Analysis of Monaco Law 1.194 of July 9, 1997 - Portfolio Securities Management and Related Stock Exchange Activities and Sovereign Order 13.184 of September 16, 1997 - the Regulations
The purpose of this law and the implementing regulation on financial activities in the Principality of Monaco for clients' accounts is to bring the exercise of such activities in Monaco within legal and administrative rules and supervision comparable to that established and exercised in respected financial markets of the world.
To that end, law 1.194 and "sovereign order" 13,184 have been duly adopted and published on July 9, 1997, and September 16, 1997, respectively.
Persons and companies subject to the law:
Individuals and partnerships are excluded from the financial professions in their own names, professions which are now reserved in Monaco to corporate entities, either a "S.A.M." (Société Anonyme Monégasque) or a local branch of a foreign financial company, all meeting certain conditions set in the law.
The law starts with an apparently essential distinction between the "Credit Establishments and Members of a Stock Exchange" (hereafter "Regulated Financial Firms"), which are deemed per se qualified to exercise financial activities in Monaco (through a branch, not a subsidiary), and all other companies which are required to submit to a selection process by the financial authorities of the Principality.
Those so selected are referred to in the law as "Sociétés agréées" which we translate as "Qualified Companies". They are subject to strict rules of admission, conduct and supervision by the monégasque authorities.
However, careful examination of the law and conversations with officials have revealed that the regulated financial firms, if they are in a privileged position, are not as free from regulation in Monaco as the introduction would suggest.
On the other hand, apparently less-qualified foreign financial companies established in countries having financial regulation "comparable" to that established by the Monégasque law are also in a privileged position to operate under this law.
The conclusion of our study (subject to verification at the Department of State) is that a distinction must be made, with respect to the procedure for authorization to open a financial branch or form a subsidiary in Monaco, between those applicants which come from a country with financial regulation comparable to the Monégasque provisions, and those whose home country do not have similar regulations.
The purpose of this distinction is to make it difficult for "off-shore" companies to establish branches or subsidiaries in Monaco . Applicants from financially regulated countries must only seek the basic administrative authorization of the Commercial Service to do business in Monaco, while the others are obligated to apply to the Treasury Service for qualification in addition to the basic administrative authorization.
We presume that the investigation of the applicant by the Treasury Service will be more thorough than by the Commercial Service.
For this purpose, the foreign company needs to establish that the activity it intends to pursue is subject, in its head-office country, to a regulation comparable with the regulation in effect in Monaco.
It must further prove the honorability and professional experience of the managers of the contemplated agency or branch, sufficient premises in Monaco, staff and appropriate financial means and guarantees;
The agencies or branches of foreign companies must otherwise comply with all the requirements applicable to Qualified Companies;
A question arises whether an individual trustee managing a portfolio of securities in Monaco for beneficiaries comes within the purview of the Law. If the law applicable to the trust recognizes this person as the legal owner of the securities, they may continue his activities since they are not within the scope of Law 1.194. The Monégasque authorities have taken this position in the past.
If, however, the trustee is a "Trust Company", the conflict between the trust law and the Monégasque financial law may very well be resolved by application of the latter. This will probably be clarified by the authorities, presumably in favor of application of the financial law.
Those other than credit establishments and listed companies who, at the date of publication of the present law, conduct in Monaco all or part of the activities mentioned in the law, have until June 30, 1998, to send to both Services of the Ministry of State the appropriate and necessary applications in order, hopefully, to regularize their situation by becoming "Qualified".
Persons who have been practicing in Monaco as individuals, must create a corporation in Monaco (a S.A.M.) and apply to the Treasury Service for its financial qualification as well as to the Commercial Service for the basic administrative authorization. These persons may continue their activities until receipt of notice of a ruling on their requests.