A bank that has its registered office outside the European Economic Area ("EEA") may consider establishing a presence in France in order to provide banking services to French counterparties. The bank may either set up a full-fledged subsidiary or a branch office, i.e., a more simple structure that is not a separate legal entity of the bank and is exempt from a number of requirements applicable to a subsidiary. Branches of banks based outside the EEA may conduct the same business as French banks except for the activities that the banks are not authorized to conduct under the legislation of their home jurisdiction.
The rules applicable to French branches of banks based outside the EEA were revised by Order no. 2015-558 dated May 21, 2015. The Order mostly clarifies preexisting rules but also introduces additional requirements, as a result of Article 47(1) of Directive 2013/36/EU of June 26, 2013 (CRD IV), whereby Member States should not hold branches of non-EEA banks to standards that would be more favorable than that applicable to those having their head office in the EEA.
Importantly, these new provisions will not only affect future branches to be set up in France but also currently existing branches that are already authorized to operate in France.
This Commentary provides an overview of the main provisions arising under the Order in terms of requirements applicable to authorization, regulatory capital, governance, and compensation.
Authorization of Branches of Non-EEA banks
Since November 2014, the European Central Bank ("ECB") has been mandated to authorize all new credit institutions based in the Eurozone. The ECB took over from the national regulators as part of the Eurozone-wide single supervisory mechanism. By way of exception, the French national banking regulator (Autorité de contrôle prudentiel et de résolution, "ACPR") will retain its power to authorize branches of banks based outside the EEA.
It is logical that the ACPR (as opposed to the ECB) should retain its power to authorize French branches of non-EEA banks, given that the French branch of a non-EEA bank is not entitled to "passport" recognition, i.e., the French branch is not allowed to conduct its activities in another European jurisdiction on the basis of its authorization in France. At least for the time being, such "passport" recognition is available to EEA credit institutions only.
The French branch will be granted an authorization on the condition that non-EEA banks expressly...