On May 30, 2014, the French government issued Ordinance (a government act having the force of a legislative action) no. 2014-559 dated May 30, 2014 relating to crowdfunding, with the stated aim of lifting some of the regulatory constraints hindering the development of crowdfunding in France, while maintaining sufficient investor protection. To this end, the ordinance addresses each of the three forms that crowdfunding typically takes, i.e., securities investments, loans and donations depending on the form of the requested funding.
First, in terms of securities investments, operators of websites matching the supply and demand of securities will need to seek registration as investment firms (as is already the case when an investment service occurs) or as crowdfunding advisers (conseiller en investissementsparticipatifs). Qualifying entities seeking registration as crowdfunding advisers will need to be based in France, i.e., no passporting rights will be available to them. They will have to comply with a number of rules of good conduct, including: the presentation of risks, the performance of adequacy tests, transparency on inducements, rules on solicitation and anti-money laundering regulations. Further, a new exemption to public-offering rules is created where a number of criteria are met, notably that the value of the placement does not exceed a threshold to be set by way of secondary legislation during any 12-month period.
Second, in terms of crowdfunding by way of loans, the scope of bank monopoly rules whereby lending may be performed only by licensed institutions had to be revised. Pursuant to a new exemption to such rules, individuals (as opposed to legal entities) may, on a nonprofessional or otherwise commercial basis, extend no more than one loan per project. Interest rate charged is capped to the statutory interest rate further increased by five percentage points. Operators of websites matching the supply and demand of loans will have to seek registration as crowdfunding intermediaries (intermédiaires en financement participatif).
A significant number of issues are still to be set by way of secondary legislation, including amendment to the Securities Regulator (AMF) Rulebook, for the regime to become fully operative. We will monitor such clarifications.
The new regulatory framework is due to come into force on October 1, 2014 for the most part.