French Government Aims to Attract Foreign Banks for Investment

November 28, 2018

In anticipation of the reorganization of post-Brexit Europe, France is seeking to adapt its legal system to attract foreign banks by providing them greater flexibility. 

There has been a strong increase in foreign investment in France over the last year and a half, with France ranked seventh in the world for foreign investment by the United Nations Conference on Trade and Development and with an estimated 16% increase in foreign investment in 2017. According to Christophe Lecourtier, executive director of government agency Business France, “88% of foreign decision-makers consider France an attractive destination [for investment for business].”

There are several reasons for this renewed attractiveness: Mr. Lecourtier credits a simplified administrative environment and a “labour cost that has risen at a lower rate in France than in the rest of the euro zone since 2013.” But that is not all. France has recently undergone major reforms, including a reform of the Labour Code; the abolition of the wealth tax; the introduction of a flat 30% tax on capital income (e.g., dividends); a reduction of the corporate income tax; a reduction in charges; reforms of vocational training, apprenticeships, and unemployment insurance; and more.

One of France's new tools to attract foreign companies and specifically banks is the current Action Plan for Business Growth and Transformation (Plan d'Action pour la Croissance et la Transformation des Entreprises, or PACTE) passed by the National Assembly on October 9, 2018. The Senate is expected to vote on the bill in January 2019.


Article L. 511-84 of the French Monetary and Financial Code already provides for a “clawback” provision, which allows companies in that sector to take into account, in their remuneration policies, the risk positions taken by reducing or refunding in whole or in part the total amount of variable remuneration.

Article L. 511-84 of the French Monetary and Financial Code results from, among other provisions, the transposition of the Capital Requirements Directive III for the Financial Services Industry. This directive has fixed remuneration rules in banks:

  • 50% of the variable remuneration (deferred or not) must consist of shares or derivatives of shares
  • 40% to 60% of the variable remuneration should be deferred over a period of at least three years, particularly for high salaries

Deferred payment of the variable remuneration allows banks to spread the risk-taking over time, since the deferred portion can be reduced according to the evolution of the risks and banks’ results. As far as traders are concerned, the objective is thus to weight certain risk-taking actions by introducing an incentive factor to ensure the sustainability of planned transactions. On the other hand, if long-term performance is not achieved, the clawback provision may apply and the variable remuneration, or part of it, that has not yet been paid may be reduced or clawed back by the employer.

Historically, it has been very difficult to apply this rule to banking institutions, due to the potential restitution of the variable remuneration received by employees. Such provision is contradictory to the prohibition of financial penalties provided for by Article L. 1331-2 of the French Labour Code, a general principle of French labor law. Therefore, the clawback provision was not applied very often.

Proposed Bill

Notably, Article 23 of the PACTE bill would

  • exclude from severance pay and damages for unfair or illicit dismissal "the part of the variable part of the remuneration the payment of which may be reduced or give rise to restitution pursuant to Article L. 511-84" of the French Monetary and Financial Code; and
  • therefore, exclude the application of Article L. 1331-2 of the French Labour Code. Variable remuneration could therefore be reduced or refunded depending on the actions or behavior of the risk taker without any legal constraints.

However, Article 23 of the PACTE bill would only apply to risk takers within the meaning of Articles 3 and 4 of the European Regulation No. 604/2014 of March 4, 2014 (for instance, members of the senior management or an individual paid more than 500,000 euros ($565,000) per year). It would not be applicable to other employees of banks and financial institutions.

Article 23 would have very little impact on the amount of severance pay since both collective bargaining agreements applicable to the vast majority of risk takers (i.e., banks and financial markets) already provide that the basis for calculating severance pay only takes into account the fixed remuneration of the risk taker.

On the other hand, damages awarded by a judge in the context of an unfair or illicit dismissal may be drastically reduced since the reference salary used as the basis for the calculation of those damages would not take into account the variable remuneration of the risk taker.

Furthermore, a temporary exemption (three years, renewable once) from affiliation to the French mandatory pension schemes may also be granted where employees are called abroad to work in France by joint procedure with their employer.

There was an attempt to pass the provisions on variable remunerations and clawback provision in 2017, but it was censored by the Constitutional Council due to procedural reasons. While Article 23 of the PACTE bill would complement several previous reforms of French labor law that should increase the attractiveness of the Paris financial center for foreign banks, it is uncertain whether the Constitutional Council will approve these provisions (if voted without changes), which may be seen as a breach of the principle of equality between individuals and between sectors.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Sabine Smith-Vidal
Laetitia de Pelet