ENEffective Insolvency and Creditor Rights Systems
A 2003 report by the European Commission's (EC) Expert Group found that of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, France had fully adopted 15, almost fully adopted 10, partially adopted 14, and failed to adopt 2. It was concluded that the French system was unfavorable to creditors, and a 2005 PricewaterhouseCoopers report found that reforms had been enacted that philosophically favored rescue and restructuring of at-risk debtor firms. Further reforms were embodied in the 2005 Law on Safeguards of the Enterprises, which objective, according to a 2009 article by J.-M. Lucheux and O. Pusch, was to support restructuring rather than bankruptcy proceedings. The law contains an adaptation of the U.S. Chapter 11 provisions, and improves voluntary resolutions through conciliation proceedings.
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NCInternational Financial Reporting Standards
France complies with the EU Regulation (EC) No. 1606 of 2002, which requires International Financial Reporting Standards (IFRS), as endorsed by the EC, in preparation of consolidated financial statements of listed entities. According to a 2008 EC report on the implementation of the Regulation, non-listed entities are also permitted application of IFRSs in their consolidated financial statements. However, IFRSs are not permitted in preparation of annual accounts of all entities which must apply French accounting standards instead. As pointed out in a number of publications, French accounting requirements differ from the international standards. With regards to convergence, a 2007 European Committee of Central Balance Sheet Data Offices report pointed out that France has a policy of "progressive convergence" of national Generally Accepted Accounting Principles towards IFRSs, with simplification for small and medium sized enterprises. However, since 2004, in line with its progressive convergence policy position, France has been selective in endorsing IFRSs and has partially adopted only a few of the international standards. A 2006 National Organization of Registered Auditors’ (CNCC) self-assessment adds that convergence in France is limited with the possibility to stay that way until national tax and legal issues arising due to the application of international accounting standards in the individual annual accounts are resolved. More recently, a 2009 CNCC Action Plan reiterated that the newly established accounting standard-setter, the Accounting Standards Authority will continue to pursue convergence taking into consideration the limitations of the French tax and legal environment.
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ENPrinciples of Corporate Governance
Over the last decade, major changes have occurred within the scope of corporate governance in France. Two laws were passed to strengthen the legal foundation of corporate governance: the May 2001 Law on New Economic Regulations and the August 2003 Financial Security Law. These laws specifically target transparency and ethics within companies. The unified French financial regulator, the Financial Markets Authority (AMF) was created by the 2003 Law. Since then, France seems to have continued to take measures in strengthening its corporate governance framework. The AMF’s 2008 Annual Report states that the Act of 2008 (DDAC Act) transposed the European Union Directives on statutory audits and company reporting into French Law. According to the report, the DDAC Act reinforces the transparency requirements for the corporate governance practices of commercial firms. In December 2008, the French Association of Private Enterprises (AFEP) and the French Employers’ Federation (MEDEF) published a Corporate Governance Code. As of January 2010, most companies currently included in the CAC 40 have adopted the AFEP-MEDEF Corporate Governance Code as their reference code in the drafting of their chairman’s report. On January 20, 2010, the French National Assembly started debating a bill that would require management boards and boards of directors to comprise of at least 40 percent women, within the next 6 years.
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IDInternational Standards on Auditing
France is a member of the EU and as such complies with the EU Directive No. 2006/43/EC which requires all statutory audits of annual and consolidated accounts to be carried out in accordance with international auditing standards as adopted by the EC. Although it is not specified which standards constitute international auditing standards, it is widely anticipated that International Standards on Auditing (ISAs) as issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) will be adopted. Per a 2009 EC publication, France has fully transposed the above-mentioned EU Directive into its national legislation. Furthermore, a 2009 IFAC publication adds that convergence with ISAs is ongoing in France and the national auditing standard-setter, the CNCC, adopts IAASB’s pronouncements with modifications in order to accommodate for local legal and regulatory requirements. In addition, as pointed out in a 2009 CNCC Action Plan, the CNCC supports the EU in the ISA adoption process, and, as of December 2009, the CNCC was in the process of translating Clarified ISAs for future use in EC member states.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
A recent report by the U.S. Department of State (DoS) in 2009 concludes that France has established a comprehensive anti money laundering (AML) regime and is actively involved in international circles to pursue and curtail money laundering and terrorist financing activities. However, unlike many of its peers, France has not had a recent third party assessment of its AML/Combating the Financing of Terrorism (CFT) regime. The last published assessment was in 2005 by the IMF and was based on the Financial Action Task Force's (FATF) old (2002) methodology which has been revised in 2004. Per the IMF report, France had a high level of compliance with the FATF Recommendations with a comprehensive overall legal and institutional framework and an AML/CFT regime that in many areas was far beyond the FATF requirements for compliance. Some areas where France could improve, per the IMF report, were fully implementing the United Nations Security Council Resolution 1373; improving the quality of suspicious transaction reports; expanding the scope of the AML/CFT requirement to cover a wider range of financial and non-financial sectors; and strengthening the internal controls and due diligence obligations of reporting entities. According to the International Bar Association Anti-Money Laundering Forum, the Third European Union Money Laundering Directive was transposed into French law via a government order issued on January 30, 2009. The FATF, in its 2008-2009 Annual Report, named France as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.
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CPCore Principles for Systemically Important Payment Systems
Until recently, France's systemically important payment systems consisted of the two large-value payment systems, Transferts Banque de France (TBF) and Paris Net Settlement (PNS), and the retail payment system known as Système Interbancaire de Télécompensation (SIT). TBF was France's component of the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) system, the Euro area payment system. However, in November 2007 TARGET2 replaced TARGET and payment services were harmonized under a single shared platform across its member countries. France joined TARGET2 with the second wave of countries on February 18, 2008. As a result, the TBF and PNS systems were deactivated. According to a 2009 European Central Bank assessment of TARGET2 against the Core Principles for Systemically Important Payment Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems, TARGET2 observes all CPSIPS. Meanwhile, a 2005 IMF's assessment of France’s compliance with CPSIPS found that the SIT observed seven principles, broadly observed two, and did not observe one principle. Like the TBF and PNS systems, however, SIT is gradually being replaced by a unified platform for all of Europe known as the Single Euro Payments Area. In addition, the 2005 IMF’s assessment stated that all four principles relating to central bank responsibilities were fully observed by the French central bank.
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