Effective as of April 1 2020, France will commission Decree No 2019-1590 and the Order on foreign investments.
Compliance experts across the world are all too familiar with the Shareholding Disclosure reporting requirements of the Securities Exchange Act, EU Short Selling and Takeover Panel rules. This has led to a strong focus on implementing compliance systems which aim to prevent any breaches of these regulations and others alike. These solutions are built with unpredictable degrees of success as outlined in our previous blog posts on Building v Buying Shareholding Disclosure Automation Systems and The Danger of Relying on Excel.
Despite what might seem like a strong focus on compliance regulation, no one is talking about perhaps the most onerous of them all, something we at FundApps like to call, Sensitive Industries (“SI”). SI regulations dictate shareholding disclosure regulations at the more granular industry level, imposing pre-approval, threshold disclosure and holdings limit restrictions on investors which can all differ per jurisdiction. Read more about our newly launched Sensitive Industries service.
New regulation in France!
Effective as of April 1 2020, France will commission Decree No 2019-1590 and the Order on foreign investments, which narrows the scope for foreign investments in Sensitive Industries. With France already having pre-approval and threshold disclosure requirements across 7 sectors with holdings thresholds ranging from 10% to 50%, the Minister of the Economy (“MoE”) has decided to impose increasingly burdensome reporting requirements.
The MoE has lowered the threshold for pre-approval requirements from 33.33% down to 25%. Additionally, the regulator has extended the SI regime to cover issuers involved in the production, processing and distribution of agricultural products; political and generic information press services; quantum technologies; and energy storage.
What are the consequences of these changes?
Despite imposing extensive industry-specific reporting requirements and restrictions, the penalties for non-compliance are unforgiving. Weighing in at the highest of:
- Double the value of the investment; or
- 10% of the sensitive issuer’s annual turnover (BNP Paribas’ operating income in 2019 was €10bn, don’t forget the 10% pre-approval for banking!); or
These sanctions are not something you’d like to face for simply failing to obtain approval on an acquisition.
This is just one example of how regulators across the globe are imposing and actively updating industry-specific reporting requirements and limits based on the value attributed to an industry. Whilst the French regulator has reduced the pre-approval threshold from 33.33% to 25%, other regulators impose restrictions at levels as low as 1%.
Cultural influence, geographical location, Gross Domestic Product contributions and national security are some examples of the considerations a regulator will make when imposing the industry coverage, the type of restriction and the limit. This makes monitoring and remaining compliant with these restrictions time consuming and tedious.
So, what’s the solution?
Our recently launched Sensitive Industries service is the first of its kind to provide alerts for compliance professionals who have the burdensome task of meeting these industry-specific reporting requirements and restrictions. We take legal information from aosphere (an affiliate of Allen & Overy) and map the restrictions to GICS codes at the industry level, resulting in robust investment threshold and limit monitoring for 69 different industries per jurisdiction. Offered in conjunction with our Shareholding Disclosure service, we ensure compliance professionals reduce the time and cost associated with Sensitive Industries and Shareholding Disclosure with our powerful rules engine, reducing reputational risk and avoiding fines.