In this third and final part of Patrick Laure’s article (read part 1 and part 2), he takes a final look at how the Monegasque legislature has strengthened investor protection by clarifying that banks must establish client profiles and provide personalised advice and assistance…
The new law
The Monegasque legislature has clarified the concept of “activity” referred to in Article 14of the law, namely “advice and assistance“.
Ordinance No. 9.259 of 12 May 2022 therefore created a new article within Ordinance No. 1.284 of 10 September 2007 implementing Law No. 1.338 of 7 September 2007, worded as follows:
“Article 2-1 (created by Order No. 9.259 of 12 May 2022)
For the purposes of this order, the following definitions shall apply. […]
4°) “advisory and assistance activity” means providing personalised recommendations to a third party for the activities referred to in points 1°) to 3°) of Article 1 of Law No. 1.338 of 7 September 2007, as amended, referred to above;”
This clarification by the Monegasque legislature, which is in line with the protection of savers, is to be welcomed.
Until now, the lack of precision regarding “advice and assistance” activities under the RTO regime in Implementing Order No. 1.284 made it difficult to determine their legal status.
• Variable case law and random application
Until now, only case law handed down by the Monegasque courts had occasionally filled the legal vacuum between, on the one hand, the RTO regime (Section 3) with its limited obligations for financial institutions to provide information and execute orders correctly, and, on the other hand, the more extensive obligations (determination of a client profile, etc.) referred to in point 1).
This case law referred to “advisory management”, a duty to advise or “warn”, but in no case a duty to “advise and assist” within the framework of the RTO and as specifically written in the law.
The more significant obligations incumbent on banks are only regulated in the case of a “management mandate”.
Thus, it was virtually impossible to enforce the bank’s liability under the RTO regime, whereas, paradoxically and abnormally, it was easier under the management mandate regime.
This was abnormal because, according to the principle that “he who can do more, can do less”, if a management profile was a prerequisite for a management mandate (where powers are transferred to the bank), a management profile did not seem necessary in the case of RTO, even if the product was recommended by the bank to its customer.
• When freedom is risky.
The risk was that the bank would consider, despite the fact that it was the source of the recommendation, that its investor client acting under the RTO was de facto an “informed” or “qualified” investor, and if, unfortunately, the latter had already subscribed to similar products in the past, it was difficult, if not impossible, to prove that the apparent freedom of , the investor choosing the RTO regime, was in fact a prisoner of a poorly written, or rather incomplete, law, which financial institutions were rushing to take advantage of.
The bank would then absolve itself of responsibility on the grounds that the customer was a “sophisticated” or “qualified” investor.
•Determining a profile, even under the RTO regime.
Since 12 May 2022, all investors, especially those under the RTO regime, are now legally protected.
The concept of “personalisation”, which is added to “recommendation”, refers to the establishment of a profile and a suitability test as defined by the AMF.
Since May 2022, banks have been required to prove that they have taken steps to get to know their customers and that the latter, based on discussions with their banker about their level of knowledge, have consciously and fully consented to the product offered by their banker.
If the banker offers the customer a product, whether complex or not, that has already been offered previously, and the banker cannot prove that they have first established a management profile in accordance with best practice, the burden of proof will fall on the bank.
The bank will have to prove that its customer is a knowledgeable, qualified and independent investor, since they are using the RTO service and not a management mandate.
However, without a pre-determined management profile for its client, it will be difficult for the bank to exempt itself from its duty to provide advice and assistance in all activities, whether under a management mandate, in the Monégasque FCP management, or under the RTO regime.
⃰On 12 May 2022, the Monegasque legislature clarified the obligations of banks towards their investor clients. This is a welcome step forward in recognising and respecting the principle of investor protection.
In short, you should always ask your banker to draw up a profile of you. This is an essential prerequisite to ensure that your rights as an investor are always protected.
Humans know how to protect themselves from strong and constant winds; they adapt through reason and thought, and well-written laws are their first line of defence against adversity, not from Mother Nature, but from her alter ego, with its rich and promising imagination, whatever Darwinian theorists may say.
Investors and savers, you are now warned, informed, “knowledgeable”, but wisely so; and overall, always sophisticated.
Patrick LAURE
Secrétaire Particulier
+33 6 35 45 27 02
laurepatrick@wanadoo.fr
**The information provided in this article is for general informational purposes only and does not constitute legal advice. It is not intended to create an attorney-client relationship. Laws and regulations vary by jurisdiction and may change over time. Readers should consult a qualified legal professional for advice specific to their situation. The author and publisher are not responsible for any actions taken based on this information.
