The Lending and Secured Finance Review: Monaco

Overview

i Banking and financial monopoly rules

Monaco legislation provides for a specific set of banking and financial monopoly rules that shall be strictly observed. Those rules come in addition to strict local regulation whereby any commercial activity shall have prior authorisation from the Monaco government (including banking and financial activities). Those rules prevent, or at least strongly limit, foreign credit or financial institutions from directly or indirectly canvassing, offering and performing banking or financial services in the Principality of Monaco.

For the conduct of banking activities, Monaco credit institutions are licensed and supervised by the French Prudential Control and Resolution Authority (ACPR) pursuant to the Exchange of Letters between the Republic of France and the Principality of Monaco dated 20 October 2010. Locally, banks are also informally supervised by an administrative department of the state in charge of ensuring the compliance of agreements pertaining to banking activities entered into France and Monaco, on the one hand, and the European Union and Monaco on the other.

For the conduct of financial activities (i.e., portfolio management on behalf of third parties naturally, Monegasque or foreign fund management, management advice and order reception/transmission), Monaco credit institutions are licensed exclusively by the local financial regulator, namely the Financial Activities Control Commission (CCAF).

Finally, it should be noted that credit institutions – just as any other businesses concerned in Monaco – are supervised by: (1) the Financial Circuits Information and Control Department (SICCFIN) as far as compliance with AML requirements are concerned; and (2) the Personal Data Control Commission (CCIN) as far as data protection issues are concerned.

ii Legal entities operating as banks

There are two legal forms to operate as a bank in Monaco: either as (1) a Monegasque branch of a foreign banking institution duly licensed to conduct banking activities in Monaco; or as (2) a Monegasque public limited company. Both legal forms would require, in addition to the ACPR's licensing (except for branches of French authorised credit institutions), prior government authorisation before operating banking activities in Monaco.

Legal and regulatory developments

i International regulations

On 29 November 2011, Monaco and the European Union concluded a revised monetary agreement (the former dated 2001) composed of a core agreement and two Appendices (Appendix A and Appendix B). According to this agreement, Monaco must apply to credit institutions all measures taken by France to transpose the EU Directives or Regulations listed in Appendix A as far as the activity, the control of credit institutions or the prevention of systemic risk in payment and settlement systems are concerned. The monetary agreement also sets forth a list of EU Directives and Regulations in Appendix B, for which Monaco is to take equivalent-effect measures. One of the most recent ones is the fifth Anti-Money Laundering Directive, which lead to updating the Monegasque law on the topic.

The two Appendices are regularly amended as the last amendment occurred on 1 April 2021 by Sovereign Ordinance No. 8,600, resulting in the addition of 16 new European Regulations in total to those, including Directive 2019/878 (the CRD V Directive) as well as EU Regulation 2019/876, both dated 20 May 2019. These two texts thoroughly revised the regulatory requirements in terms of governance and internal control and, above all, create new obligations for European banks (concerning, inter alia, variable remuneration, outsourcing, audit cycles and conflicts of interest).

It should be noted that Monaco had also previously indirectly proceeded to implementation of Basel III derived from Directive 2013/36/EU dated 23 June 2013 (the CRD IV Directive), as the framework issued from that was transposed in France and, therefore, applicable and enforceable against Monegasque banks in accordance with the monetary agreement. Consequently, requirements such as the regulatory capital requirements, are similar and at the same level as those in force within the European Union.

ii National regulations

The reinforcement of the AML framework

From a banking regulation perspective, the recent trend in banking regulation is definitely anti-money laundering regulation. The AML legislative and regulatory framework is constantly reinforced in Monaco to keep equivalent standards to EU AML regulation. A deep and complete redesign of the Monegasque AML regulation has occurred recently, and following that, the Monegasque AML law has been amended to take new measures to transpose the EU's fifth Anti-Money Laundering Directive. In this respect, banks in Monaco are required to regularly adapt their practices and operational activity to this constantly evolving AML framework.

Law No. 1,503 of 23 December 2020 has recently strengthened customer due diligence in high-risk third countries. This Law has widened the accessibility of the register of beneficial owners and the register of trusts; has created a register of payment accounts, bank accounts and safe-deposit boxes, kept by the SICCFIN on the basis of declarations made by financial institutions. It has also reinforced the obligations of vigilance by tightening the controls and formalism of the KYC procedures of, in particular, financial institutions, and also of business relations and transactions involving high-risk states or territories.

The promotion of the fintech sector

The rise of the fintech sector has recently also been a concern for the Monegasque government as a legal framework (Law No. 1,491 of 23 June 2020 and Sovereign Ordinances No. 8,258 of 18 September 2020) has been adopted last year to promote the development of blockchain in Monaco, and especially the initial coin offering that constitutes a new and competitive way for companies in Monaco to access new financing methods.

Tax considerations

As regards tax matters, it should be noted that in Monaco: (1) interest payments to non-residents are not subject to withholding tax; (2) registration duties can be due for certain types of loans registered with the Monegasque tax authorities; (3) the deductibility of interest expenses is subject to certain limitations for companies subject to Monegasque corporate income tax; (4) the United States' FATCA regulations provide for certain reporting obligations for Monegasque financial institutions; and (5) the Common Reporting Standard (CRS) applies.

i Withholding taxes on payments to lenders

In Monaco, there is no withholding tax on interest payments made to foreign lenders.

ii Deductibility of interest for borrowers subject to corporate income tax (CIT)

Scope of CIT in Monaco

Enterprises, irrespective of their legal form (i.e., whether an individual sole trader or a legal entity) which carry out commercial or industrial activities in or from Monaco and of which at least 25 per cent of the turnover is derived from operations carried out directly or indirectly 'outside' Monaco are subject to corporate income tax (CIT).2

Should a company be subject to CIT in Monaco, its taxable basis equals the accounting income (including capital gains) subject to certain tax adjustments. In particular, interest expenses incurred by a company subject to CIT in Monaco are generally deductible for tax purposes, but subject to specific limitations as per the provisions of Ordinance No. 3,152 of 19 March 1964.

Limitations to interest deductibility

There is a maximum interest rate limitation. The deduction of interest paid by a Monegasque company subject to CIT to its shareholders is allowed up to a maximum interest rate determined as per a foreign banking rate.3

Interest paid by a Monegasque company subject to CIT to its controlling shareholders (i.e., those who in law or in fact control the company) is not deductible when the aggregate sum of the shareholders' loans exceeds 50 per cent of the borrower's share capital.4

Net interest expenses are deductible up to the higher of the following two amounts: (1) €3 million per financial year; or (2) 30 per cent of the taxable income subject to CIT plus net interest expenses, amortisation and provisions allowed for deduction, as well as capital gains and losses on assets disposal, and before deduction of tax losses carried forward (tax EBITDA).5

In the event of related party debt (i.e., debt from associated companies), where the average yearly amount granted to the borrower by such companies exceeds a debt/equity ratio of 1.5:1, net interest expenses accrued on related party loans are deductible only up to the higher of: (1) €1 million per financial year; or (2) 10 per cent of tax EBITDA.6

In this respect, associated companies are defined as follows:

  1. one company, directly or through an interposed entity, holds the majority of the share capital of the other or exercise in fact the power of decision; and
  2. both companies are under the control of a third entity.7

Excess net interest expenses can be carried forward under certain conditions.8

iii Stamp and documentary taxes

In Monaco, loan contracts under the form of private deeds do not have to be registered with the Monegasque tax authorities.

In practice, for certain situations that require registration with the tax authorities (where there is a mortgage, for instance), it is possible to register the loan contract to give a certain date to this deed. In this situation, a proportional registration duty of 1 per cent applies.9 Stamp duties are also due (a fixed fee per number of pages submitted for registration).

iv Exchange of information and impact of both FATCA and the CRS on loan transactions

FATCA

The United States Foreign Account Tax Compliance Act (FATCA) of 18 March 2010 introduced certain reporting obligations for non-US financial institutions.

Monaco has not signed an intergovernmental agreement with the US. However, Monaco signed a general exchange of tax information agreement with the US on 8 September 2009.

Monegasque financial institutions shall register with the US Internal Revenue Service (IRS) and conclude a 'foreign financial institution contract', including the commitment to: (1) identify in their books the financial accounts held by US persons; and (2) report certain information on these persons to the IRS. The notion of US persons is defined by the FATCA regulations and the US Internal Revenue Code.

Failing this, a withholding tax applies on US-sourced revenues.

FATCA has an indirect impact on loan transactions passing through Monegasque financial institutions' books and involving account holders qualifying as US persons.

CRS

Monaco is committed to implementing the automatic exchange of information on financial accounts.

Generally, the OECD's CRS provides that tax authorities collect information from financial institutions concerning the accounts of their clients who are non-residents and transmit it automatically to the tax authorities of their state of residence.

In the EU, Council Directive (EU) 2011/16, as amended by Directive (EU) 2014/107 (DAC 2), implemented the CRS in the EU, thus extending the scope of exchange of information between Member States to include, notably, information on financial accounts and interest paid to such accounts.

Monaco implemented the CRS regulations through its agreement with the EU (Agreement between the European Community and the Principality of Monaco providing equivalent measures to those of the Council Directive 2003/48/CE), as amended by the 2016 Protocol. This Protocol aligned the former Agreement with the CRS in order to enable automatic exchange of information on reportable financial accounts between EU Member States and Monaco.

The Protocol entered into force on 1 January 2017.10 Since then, the Monegasque and EU tax authorities have been providing each other with information on financial accounts of their respective residents.

Monaco is also involved in exchange of information with other countries as per the Convention on Mutual Administrative Assistance in Tax Matters it signed on 13 October 2014 and ratified on 14 December 2016, supplemented by the Multilateral Competent Authority Agreement for the Automatic Exchange of Financial Account Information (CRS MCAA).

As of 1 January 2021, 66 jurisdictions participate in the automatic exchange of information with Monaco and are considered as 'jurisdictions subject to declaration' by Monaco.11 These include the Member States of the EU and the jurisdictions that have signed the CRS MCAA.

The CRS has an indirect impact on loan transactions passing through Monegasque financial institutions' books and involving non-resident account holders.

Credit support and subordination

i Security

Under Monegasque law, security interests can be taken over several categories of assets.

Securities over immovable properties

Granting a loan in order to finance the acquisition of a property in Monaco triggers an automatic legal privilege for the lender, pursuant to Article 1940 of the Civil Code, called lien over real estate. Above this privilege, and with the objective of securing the financing, banks usually can resort to contractual mortgages before a notary in Monaco.

The mortgage will be executed in one single document before the notary, together with (most of time) other guarantees such as personal guarantees or pledges. The contractual mortgage is governed by Article 1962 et seq. of the Civil Code. The main legal principles for a valid and legally binding mortgage are the following:

  1. it must be executed in the form of an authentic deed before a notary;
  2. the nature and situation of the property subject to the mortgage must be precisely described;
  3. the amount guaranteed under the mortgage must be certain and determined;
  4. the entity granting the mortgage must have the power to transfer the property; and
  5. the mortgage must be registered with the competent authorities (the Mortgage Register) with payment of the related registration fees.

The validity of a mortgage is 10 years from the date of its registration, subject to renewal.

Suretyship and autonomous/first-demand guarantee

The most common forms of personal guarantees are suretyship and autonomous (or 'first-demand') guarantee. Suretyship is ancillary to the principal secured obligation and is subject to all the defences that apply to the principal secured obligation under the relevant reference agreements. As a result, the guarantor may invoke all remedies that are available to the principal debtor in respect of the execution of its obligation, unless previously waived, which may threaten its efficiency.

An autonomous/first-demand guarantee is a type of guarantee created by international commercial practice and not by law, contrary to suretyship. It is a stronger commitment, characterised by its autonomous nature. The obligations of the guarantor constitute an autonomous guarantee that is not an accessory to the principal secured obligations, and the guarantor engages itself irrevocably to pay a specific amount, either at first demand or following the presentation of specific documents. Regarding group financings, particularly in respect of guarantees granted in favour of a parent or sister company, certain corporate benefit and guarantee limitation considerations apply, as further set out below.

Pledges

Commercial pledges
Pledges on cash and financial instruments

Pledges on cash and financial instruments shall be executed and enforced pursuant to specific provisions of the Monaco Code of Commerce as well as Sovereign Ordinance No. 14,309 of 28 December 1999.

To be valid, the pledges shall be constituted in the form of a private deed or an authentic deed before a notary, which shall bear some specific mentions.

In the event of default of the borrower, the creditor shall notify the borrower and the pledgor its intent to enforce the pledge, by registered letter with acknowledgement of receipt sent to the address mentioned in the deed of pledge. This notification must indicate that, absent any payment, the pledge will be enforced within eight days, or any other delay provided in the deed of pledge.

Pursuant to Article 61 and 61-1 of the Code of Commerce, after eight business days (or any other delay mentioned in the deed) from the receipt of such notification, and provided that the relevant secured claims have not been fulfilled in the meantime, the pledged transferable securities may be:

  1. directly claimed by the creditor; or sold in whole or in part, on the stock exchange or on a regulated market where those are negotiated or admitted, where applicable; or
  2. sold in whole or in part, at public auction, if those securities are neither admitted on the stock exchange nor negotiated on regulated markets. The modalities of the public auction sale will be determined by the President of the Tribunal of First Instance.

The creditor will, therefore, have to submit a petition to that end, to obtain a judicial order.

For assets constituted of monies held by the creditor, according to Article 61-1, 2° of the Code of Commerce, the creditor can compensate those sums with the amount of the debt, after notification to the borrower and pledgor.

Pledges over goodwill

Pledges over goodwill shall be executed and enforced pursuant to Sovereign Ordinance of 23 June 1907. These pledges cover the goodwill or clientele, the trade name, the sign, the leasehold rights, and in general, all the intangible elements that distinguish the business and characterise its operation to the exclusion of goods and receivables.

To be valid, these pledges shall be constituted in the form of a private deed or an authentic deed before a notary and shall be registered. The registration of the pledge at the public registry created to this effect shall occur within 30 days of the constitution of the pledge. The registration grants its beneficiary a lien over the pledged assets for a period of five years and shall be renewed after that period to maintain the effects of the guarantee.

In the event case of default by the debtor, the beneficiary of the pledge will be entitled to seize the business or request its sale at public auction, but in no way may appropriate it.

Pledges over capital equipment

Pledges over capital equipment shall be executed and enforced pursuant to Sovereign Ordinance No. 664 of 23 May 1959 and the general provisions provided for in the Commercial Code. These pledges cover capital equipment necessary to the exercise of a business or trade activities.

To be valid, these pledges shall be constituted in the form of a private deed or an authentic deed before a notary and shall be registered. For the purpose of the pledge, the equipment shall be entirely listed and properly described in the deed.

Once registered, the pledge grants its beneficiary a lien over the pledged assets.

In the event of default by the debtor, the beneficiary will be entitled to enforce the pledge by selling the pledged assets.

Pledges over motor vehicles

The provisions applicable to these pledges are those resulting from the Sovereign Ordinance No. 676 of 2 December 1959 on the pledging of motor vehicles.

In application of these provisions, the pledges to be valid shall be constituted in the form of a private deed or an authentic deed before a notary and shall be registered (whatever the amount) to be enforceable against third parties.

The registration by the beneficiary must take place at the latest within the 15 days after the date of issue of the certificate of registration. The registration thus made confers its beneficiary a privilege for a period of five years and must be renewed before the expiry of this period to retain its effects.

In the event of default by the debtor, a relatively simplified procedure is available to the beneficiary to proceed with the realisation of the pledge. The enforcement is made in accordance with the provisions of the Commercial Code. To this end, the beneficiary will be entitled to proceed to the sale of the pledged vehicle at public auction, eight days after notification to the debtor.

Pledges and mortgages over vessels

Pledges and mortgages over vessels shall be executed and enforced pursuant to the provisions of the Maritime Code. The pledge basically covers all vessels including those still in construction.

To be valid, these pledges shall necessarily be constituted in a written form and can be so in a private deed. To be enforceable against third parties, the pledge on vessels shall be registered with the public registrar created to this effect. The registration thus made confers its beneficiary a privilege for a period of 10 years and must be renewed before the expiry of this period to retain its effects.

In the event of default by the debtor, the beneficiary will be entitled to enforce the pledge by seizing and selling the pledged vessel under the provisions provided for in the Maritime Code, these including prior judicial authorisation.

Civil pledges

Civil assets can be pledged pursuant to provisions of Article 1907 et seq. of the Monaco Civil Code. Under Article 1912 of the Civil Code, the validity of a pledge supposes that the pledgor be dispossessed of the pledged collateral (possessory pledge). Article 1914 of the Civil Code provides that the creditor obtains prior judicial authorisation for the enforcement of a pledge.

ii Guarantees and other forms of credit support

Equity commitment letters have become an increasingly common feature of the Monaco financing landscape. Under the equity commitment letter, the shareholders or sponsors commit to the borrower that they will invest equity (via equity injections or via the granting of subordinated loans to the borrower, or both) in order to restore the borrower's net worth and cash position without delay, so that it is at all time able to fulfil its obligations towards the lenders.

iii Priorities and subordination

Contractual subordination

There are no general Monaco law provisions or regulations on contractual subordination, no well-established (published) case law nor legal literature on the validity and enforceability of contractual subordination. To assess contractual subordination in general, Monaco courts would mainly turn to French case law, which seems to admit the validity and enforceability of a provision whereby a party agrees to subordinate its claim to the claim of another (senior) creditor.

Intercreditor arrangements

Intercreditor arrangements are often used in Monaco to set out, among other things, the subordination between the various creditors of a company and the payments waterfall.

Legal reservations and opinions practice

i Legal reservations

Corporate benefit issues

The provision of security interests by a Monaco company must be (1) within the limits of its corporate object clause under its articles of association and (2) be in its own interests. In particular, a pledge granted by a Monaco civil company must comply with the principle of speciality recognised by Monegasque law (i.e., be in compliance with the corporate purpose of the company). Special civil companies under Monaco law are civil companies governed by Law No. 797 of 18 February 1966, as amended and supplemented by Law No. 1,331 of 8 January 2007 and Law No. 1,385 of 15 December 2011, but also by Article 1679 et seq. of the Monegasque Civil Code.

Under the terms of Article 1680 of the Monaco Civil Code, Monegasque law enshrines the application of the principle of speciality to 'special companies', (SCPs). It follows that the managers of such a company may not act beyond the corporate purpose, as expressly provided under its articles of association.

Any pledge granted in breach of this principle of speciality would be declared null and void.

A credit institution will, therefore, need to pay attention to the corporate purpose of any Monaco pledgor (in particular, when it is constituted as an SCP, an extension of its corporate object clause might be required to expressly permit the granting of securities). This point must be analysed on a case-by-case basis in light of the guarantor's corporate objects clause in its articles of association.

The notion of corporate interest is not addressed by Monegasque company law, but it is likely that the Monegasque courts would turn to French case law if the matter were referred to them. The notion of 'corporate interest' is a translation of the French intérêt social, an equivalent term to the English legal concept of corporate benefit. It implies a subjective judgment and may involve taking into consideration the interests of the relevant group of companies. Indeed, the interests of the group (i.e., economic, social or financial interests of the whole group) may justify the granting of security in favour of a parent company (upstream guarantee) or a sister company (cross-stream guarantee).

The key question is in fact the determination of the counterpart perceived by the Monaco pledgor and whether it derives a benefit when it grants a security.

It is the responsibility of the managers of the Monaco company to form a view about the corporate benefit. A Monaco company may, therefore, be viewed as acting in its – indirect – interests if acting in the interests of the wider group. This assistance in proportion with the real financial means of the assisting company or have a reciprocal character.

The corporate interests of a Monaco company are usually held to be the boundary of acceptable corporate behaviour, and this constitutes an ideal representation of the management of the collective interests. It hence happens to be a factual concept of management rather than a legal one.

Transfer of placed securities

In Monaco, domestic public limited companies and joint-stock companies cannot start trading the shares of the company's founder before the expiration of a two-year period following the incorporation of the company. During this two-year period, the company managers must record those shares as being non-tradable, with a note of the company incorporation date.

For the issuance of bonds, as well as for any offering of shares that triggers an amendment of the company's articles of association (issuance of new shares for example), domestic public limited companies and joint-stock companies must obtain the prior approval of the Monaco government. Subsequently, the shareholders' meeting decision relating to the operation will need to be filed with a notary and published to the Official Journal of Monaco with mention of the government's approval to become enforceable.

There are no domestic rules regarding stock exchange filings in connection with a public offering of securities, and in this regards, the 1895 Ordinance provides that Monaco issuers will need to refer to applicable foreign rules in respect of offerings made on a foreign regulated market.

Impact of insolvency proceedings on security interests/guarantees

To some extent, the exercise of the rights of the secured creditors shall not be suspended by the cessation of payments, the judicial settlement or the liquidation of the assets of the pledgor.

ii Legal opinions

Characteristics of Monaco legal opinions

Legal opinions are commonly requested, specifically for transactions that involve the acquisition of companies, loan and security transactions and property sale and purchase transactions. For example, where a transaction includes a Monaco entity, a legal opinion may be required by the pool of lenders to confirm that the Monaco entity is validly constituted and incorporated and that the finance documents have been validly executed, and are binding and enforceable.

Capacity legal opinions (covering due incorporation, due corporate action and authority of the relevant signatories) are usually delivered by counsel to the borrower whereas Monaco law validity legal opinions (covering validity and enforceability of the finance documentation) are usually delivered by lenders' counsel.

Addressees of legal opinions usually include the security agent, the arrangers, the facility agent, and the initial lenders. The provision of copies of legal opinions (on a disclosure basis) is usually permitted in respect of the affiliates, auditors and advisers of the addressees, as well as courts and regulatory authorities.

Choice of foreign governing law

Pursuant to Article 68 of the Monaco Code of International Law, contracts are in principle governed by the law chosen by the parties. However, where all the other elements of the situation are located at the time of that choice in the territory of a state other than the state whose law has been chosen, the choice of law made by the parties shall not prejudice the application of overriding mandatory rules of that other state.

The choice of foreign law as the governing law of the finance documents, to the extent compliant with the Monegasque Code of International Law, would be upheld as a valid choice of law by the courts of Monaco and applied by those courts in proceedings in relation to the finance documents as the governing law thereof.

Recognition and enforcement of foreign judgments

In the event that a dispute results in a judgment rendered by a foreign court, the recognition of this judgment in Monaco shall be completed in accordance with the provisions of the Monegasque Code of International Law.

Pursuant to Article 13 of the Monaco Code of International Law, foreign final judgments which have the status of res judicata are automatically recognised in Monaco provided that there is no ground for refusal.

The grounds for refusal of judgment recognition are provided under Article 15 of the Monaco Code of International Law:

  1. the judgment was rendered by a court with no jurisdiction over the dispute;
  2. the rights of the defendant have not been respected (in particular the parties have not been duly summoned and were not able to defend themselves);
  3. the recognition or enforcement of the foreign judgment would clearly be contrary to Monegasque public policy;
  4. the foreign judgment is contrary to a decision rendered between the same parties in Monaco, or to a decision previously rendered in another jurisdiction and recognised in Monaco; and
  5. a litigation is pending before a Monegasque court that was petitioned first, between the same parties and regarding the same subject matter.

If a party wishes to enforce foreign judgments (which are already enforceable in the jurisdiction where they were rendered in Monaco), Article 14 of the Monaco Code of International Law requires a prior exequatur enforceability decision from the Monaco Court of First Instance, unless treaties stipulate otherwise.

The claimant for execution or recognition of a foreign judgment in Monaco must produce the following documents:

  1. an authenticated original copy of the judgment;
  2. the original deed of service or any other deed serving as such in the jurisdiction where the judgment was rendered; and
  3. a certificate issued, either by the foreign court by which the judgment was rendered, or by the registrar of that court, acknowledging that the judgment is not subject to opposition or appeal, and that it is enforceable in the territory of the jurisdiction in which it was rendered.

Loan trading

i General considerations

Loans in Monaco may be traded in different ways, including through a refinancing or an assignment.

Depending on the method of transfer and on the type of loan (overdraft, Lombard loan, mortgage loan), the specific terms and conditions for the transfer of these loans will have to be complied with.

Particular attention must also be paid to ensure that the security interests are also transferred. These security interests should be divided into (1) in rem security interests and (2) personal security interests (in turn divided into autonomous guarantees and suretyships).

As an illustration, certain formalities must be complied with, such as the registration of the transfer of a mortgage with the Mortgage Register or the update of any corporate documents (e.g., transfer register, share certificates and transfer certificates) pertaining to the company whose shares are pledged. For an account pledge agreement, the pledge will continue in full force and effect to the benefit of the new lender or lenders, provided that the custodian of the pledged accounts, remains unchanged.

ii Assignment of a mortgage loan

A mortgage loan can be assigned by endorsing a notarised copy of the mortgage document (grosse à ordre). Pursuant to Article 1529 of the Monaco Civil Code, the assignment of a claim is done by transferring the title representing the loan from the assignor to the assignee (this is therefore a means of transfer of a claim constituted by a promissory note). The certified a certified copy of the mortgage loan is issued by a notary (who keeps the original). The endorsement of this document by a third party triggers the assignment of the loan to the assignee.

For a valid and legally binding endorsement, according to the above-mentioned contractual provisions, the following conditions must be fulfilled:

  1. the endorsement must be made on the mortgage document;
  2. it must be signed and dated by the assignor;
  3. it must mention the amount assigned at the date of the endorsement as well as the name of the assignee;
  4. the assignee must approve the assignment in writing on the mortgage document; and
  5. the assignment must be notified to the borrower (also according to Article 1530 of the Civil Code).

Notarised endorsement is not necessary if the assignee is a regulated banking and financial institution.

As a consequence of the endorsement, the mortgage loan is transferred to the assignee without further formalities (except for compulsory notification to the borrower). In order for this assignment to be effective against third parties, the Mortgage Register must be updated with a note of the new beneficiary of the mortgage.

Other issues

The geographical and demographic situation of Monaco may give rise to significant international law issues. The Principality of Monaco is neither an EU Member State nor part of the European Economic Area. Consequently, the principles of freedom to provide services as well as freedom of establishment are not relevant in Monaco.

In addition, there is no formal agreement between Monaco and the European Union that would permit, directly or indirectly, the extended application of the EU rules on marketing of financial products in Monaco or for the commercialisation of financial products by a Monegasque credit institution in the European Union.

Local Monaco counsel should be instructed to assess the feasibility of any project in light of Monaco laws and regulations, especially in terms of cross-border banking activities and financial activities.

Outlook and conclusions

i Outlook for the Monaco financial market

A bill No. 1,035 to the Monegasque Law No. 1,338 of 7 September 2007 on financial activities, as amended, resulting from the Principality of Monaco's desire to become an ordinary member of the International Organisation of Securities Commissions, of which the CCAF has been an associate member since January 2018, was submitted to the Monaco National Council on 30 April 2021. This bill contemplates creating a new legislative framework for the exercise of financial activities in Monaco.

In particular, we can note:

  1. that the powers of the CCAF have been strengthened both in terms of supervision and legislation-monitoring;
  2. the end of the incompatibility regime between the management of Monegasque funds and the exercise of the RTO service;
  3. new rules relating to canvassing;
  4. the abolition of certain derogations previously favourable to credit institutions;
  5. new requirements in terms of policy and management of conflicts of interest; and
  6. regulation of market abuse in Monaco.

ii Outlook of the anti-money laundering landscape

A bill No. 1,037 (16 Articles) has been submitted to the Monaco National Council on 17 May 2021 and is aimed at completing the amendments recently made by the Monegasque Law No. 1,503 of 23 December 2020 to strengthen the system for combating money laundering, terrorist financing and corruption.

This bill contemplates bringing new legislative amendments that could not be made during the discussions and the vote of Law No. 1,503 but also to rectify several material errors. This draft clarifies the categories of professionals subject to the AML/CFT/CO system, the scope of which has been extended following the EU's fifth Anti-Money Laundering Directive.

In particular, we can note that:

  1. new professionals are subject to AML/CFT/CO obligations: the luxury professionals;
  2. there is a new obligation to report to the SICCFIN for traders and persons dealing in goods when the value of the transaction or a series of related transactions is paid in cash for an amount equal to or greater than €10,000; and
  3. certain amendments relating to the reporting of suspicions to fully comply with the provisions of the fifth Anti-Money Laundering Directive.

Footnotes

1 Olivier Marquet is the managing partner and Marine Tarditi is a senior associate at CMS Pasquier Ciulla Marquet Pastor Svara Gazo.

2 Article 1 of Ordinance No. 3,152 of 19 March 1964 instituting a tax on revenues.

3 Article 9(1)(3°) of Ordinance No. 3,152 of 19 March 1964 instituting a tax on revenues.

4 Article 9(1)(3°) of Ordinance No. 3,152 of 19 March 1964 instituting a tax on revenues.

5 Article 9(5) of Ordinance No. 3,152 of 19 March 1964 instituting a tax on revenues.

6 Article 9(5) of Ordinance No. 3,152 of 19 March 1964 instituting a tax on revenues.

7 Article 9(5) of Ordinance No. 3,152 of 19 March 1964 instituting a tax on revenues.

8 Article 9(5) of Ordinance No. 3,152 of 19 March 1964 instituting a tax on revenues.

9 Article 9(16°) of Law No. 580 of 29 July 1953 related to registration and mortgage duties.

10 Ordinance No. 6,208 of 20 December 2016.

11 Article 1 of Ministerial Decree No. 2020-869 of 11 December 2020.

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