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France: New rules for the prosecution of market abuse and tougher sentences for insider trading

The prosecution of market abuse in France and the scope of insider dealing laws have changed, following recent amendments to the French Monetary and Financial Code (Code monétaire et financier ).

Only one prosecution allowed for market abuse

Market abuse in France can no longer be prosecuted under both criminal and regulatory law, following recent changes made to the French Monetary and Financial Code (Code monétaire et financier CMF).

The changes follow a ruling by the French Constitutional Court in March 2015 that, pursuant to the Non Bis In Idem principle, the same market abuse can no longer be prosecuted under both criminal and regulatory law, and a resulting new Bill was enacted in June this year.1

The changes mean that if the French stock market authority (Autorité des Marchés Financiers AMF) prosecutes a market abuse case, the Prosecutor is barred from doing the same and vice versa.

In practice, the allocation of prosecutions will need to be agreed between these two bodies. The new provisions in the CMF provide that each body must notify the other of its intention to prosecute by letter, with a required acknowledgement of receipt.2  If both want to prosecute (ie the Prosecutor according to criminal law and the AMF pursuant to the regulatory provisions), the General Public Prosecutor of Paris (Procureur général près la Cour d'appel de Paris) has jurisdiction to decide whether the case should be allocated to the Public Prosecutor or not. If it decides that it should not, the AMF would have the opportunity to prosecute the alleged offender pursuant to the regulatory provisions.3 

Insider trading offences broadened

The new law also widens the types of assets falling within the scope of insider trading, to include financial instruments negotiated on regulated markets or multilateral trading systems, or for which an application to negotiate on such markets has been made, and financial instruments which have a value that is correlated with or has an effect on the former financial instruments, CO2 emissions quotas and spot contracts on raw materials (if they may have an impact on a financial instrument and to the exclusion of energy products).4

The scope of the offence of insider trading is also broadened. Notably it now also covers cancelling or changing orders before obtaining insider information.5

There will be tougher sentencing, with increased prison sentences and fines, and an option to enter into an administrative settlement (composition administrative), which is a type of deferred prosecution agreement with the AMF.6  This settlement may be of interest since the prosecuted person may pay a fine without having to admit his/her guilt, although the AMF has to publish the settlement on its website and is, as of today, not keen to anonymise a settlement before publishing it (in fact, its actual ability to do so has even been debated).

The new law is welcomed as an improvement to the allocation of market abuse cases between the judicial and regulatory authorities. Moreover, the introduction of a settlement without an admission of guilt for market abuse may be significant in order to avoid complex and lengthy investigations. However, commentators stress that this reform only corrects the weaknesses of the former system without improving the whole market abuse regime or its investigation rules.

Footnotes

1. Law No. 2016-819 of 21 June 2016 reforming the system for the prosecution of market abuse.
2. See the Decree implementing Law No. 2016-1121 dated 11 August 2016.See the Decree implementing Law No. 2016-1121 dated 11 August 2016.
3. It should be noted that a victim should only be entitled to claim damages before a criminal court if the Public Prosecutor is in charge of the case. Otherwise, the victim will have to file a claim with the civil courts in order to seek compensation.
4. Article L. 465-3-4 of the CMF, which also provides for some exceptions to this new scope in relation to articles 3, 5 and 6 of EU Regulation No. 596/2014 dated 16 April 2014.
5. Article L. 465-1 of the CMF.
6. Article L. 621-14-1 of the CMF. 

Further information

This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication.  For more information please contact Karen Birch karen.birch@allenovery.com, or tel +44 20 3088 3710.

Legal and Regulatory Risk Note
Europe