Before the 2008-2010 financial crisis, financial sector supervision (banks and insurers) was essentially microprudential in nature. According to this approach, financial stability was based on a microeconomic extrapolation whereby the overall financial system was deemed to be safe provided each financial institution assessed individually was well capitalised and stable. The financial crisis challenged this paradigm because of the role played by systemic factors in spreading shocks. Notably, spillover effects across countries, institutions and markets, but also concentration of risk with certain counterparties, played a key part in the initial onset and seriousness of the financial crisis.

The 2008 crisis offered examples, including that of Northern Rock, a failed British bank, of the potentially high cost of separating central bank and prudential oversight functions, which hindered the ability of monetary authorities to anticipate and react to events. The difficulties experienced by AIG, an insurance group, which resulted from the uncontrolled combination of insurance and financial activities, similarly demonstrated the threat of disruption across sectors and the benefits for supervisors of having an overview of the entire financial sector, i.e. all banks and insurers.

The crisis also exposed interactions between the individual supervision of institutions and overall questions linked to financial stability. These interactions revealed that a more effectively coordinated relationship between micro and macroprudential supervision was needed to ensure financial stability, making the argument for bringing central bank and prudential oversight functions closer together.

In the post-crisis period, prudential supervision therefore moved towards a more comprehensive approach integrating the entire financial sector (banks and insurers) and combining standard microprudential oversight with macroprudential supervision, which complemented, without replacing, the individual supervision of financial institutions.

Acting through the ACPR, France adopted this comprehensive and integrated approach. It is intended to ensure the stability of the overall financial system by identifying and addressing a broad spectrum of individual, sector and systemic risk factors.

A far-reaching trend towards deregulation, liberalisation and internationalisation of financial markets and activities has taken place over recent decades. This has led to the emergence of financial conglomerates offering a diverse range of products and services. Developments in France’s banking and insurance industries illustrate this shift.

The rise of these conglomerates has resulted in greater diversification in the business portfolios of institutions and, consequently, improved risk profiles. Even so, prudential supervision of financial conglomerates cannot be properly effective if a group’s constituent entities are supervised on a strictly individual basis. An overall vision is needed. This requires an institutional framework to enable information-sharing by the supervisors of group entities and specific supervision of financial conglomerates.

The overall assessment of a conglomerate’s risks and financial position cannot be a substitute for individual oversight of entities subject to supervision, which remains as important as ever. The idea is to have a two-tier system that rounds out individual supervision, which remains fundamental and unchanged, by adding a verification of the risks and financial position at the conglomerate level.

As a result, the ACPR is involved in the prudential monitoring of all the activities and risks of financial conglomerates, while also having an overall view of the strategy and governance of the reporting group. The teams responsible for banking and insurance activities within conglomerates work together regularly and are thus best placed to identify the overall risk profile and improve the prudential monitoring of reporting entities. To give one example, self-placement of securities issued by reporting entities may be supervised more effectively within the framework of overall supervision, particularly in the case of bank securities placed via a life insurance subsidiary.

The scope of the powers assigned to the ACPR, which, on the banking side, is involved in exercising ECB/SSM responsibilities while remaining the sole competent supervisor on the insurance side (see below), means that the ACPR can make a very informed contribution. Accordingly, the ACPR is capable of performing supervision that meets the prudential requirements demanded by the diversified business activities and unique risk profile of financial conglomerates. In particular, the ACPR can warn the SSM’s joint supervisory teams (JSTs) if insurance risks could potentially affect the banking activities of a financial conglomerate. The fact that the JSTs are primarily made up of ACPR personnel facilitates this warning role.

The ACPR is an administrative authority attached to the Banque de France, which provides it with human, IT and other resources. This relationship also enables the ACPR to tap into synergies with the Banque de France’s wider resources and functions. The ACPR has its own budget, financed by contributions from the entities under its supervision, but may also receive exceptional funding from the Banque de France.

From a functional perspective, the ACPR is an integrated supervisory authority that works closely with the central bank. By performing its supervisory tasks in conjunction with the Banque de France and the other authorities of the French financial centre, the ACPR enjoys a more complete view of the financial sector.

To ensure that it has access to skills that span banking and insurance, the ACPR takes on staff from the Banque de France but also hires directly on the domestic and European labour markets. The Banque de France, however, remains the sole employer of all central bank and ACPR personnel. This creates opportunities for a wide variety of skills and career backgrounds, which in turn promote cooperation and a smooth flow of information between the Banque de France and the ACPR.

The ACPR and the BDF collaborate closely with a view to anticipating and recognising macroprudential/monetary policy interactions. The two institutions are jointly responsible for calibrating a number of macroprudential instruments referred to in the European directives and regulations on capital requirements for credit institutions.

A Financial Stability Unit was set up in September 2016. Comprising the competent divisions of the Banque de France (Directorate General, Financial Stability and Operations – DGSO) and the ACPR General Secretariat (Research and International Affairs), the new unit is intended to increase the two institutions’ ability to anticipate developments and so maximise the effectiveness and influence of the Banque de France and the ACPR in financial stability and regulation.

The unit seeks to take a more cross-cutting approach to financial stability through greater coordination of responsibilities within the Banque de France and the ACPR General Secretariat. Its role is therefore to supplement existing interactions and exchanges relating to the conduct of monetary policy operations, the supervision of financial markets and payment system infrastructures, and the individual supervision of credit institutions, insurers and mutual insurance organisations.

In the area of monetary policy, the fact that the ACPR is attached to the central bank is highly beneficial. In the context of the ECB’s monetary easing policy, for example, the ACPR, under its SSM responsibilities, works closely with the Banque de France to help assessing the eligibility of securities issued by financial institutions, by providing prudential assessments of institutions issuing securities that could potentially be purchased by the ECB. The ACPR’s involvement is largely based on targeted surveys designed to test the quality of internal models that assess institutions’ solvency and hence the solvency of securities that are potentially eligible to be purchased by the ECB[1]. By virtue of its attachment to the Banque de France, the ACPR is thus able to act with the requisite fluidity and agility and make a valuable contribution to liquidity management at both systemic level and individual institution level.

The ACPR also works closely with the Banque de France in microprudential supervision, since the latter is responsible for supervising payment systems and market infrastructures. Insofar as some infrastructures and participating institutions are directly supervised by the ACPR, this cooperation is essential to maintaining financial stability. Thanks to smooth information-sharing with the Banque de France’s Capital Markets Directorate, the ACPR can track the liquidity positions of reporting institutions and any emerging stress more easily.

Last but not least, the ACPR works with the Banque de France to enhance protection for the customers of financial intermediaries around the country (see below, 4.1).

The French supervisory model fully integrates the dual dimensions of microprudential and macroprudential supervision. It also recognises the prudential needs arising from the development of financial conglomerates. Since 2010, this model has been based on an original and extensively integrated institutional organisation covering banking and insurance.

The French supervisory model allows the ACPR to obtain all the data needed to gain an overall view of financial activities and assess the risks to the sector, including those stemming from interactions between insurance and banking. This makes for a more accurate assessment of the cross impact of risk factors that could affect banks and/or insurers from a prudential standpoint. For example, the ACPR was able to assess the impact of very low interest rates on bank profitability and insurer solvency at individual and sector level. This provided a basis for generating appropriate prudential guidance for the sector as a whole.

Furthermore, combined banking/insurance supervision makes it possible to spot regulatory differences between the banking and insurance sectors and their interactions in order to ensure consistent treatment. Examples might include the treatment of cross-sector activities when assessing the systemic importance of groups, or the treatment of specific areas in situations where banking institutions and insurance entities engage in activities of the same nature, such as guaranteeing property loans. In this last case, the ACPR makes sure that the overall security of the system is preserved to an equivalent level in both sectors and minimises the risks of regulatory arbitrage.

Integrated supervision is based on recognising the specific traits of the banking and insurance sectors. Each sector has its own characteristics that relate to the nature of its activity: in insurance, for example, the production cycle is reversed because the sale (payment of a premium) takes place in exchange for the promise of a future product (claim compensation) whose cost is initially unknown to the insurer. This means that risk modelling over medium- to long-term horizons becomes vitally important, including for retail activities such as car insurance. Accordingly, insurance supervision employs a range of statistical and actuarial tools.

Conversely, prudential monitoring in the banking sector can count on a conventional production cycle where the amount of risk is typically known as soon as the transaction is carried out. Moreover, the prudential approach to the banking sector takes a shorter-term perspective, particularly when it comes to monitoring liquidity risk. Finally, compared with insurance, banking features greater systemic risks linked to the scale of interbank activities.

Aside from their differences, the insurance and banking sectors have a number of shared traits that essentially flow from the financial nature of their activity and from the importance of maintaining confidence and protecting customers. The ACPR has used these common traits to unlock synergies and enhance the prudential supervision of the overall financial sector.

Conducted with the same goals of financial stability and customer protection, supervision of banking and insurance can draw on solid shared foundations in terms of objectives and resources, with the primary focus on governance and strengthening equity, as well as on solvency and liquidity. The new prudential requirements (Basel III and CRD IV for banks, Solvency II for insurers) have led to accelerated prudential convergence between the two sectors, in particular by:

(i)     emphasising a consolidated risk-based approach within the framework of an overall group view,

(ii)    adopting a shared three-pillar approach (quantitative financial requirements, supervisory activities, market discipline),

(iii)   giving greater importance to governance, customer protection and prevention of laundering,

(iv)   aligning the nature of prudential information required by supervisors, even if reporting formats differ.

The new prudential requirements have spurred cut-backs in some businesses that carry high capital charges, such as corporate and investment banking, and led to consolidation, with numerous mergers in the banking and insurance sectors alike. This rationalisation trend has resulted in the formation of large banking, insurance and bancassurance groups, which have held an important place in recent years within Europe but also internationally.

The ACPR has specialised in-house skills that allow it to capture the specific characteristics of banking and insurance, while also having an overall view of the financial sector that promotes convergence in prudential approaches.

The ACPR contributes to the work of the Haut Conseil de stabilité financière (High Council for Financial Stability – HCSF). The HCSF, which is chaired by the Minister for the Economy and Finance, is the authority responsible for implementing macroprudential policy in France. The ACPR is represented on the HCSF by two people: its Chairman (the Governor of the Banque de France) and Vice-Chairman.

The HCSF is tasked with preventing systemic risk and facilitating cooperation and information-sharing between the institutions that its members represent (Finance Ministry, Banque de France, ACPR, AMF and ANC). With its collegial structure, the HCSF is able to bring together the viewpoints of all the represented authorities and to establish an overall vision of France’s financial sector.

The HCSF operates within the European institutional framework coordinated by the European Systemic Risk Board (ESRB). Depending on the circumstances, the HCSF may take decisions in collaboration with the European Commission, the European Central Bank (ECB), the European Banking Authority (EBA) and the macroprudential authorities of other EU Member States.

The ACPR also maintains close bilateral relations with the AMF. This collaboration is warranted by the growing interactions between different financial activities on ever more interconnected markets. ACPR/AMF cooperation promotes a better understanding of the activities and risks affecting the financial sector as a whole.

Collaboration with the AMF ensures that actions taken by the two authorities are effectively coordinated, irrespective of the status of the firms or sponsors of financial activities involved. It also paves the way for action in areas of shared interest, such as promoting the Paris financial centre. In this regard, for example, the authorities took the initiative in October 2016 to authorise a simplified licensing procedure in response to Brexit.

In the area of customer protection especially (see below), the ACPR has been collaborating successfully with the AMF for over six years through the Joint Unit for Insurance, Banking and Savings[1]. The decision to set up the Joint Unit was spurred by the growing interconnections between savings products –especially life insurance and collective investment schemes – and the rise of new market participants. The unit has made it possible to significantly enhance the protection of customers across the entire financial sector, particularly in the marketing of savings products, crowdfunding solutions and distance selling. Coordinated supervisory and monitoring activities form the core of the Joint Unit’s work; at a time when digital technologies are taking off, these efforts are helping to provide customers with more effective protection in the face of innovative business practices, no matter what type of firm is behind them.

ACPR-AMF cooperation also led to the establishment in 2016 of the FinTech Forum. A body that engages in monitoring and dialogue while also offering up proposals, the forum brings together innovative companies, public authorities and supervisors in an effort to gain a better understanding of the opportunities and potential risks associated with the development of fintechs and innovation. The forum can also be consulted on proposed amendments to domestic or European regulations or AMF or ACPR policy. It additionally keeps supervisory authorities informed about areas of concern for the industry.

In this regard, and on a more general note, the ACPR is in constant dialogue with the industry and financial sector professionals. This dialogue is first and foremost institutional in nature and seeks to promote more effective information-sharing with the professional associations that represent the banking, insurance and other financial services sectors. The aim for the ACPR is to explain its vision and goals to facilitate the application of prudential regulations. These conversations also make it possible to flag issues of shared interest among institutions to be taken into account in the application and development of prudential rules.

With this in mind, the ACPR organises regular supervisory conferences – twice yearly in principle – to explore topical prudential issues. More generally, it disseminates communication materials, including reviews, annual reports, speeches and conference presentations, that cover its statutory assignments.

The ACPR thus engages with professionals through a rigorous and proactive communication policy, striving to explain the positions and recommendations that it publishes, for example in the area of customer protection. Such publications are always preceded by a consultation phase, notably involving the consultative commission on business practices. The ultimate goal of these consultations and publications is to promote clearly understood standards and a shared vision of prudential supervision.

Furthermore, the ACPR has built long-standing technical and operational ties to the leaders and experts of reporting institutions as part of the implementation of regulations. It draws on this dialogue to better accommodate the constraints and specific needs of French institutions, for example in changes to the European and international prudential framework. This also makes it possible to round out the prescriptive approach to regulation with a forward-looking method that incorporates a judgement-based approach. This approach is applied, for example, when conducting stress tests to assess the ability of financial institutions to withstand adverse conditions.

Through its dialogue with the industry, the ACPR endeavours to meet the following objectives:

1. share a common vision founded on financial stability and confidence
2. ensure the continuity of banking and insurance activities by taking a risk-based approach to prudential regulation
3. better understand the diverse range of risk profiles and accommodate the specific needs of different institutions
4. enable appropriate and proportionate application of regulations
5. protect customers more effectively.