MONACO: An Introduction

MONACO OVERVIEW – CHAMBERS  

DL Corporate & Regulatory, Monaco  

GENERAL PRESENTATION 

The Principality of Monaco is an attractive small state adjoining the French Riviera. Monaco is headed by the Grimaldi family, a 700-year-old dynasty, currently represented by His Serene Highness Prince Albert II, recognised internationally for his commitment to sustainable development. The Principality joined the Council of Europe in 2004 but is neither a member of the European Union (“EU”) nor of the European Economic Area (“EEA”).

The Principality has attracted a cosmopolitan population with more than 38,000 residents of 120 different nationalities including around 9,500 Monegasque, 10,000 French, 5,000 Italian and 2,000 British. More than 53,000 people are employed in the Monaco private sector. More than 87% of these workers have their domicile outside the Principality, mostly in French neighbouring cities.

Monaco had a 2020 GDP of €5.97 billion. The 2020 GDP per worker was €106,719 with a loss of 8.7% compared to the previous year. Three sectors create nearly half of the wealth produced in the Principality: (i) scientific and technical activities, administrative and support services (20.3%), (ii) financial and insurance activities (18.3%) and (iii) construction (11.4%). With an average square metre generally worth €48,000, Monaco is one of the most expensive places in the world for real estate.

In 2020, facing the economic impact of COVID-19 crisis, the Monaco Government has committed to a €75 billion recovery plan. This plan is based on four main aspects: (i) the “National Green Fund” with the aim of speeding up energy transition, (ii) the “Blue Fund” with the aim of encouraging digital transition of Monaco companies, (iii) the “White Fund” with the aim of supporting building and construction activity in the Principality and (iv) the “Red Fund” with the aim of strengthening local trade and purchasing power in Monaco. During all the period of the COVID-19 crisis, the Principality of Monaco has adopted strong social and economic measures to help Monegasque companies and support employees and citizens.

Monegasque authorities have launched several leading infrastructure projects in recent years that are gradually reshaping the Principality.

Monaco continues to roll out its program of digitalisation and management of big data referred to as “Extended Monaco”. The main purpose of this program is to enhance Monegasque living standards and public service (e.g. 100% 5G coverage, sovereign cloud, high performance and connected mobility, innovative medicine and educational coding programs, cleantechs).

The Principality is also reshaping its topography as a new area is being reclaimed on the Mediterranean Sea with high value real estate projects.

2021 and early 2022 saw important legal and regulatory changes with new laws impacting Monegasque activities.

LEGAL AND REGULATORY BACKGROUND 

As a sovereign state, the Principality of Monaco has its own legal system including laws, regulations, court system and regulators.

Although the Principality is not a member of the EU,
- it shares a customs union with France and consequently is part of the EU customs territory;
- it belongs to the Eurozone;
- it determines and collects VAT on the same basis and at the same rates than in France (general rate of 20%).

Business activities subject to prior authorisation from Monaco authorities

As a general rule, any business activity carried out in Monaco by non-Monegasque persons is subject to prior authorisation from the Monegasque authorities. Certain regulated activities such as banking, insurance and financial services are subject to specific requirements, regarding notably the type of legal entity, minimum capital, management qualifications, infrastructure, staff, etc.

Banking and financial activities 

The financial sector includes 35 banking institutions and 58 asset management companies employing a workforce of about 4,000 employees with total assets under management of nearly €120 billion.

We see the consolidation trend for banks and asset management companies continuing, with a number of banking M&A transactions.

The Monegasque banking and financial regulatory framework is complex. As Monaco is not a member of the EEA, European passporting principles do not apply for most banking and financial activities. However, pursuant to current treaties in force with the EU, a number of EU regulations and directives (e.g. CRR/CRD IV, PSD, EMIR, etc.) do apply in Monaco.

Pursuant to a Treaty dated 14 April 1945 between Monaco and France (as modified subsequently), provisions in French legislation concerning the regulation and organisation of banks are directly applicable to Monaco. Authorisations and banking licences are delivered and regulated by the French Autorité de Contrôle Prudentiel et de Résolution (“ACPR”) and in Monaco by the Direction du Budget et du Trésor which is a Department of the Monaco Ministry of State.

Portfolio and asset management services can only be undertaken in Monaco, “habitually or professionally”, by entities duly authorised and regulated by the Monaco Commission de Contrôle des Activités Financières (“CCAF”).

At the end of 2021, an important law on financial activities was voted into law by the Monegasque Parliament. The new law on Monegasque financial activities that entered into force on 7 January 2022 has significantly impacted on-shore and cross-border activities in Monaco. Among the most important new features are restrictions on cross-border solicitation rules, making it more difficult for non-Monegasque licensed entities to offer new services and products to Monegasque investors. Onshore solicitation for licensed entities is also restricted and requires a prior approval from the Monegasque financial regulator (CCAF) when held in public areas.

Protection of personal data 

The Principality has ratified the Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data and its additional protocol in 2008. Processing of personal data in Monaco, including data transfer abroad, is either subject to notification or to prior authorisation by the Monegasque Commission de Contrôle des Informations Nominatives (“CCIN”). The Principality is currently assessing its domestic data protection regime to reach the standard of protection granted under the EU GDPR.

The long-awaited “Monaco GDPR” has been presented on 20 December 2021 to the Monegasque Parliament. The objective of this new data protection bill is to harmonise Monegasque law with the European GDPR in order to place Monaco as a jurisdiction with an “adequate level of protection” for privacy purposes. This is good news for Monegasque companies as it will facilitate data transfers with EU counterparts and/or service providers. One of the most significant changes will be the suppression of the current notifications or authorisation requirements to/from the Monaco Data Protection Authority �� which will change its name from CCIN (Commission de Contrôle des Informations Nominatives) to APDP (Autorité de Protection des Données Personnelles). Such requirements will be replaced by an accountability system with greater power of control and sanction from the Monaco Data Protection Authority.

Anti-money laundering (“AML”) and anti-corruption laws

Monaco has one of the strictest AML regimes in the world with strong administrative and criminal sanctions. The Principality is a member of MONEYVAL which is the permanent monitoring AML body of the Council of Europe. Monaco implemented the EU 5th AML Directive on 23 December 2020.

Monaco has also enacted anti-bribery legislation dealing with gifts, presents and other types of commissions received for acts or omissions of recipients, such as civil servants, international or foreign public officials, employees in private sector and magistrates or jurors, in the course of their duty or employment. Such rules are being reassessed currently in respect of magistrates in accordance with GRECO recommendations.

The NRA process, which is a national risk assessment exercise to identify, assess, analyse and mitigate Monaco ML-FT-C risk exposure has recently been completed on July 2021.

The main key results of the NRA evaluation are that:

- risks are more prominent from abroad than in Monaco. Dominant offences are fraud, embezzlement and misappropriation of funds and corruption;

- national vulnerability to AML risks has improved with the adaptation of the regulatory framework and workforce;

- sectorial vulnerabilities have been identified with further areas of improvement.

Globally, the results of the NRA evaluation were satisfying.

E-commerce, e-signatures and digital projects

Monaco is connected to the Europe India Gateway and was one of the first countries in the world to be fully 5G covered, which together with the 4G network provides a high-quality Internet connection from computers, mobile phones as well as all other connected objects (e.g. connected cars, etc).

The Monaco authorities provide a supportive framework for the testing and rolling-out of internet of things (“IoT”) projects, as part of Extended Monaco.

A new step in the Extended Monaco project was the adoption by the Monaco Council of token offering regulations. This regulatory framework contributes to confirm the position of Monaco as an attractive financial centre while protecting the interests of investors and the reputation of the Principality.

Since August 2011 and its first law dedicated to digital activities, the Principality has constantly updated its legal rules to support e-commerce, e-signatures and other innovative projects such as blockchain.

Other Monaco Specificities 

Monegasque law has a number of specificities in many areas of business law, including corporate, employment and foreign investment, that an investor must be aware of when considering investing in a Monegasque company or business.

For instance, sole shareholder companies are not allowed in Monaco, directors are required to hold company shares, share and business sales are subject to registration requirements and fees; companies' objects clauses are construed strictly regardless of the type of activity.

As for HR a specific order of priorities must be followed in the hiring and firing of staff employed in Monaco.

Foreign investment rules in Monaco have been changing recently as a result of a modification under French law which may impact the regulatory filing practice for investments in certain sensitive industries.

All such specificities require specific planning for M&A projects.

1st February 2022