paris Bar, [email protected] • Pierre Storrer, Counsel, Lawyer at the Paris Bar, [email protected] • Valentine Baudouin, Lawyer at the Paris Bar, [email protected] • Augustin Fargier, Lawyer at the New York and Paris Bars, [email protected] • Rémi Jouaneton, Lawyer at the Paris Bar, [email protected] • Ramona Tudorancea, Lawyer at the New York and Paris Bars, [email protected]

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