Financial regulation

Regulatory bodies

Which bodies regulate the provision of fintech products and services?

The financial sector is supervised by the Financial Markets Authority (AMF) and the Prudential Supervision and Resolution Authority (ACPR). The AMF is an independent authority in charge of regulating the financial markets and financial (non-banking) services. The AMF notably regulates asset managers, investment advisers, financial markets infrastructures and digital assets services providers. The task of the AMF is, ultimately, to protect the savings invested in financial products.

The ACPR regulates the banking, payments and insurance sectors. Its goal is to preserve the stability of the financial and banking system. The ACPR is not formally an independent authority, as it is a branch of the French Central Bank. However, in practice, the functioning of the ACPR is very similar to that of the AMF.

Depending on their activities, many large financial institutions are regulated both by the AMF and the ACPR. In addition, the licensing or registration process of certain regulated actors involves an approval from both the AMF and the ACPR, even though the regulated entity is ultimately supervised by only one of them.

Regulated activities

Which activities trigger a licensing requirement in your jurisdiction?

The licensing requirements under French law are very similar to those of other EU countries, since most of French financial and banking law comes from EU directives and regulations. However, some additional licensing requirements apply for categories that have not yet been regulated by the European Union. Providing the following services requires a licence or a registration:

  • banking services (ie, granting credits, deposit taking);
  • payment services;
  • issuing electronic money;
  • insurance services;
  • managing regulated investment funds;
  • investment services, which include advising on investments, transmitting or executing orders on financial instruments, dealing on own account, underwriting and placing of financial instruments, etc;
  • operating a financial market infrastructure (such as a trading venue or a central securities depository);
  • certain services on digital assets (ie, the custody service, the service of purchasing or selling digital assets against legal currency and, since 9 December 2020, the service of exchanging digital assets for other digital assets and the operation of a digital asset trading platform); and
  • operating a crowdfunding or crowdlending platform.
Consumer lending

Is consumer lending regulated in your jurisdiction?

Consumer lending is regulated in France. Essentially, this framework applies to loans of between €200 and €75,000, when such loans are (1) granted to individuals for a purpose unrelated to their commercial or professional activity, and (2) unrelated to a real estate purchase or project. The regulation of consumer lending protects borrowers by compelling lenders to provide them with detailed information, and grant a 14-day cooling-off period to borrowers. The lenders are also required to check the creditworthiness of the borrowers.

Furthermore, French law compels lenders to specify the loan’s overall effective rate (TEG) in any written record of the loan and, for consumer loans, prohibit rates from exceeding a legal threshold. Failure to comply with the TEG rules may deprive the lender from its right to receive interest payments, and failure to respect the legal threshold may entail a reduction of the interest rate.

Secondary market loan trading

Are there restrictions on trading loans in the secondary market in your jurisdiction?

French law does not regulate secondary market loan trading as such. Loan sales must simply comply with the general framework for the assignment of receivables. The assignment must be made in writing and may be done in bulk. The debtors’ consent is not required but the transfer cannot be enforced against them unless they have been notified (which is otherwise not mandatory).

A simplified assignment procedure exists for receivables arising from professional loans granted by certain regulated entities (credit institutions, financing companies and some alternative investment funds (AIFs)). Under this procedure, the property transfer is deemed to have occurred on the date that is written on the slip that confirms the transfer, even if it refers to future receivables.

In any case, purchasing an unmatured loan qualifies as a credit operation. Therefore, only certain regulated entities are allowed to purchase such loans. On the other hand, the purchase of matured loans can be carried out by entities subject to little or no regulation.

Collective investment schemes

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

The French regulatory regime of collective investment schemes arises from the transposition of the consolidated UCITS Directive (Directive 2009/65/EC of 13 July 2009) and the AIFM Directive (Directive 2011/61/EU of 8 June 2011). The UCITS Directive mainly regulates the management and sale of mutual funds, while the AIFM Directive applies to alternative investment funds, which are mainly dedicated to institutional investors and may invest in illiquid asset classes. Managing a collective investment scheme or an AIF generally requires an asset manager licence, which is granted by the AMF. In addition, most funds also need to be licensed by the AMF before being subscribed by investors.

Various innovative business models have been developed in relation to asset management. Many fintech start-ups have obtained an asset manager licence or partnered with a licensed asset manager to launch their product. Crowdfunding and crowdlending (or peer-to-peer lending platforms) are subject to a specific regulatory regime in France, but both these platforms and their clients fall outside the scope of the regulation of asset management.

Alternative investment funds

Are managers of alternative investment funds regulated?

In France, AIF managers are regulated under the AIFM Directive framework, which means that managing an AIF requires an asset manager licence.

Some fintech start-ups promote or sell to their clients investment opportunities in illiquid assets, such as infrastructure or renewable energy power plants, without being licensed as asset managers. Such activity is risky, since the holding company that raises funds to invest in revenue-generating assets may qualify as a collective investment undertaking, under the meaning of the AIFM Directive. The ‘Guidelines on the key concepts of the AIFMD’ published by the European Securities and Markets Authority in 2013 specifies that an undertaking that satisfies the following conditions is a collective investment undertaking: (1) the undertaking does not have a general commercial or industrial purpose; (2) the undertaking pools together capital raised from investors with a view to generating a pooled return; and (3) the unitholders or shareholders of the undertaking, as a collective group, have no day-to-day discretion or control over the management of the undertaking.

Peer-to-peer and marketplace lending

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

French law regulates peer-to-peer and marketplace lending. Platforms organising such activities must be registered as crowdfunding intermediaries. Crowdfunding and crowdlending platforms have benefited from an ad-hoc regulatory regime since 2014. This registration allows these platforms to match borrowers with lenders (which must be individuals), within the limits of €1 million per project and €2,000 per lender and per project (€5,000 per lender and per project if the loans do not bear interest). The maturity of interest-bearing loans cannot exceed seven years.

The crowdfunding intermediary may also be required to obtain another licence (such as a payment institution licence or the status of agent of a payment institution) if other regulated services are provided by the platform.

Crowdfunding

Describe any specific regulation of crowdfunding in your jurisdiction.

Under French law, crowdfunding platforms need to register as crowdfunding intermediaries or crowdfunding advisers, or obtain a status allowing them to provide regulated investment services (such as the investment firm licence) in accordance with the MiFID framework.

Reward-based and donation-based crowdfunding platforms must register as crowdlending intermediaries, while the platforms that offer investments in equities or bonds must register as crowdfunding advisers or obtain an investment firm licence. While the amount that can be raised through crowdlending is capped, the amounts raised through donations are not limited. When a company or an individual raises funds through donations, it may offer rewards to the donors, although there is no obligation to do so.

An equity crowdfunding platform operated by a crowdfunding adviser or an investment service provider can promote offerings of unlisted securities up to an amount of €8 million per project and per year. In theory, the operator of the platform is deemed to provide to its clients investment advice in relation to the securities offered on its platform.

Further licences may also be required if other regulated services are provided by the platform operator, such as payment services.

At the European level, a regulation on crowdfunding service providers entered into force on 10 November 2020 and will supersede the French regime after a transition period of 12 months on 10 November 2021.

Invoice trading

Describe any specific regulation of invoice trading in your jurisdiction.

To our knowledge, platforms allowing retail investors to purchase invoices from professionals do not exist in France.

Under French law, various techniques allow companies and freelancers to obtain funds by selling invoices or using them as collateral. These techniques differ in their modalities: in certain cases, such as factoring, the ownership of the invoices is transferred to the factor and the factor is in charge of debt collection, while in other cases, the invoices are used as collateral for a short-term loan and the debt collection is managed by the borrower.

Generally, all these techniques qualify as credit operations and may only be performed by a licensed credit institution or financing company. In addition, the rules applicable to credit operations (eg, the rules related to the effective rate) apply to these financing techniques.

In theory, operating a platform that would act as an intermediary between clients and regulated entities in relation to the sale or use as collateral of invoices would at least require registration as a ‘banking operations and payment services intermediary’.

Payment services

Are payment services regulated in your jurisdiction?

France has transposed the Second Payment Services Directive (Directive (EU) 2015/2366 or PSD2), which regulates payment services in the European Union. Under that regulatory framework, payment services may only be provided by credit institutions, payment institutions or electronic money institutions.

The business model of many fintech start-ups revolves around the provision of payment services. Therefore, these start-ups often choose to partner with a payment or electronic money institution, as obtaining such regulated status is costly and burdensome. These start-ups may also provide payment services to their clients by becoming agents of a regulated payment services provider. The registration process of agents with the ACPR is faster and simpler than a payment or electronic money institution licence application. In addition, agents are subject to limited obligations, since they are deemed to implement the processes and anti-money laundering due diligence measures of their payment services provider.

Open banking

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

PSD2 seeks to accelerate the development of online and mobile banking. Many innovative business models developed by fintech start-ups rely on the collection and analysis of data related to the different bank accounts of a single customer (eg, budget apps using account aggregation). Others require some form of access to the infrastructure of the customer’s bank (eg, services allowing internet payments without using a credit card, by realising a direct transfer from the customer’s bank account to the seller’s account).

PSD2 supports these forms of open banking by creating two categories of payment services: the payment initiation service and the account information service. PSD2 also removes certain barriers that prevented third-party providers from obtaining information on their clients’ bank accounts.

Insurance products

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

The sale and marketing of insurance products is regulated in France, whether the entity providing these products is a fintech start-up or a large financial institution. Some of the largest French fintech start-ups are specialised in innovative insurance products: Alan, which raised more than €300 million over the past three years, including €185 million in April 2021, provides health insurance to freelancers and start-ups; Luko, which raised €20 million in November 2019 and €50 million in December 2020, provides home insurance. Alan obtained an insurance undertaking licence from the ACPR in 2016, while Luko is registered as an insurance intermediary.

Credit references

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

French law does not regulate the provision of credit references or credit information services. The relevant framework would be the regulation of personal data, namely the General Data Protection Regulation.

Law stated date

Correct on:

Give the date on which the above content is accurate.

31 July 2020.