PEA: a retail investor’s failure to comply with an internal procedure of the account keeper does not constitute a breach likely to lead to the closure of the plan

Facts

In June 2022, in order to receive the dividends due to be paid out by one of the unlisted companies whose shares were held within his PEA, Mr X asked his bank, Y, to provide him with the bank details (RIB) of his PEA, without specifying the purpose for which he intended to use them, and then passed these details on to the issuing company. 

Using these details, the issuing company transferred the sum of the dividends directly into the PEA’s cash account.

However, one month later, the bank reversed the entry and the sum of the dividends was transferred to Mr X’s current account. 

More than a year later, the bank notified Mr X that his PEA was soon to be closed due to a breach of the rules in force. 

Mr X contested this decision, arguing that he had not breached any of the rules governing the operation of the PEA.

Faced with Bank Y’s refusal to reverse its decision to close the plan, Mr X sought my assistance.

Investigation

I contacted Bank Y, which informed me that, as the dividends had been paid directly into Mr X’s PEA cash account without first passing through the internal account set up for that purpose, it had been unable to identify the nature of the transaction and had treated it as a voluntary payment. However, the legal maximum authorised payment limit had already been reached on Mr X’s PEA. Consequently, the bank had rejected the deposit in question, and had withdrawn the corresponding funds from the PEA and credited them to the client’s current account.

It was only several months after having transferred the funds from the PEA cash account to Mr X’s current account that Bank Y identified their origin.

It then reclassified the transaction and considered it to constitute a breach of the ‘reinvestment rule’ whereby sums or securities originating from investments made in the PEA must be reinvested in the plan under the same conditions as the payments. According to the rules, the reinvestment condition is not met if the sums or securities originating from the investments are not transferred directly to the PEA but rather pass through another of the holder's accounts (BOI-RPPM-RCM-40-50-20-20).

The bank argued that the letter of undertaking signed by Mr X when he acquired the unlisted securities specified that he undertook to instruct the issuing company to pay, via the bank, all proceeds originating from the allocated securities into his PEA. 

It maintained that dividends relating to unlisted securities should therefore not be credited directly to the PEA’s cash account. 

It also argued that, as Mr X had used the sums that had been transferred to his current account in the meantime, these could no longer be reallocated to his PEA cash account. 

Taking the view that the reinvestment rule had not been breached and that no rectification was now possible due to the non-availability of the corresponding funds, it had decided to close the plan.

Recommendation

I first noted that it was not self-evident that Mr X had breached the clause of the letter of undertaking highlighted by the bank. In fact, the mere fact that the dividends had been credited to a PEA opened in its books already constituted a transaction carried out through it.

I then pointed out that the dividends in question had been paid directly by the issuing company into the cash account of Mr X’s PEA. The funds had therefore indeed been allocated to the plan as soon as they were received, meaning that the reinvestment rule, as set out in the Bulletin Officiel des Finances Publiques, had not been breached.

I also noted that the bank had set up an internal system whereby proceeds from unlisted securities were channelled through an internal account strictly designated for this purpose, in order to distinguish voluntary payments from proceeds received.

The Ombudsman’s 2023 Annual Report mentioned this banking institution practice of using an internal cash account to receive the sums distributed by unlisted companies whose shares are held under an equity savings plan (PEA). At the time, it was noted that this arrangement complies with a market practice that has been formalised and is regulated by the Comité Français d’Organisation et de Normalisation Bancaires (CFONB) under the auspices of France Post-Marché.

However, whilst such a practice meets the needs of management, it is not provided for either by the rules or by the terms of the contract between the PEA holder and the account keeper; consequently, it does not constitute an obligation for the latter. 

Consequently, I argued that even assuming that Mr X had not informed the bank in advance of the arrival of the funds, there was no evidence to establish that he had breached the rules applicable to the PEA. 

Conversely, I emphasised that by transferring the funds on its own initiative, without contacting its client, the bank had itself deviated from its own internal procedures and had caused the irregularity which it was attributing to Mr X. 

In fact, I considered that the irregularity in relation to the reinvestment rule invoked by the bank stemmed exclusively from its own intervention. Even if it was unable to identify the nature of the funds received, it was its responsibility, in accordance with its own procedures, to hold them temporarily in a holding account pending the necessary checks. 

I also argued that Mr X’s subsequent use of these funds on his current account could not be regarded as a breach on his part of the rules governing the operation of the PEA. Initially, the sums had been duly credited to the plan, and as the plan had been open for more than five years, a withdrawal would not result in its closure.

Taking all these factors into account, I considered that failure to comply with this internal practice, of which clients are not generally aware, could not justify a decision to close the plan. 

Therefore, I asked the bank whether it would agree to reverse its decision. The bank ultimately accepted this proposal and Mr X’s PEA was maintained.

Lesson to be learned 

Whilst it may serve legitimate operational purposes, the practice of centralising all dividends from unlisted securities held in a PEA in an account for internal bank use – in order to distinguish, at the time of their recognition, voluntary payments from proceeds received – must be neutral for the client and not result in any prejudice to them. 

Nevertheless, in order to avoid this type of misunderstanding and any recognition errors, the plan holder must, for their part, ensure that they inform their account keeper in good time of any transaction concerning the unlisted securities held in their PEA. This obligation is, moreover, set out in the letter of undertaking, whereby the PEA holder undertakes to inform the account keeper of any movements affecting these securities, in particular when a dividend is to be paid by the issuing company.