Restrictions on the Marketing of Certain Financial Instruments in France

On 8 November 2016, the French Parliament adopted a new law on transparency, anti-corruption and economic modernisation, known as the "Sapin II Act".

The Sapin II Act contains new provisions designed to prohibit any form of direct or indirect promotional communications, by electronic means, to clients who are likely to be non-professional (therefore retail) clients. This also includes potential clients. The prohibition will apply when such communications concern the provision of investment services relating to financial contracts for which:

(i) the maximum risk amount is not known at the time of the investment; or

(ii) the risk of loss exceeds the amount of the initial investment; or

(iii) the risk of loss compared to the corresponding potential gains is not reasonably understandable, taking into account the specific nature of the relevant financial contract. 

During parliamentary debates, there were conflicting views on whether listed products should fall within the scope of this prohibition. The Sapin II Act now makes clear that financial contracts which are admitted for trading on a regulated market or multilateral trading facility (MTF) should not be captured by the marketing ban.

This prohibition will apply to both investment services providers licensed in France and non-French investment services providers acting in France through a branch or cross-border on the basis of EEA passporting rights. It will also apply to French financial investment advisers (conseillers en investissements financiers).

Any information released on the own websites of the investment services providers or financial investment advisers which market the relevant financial contracts will fall outside the scope of the prohibition.

Under the Sapin II Act, the French Autorité des marchés financiers ("AMF") is entitled to determine the categories of products that fall within the scope of this prohibition. Such determination should be made by taking into account the various factors mentioned above and the fact that the term "financial contracts" appears to refer to derivative products only. The AMF launched a public consultation to define these categories of products, which closed on 30 September 2016. This consultation referred to the following financial contracts:

• Binary options;
• Contracts which promote a direct or indirect investment on the "Forex", foreign exchange market or currency market;
• Contracts for difference (CFDs) that have a leverage greater than five; and
• Financial contracts which have an economic effect equivalent to those set out above.

However, the results of the AMF consultation are still pending and currently no regulation implementing this prohibition has been published by the AMF.

In its response to the AMF consultation, the French Association of Financial Markets Professionals suggested that the AMF should describe, in more detail, the binary options and contracts for difference to be captured by the marketing ban. Also, it asked the AMF to simplify the reference made to contracts which promote a direct or indirect investment on the "Forex", foreign exchange market or currency market, and remove the reference made to financial contracts which have an equivalent economic effect. The Association also called for specific guidance to be published by the AMF, regarding the types of promotional communications targeted by the prohibition, and suggested that the AMF should implement a specific regime for FX products which would be used solely for hedging purposes.

In addition to investment services providers and financial investment advisers, the prohibition also applies to service providers involved in prohibited promotional communications (i.e. advertisers who create, promote or advise on these communications, buyers of advertising space or, more generally, any person who would send a prohibited communication). Similarly, any client/customer or sponsorship operation, involving financial instruments which meet the above mentioned criteria, is also forbidden.

Through such prohibition, the Sapin II Act intends to address concerns which have been raised by the AMF for many years, chiefly that investments in complex products (particularly FX investments) represent a high risk to potential investors and are unsuitable for retail clients.

It is worth noting that the AMF recently took action to prevent an EU firm, passported into France, from providing investment services in France. It did so on the basis of the mechanism set out in Article 62 of MiFID. The EU firm in question offered FX binary options to French investors, during the course of which the AMF considered that the firm failed to comply with its professional obligations. This is the first time that this mechanism has been implemented in France (and is similar to actions being taken elsewhere in Europe noting that Andrew Bailey (FCA CEO) also recently expressed similar concerns in this area). This AMF action, together with the new French marketing ban expected to come into force in the coming months, signals a new regulatory environment regarding speculative products offered to French investors.

At this stage, there remains some uncertainty regarding:

• whether the Sapin II Act will be submitted to the French Constitutional Council (Conseil constitutionnel) for examination and if this will consequently impact the timing of the enactment of the marketing ban;

• whether the AMF will maintain the position expressed in its consultation, or whether it will take into account the guidance expected from the regulator and suggestions made, in particular, by the French Association of Financial Markets Professionals which relate to the list of products which will fall within the scope of the marketing ban;
• whether the European Commission will be notified of the marketing ban. There have been legal debates on this specific matter. It seems that a notification based on Article 4 of the MiFID Level 2 Directive no. 2006/73/EC would not be required. However, the French Supreme Administrative Court (Conseil d'état) advised the French government that the marketing ban would comply with MiFID II if it is notified to the European Commission at least 2 months before the proposed implementation of the marketing ban, pursuant to the procedure set out in Article 24.12 of MiFID II.

In any event, investment services providers will have to comply with MiFID rules. ESMA recently updated its Q&A relating to the provision of CFDs and other speculative products to retail investors under MiFID. This should apply to all such products (even those which would not be captured by the French marketing ban). This Q&A is intended to promote common supervisory approaches and practices in the application of MiFID across the EU, and to help firms by providing clarity as to the content of the MiFID rules. Section 3, in particular, contains interesting guidance on the use of marketing communications. Lastly, this ban appears directly limited to "marketing". It is therefore not exactly similar to recent measures taken in Belgium (as an example).