Please provide an overview of the current legal market in France and recent developments?
French authorities and regulators have exhibited constant interest for fintechs, which are driving technological innovation and providing additional financing sources. Regulations implemented in the last few years demonstrate French regulators’ commitment to establish appropriate frameworks that foster the development of fintechs companies while ensuring investors’ protection.
In order to bring together fintechs, public authorities and supervisors, the Banque of France and AMF (Securities regulaor) have launched a ‘Fintechs Forum’. The objective of the area is to be a venue for monitoring developments, engaging in dialogue, and making proposals.
Crowdfunding regulation
France implemented a regulatory framework for crowdfunding activities in 2014. The main objective was to ensure investors’ protection and information while allowing crowdfunding activities to develop.
The 2014 reform included a new exemption from the banking monopoly for crowdlending activities, allowing individuals to grant loans through crowdfunding platforms. This exemption from the banking monopoly is limited to individuals (i.e. not businesses) acting outside of their professional activities. Moreover, loans are limited to €2,000 by lender and by project (€5,000 if the loan is without interests), the loan maturity has to be less than seven years, and the borrower cannot borrow more than €1m per project.
Crowdfunding internet platforms have to register with the French securities regulator (AMF) either as crowdfunding intermediaries or as crowdfunding investment advisers. They are not required to register with the French securities regulator if they already benefit from a licence as financial services providers. The regulatory framework details information that crowdfunding intermediaries are required to disseminate to their members in order for them to be able to make informed investment decisions, and information they are required to request from their members to verify their identity.
An ordinance dated 1 October 2016 amended the general regime of promissory notes and established a new crowdfunding debt instrument for them. Those issued via a crowdfunding platform are referred to as ‘minibons’. Since they are not financial instruments, are not subject to the prospectus requirements.
Distributed Ledger regulation
An ordinance dated 8 December 2017 provides for the amendment of article L. 211-3 of the Monetary and Financial Code to authorise the registration of financial securities which are not admitted to a central security deposit on distributed ledgers.
Initial coin offerings (ICOs) regulation
The French Treasury recently proposed a new legislative framework for ICOs that has yet to be adopted.
Under it, token issuers established in France will have the opportunity to request an optional visa from the AMF. This visa would be non-mandatory. This regulatory strategy emphasis on non-mandatory provisions to foster professionalisation and promote sound market practices while avoiding constraining frameworks which might deter innovation and lower the French market’s attractiveness.
Crypto currencies platform
France is contemplating the introduction of a regulatory framework for crypto-asset intermediaries. This draft regulation is currently under discussion to the French National Assemblée and it is planned to be enacted in March 2019. The draft law add a new category of investment services providers, referred to as crypto-asset services providers, which would be subject to either mandatory or optional requirements.
Payment services regulation
France has implemented on 13 January 2018 the Revised Payment Services Directive (PSD2) which obliges banks to establish an access rights to the bank accounts in favour of Third Party Payment Services Providers (TPP) and to an increased diffusion of the information relating to the payment services made available to customers.
Online transactions often rely on third-party facilitators to convey customer money to a merchant. With PSD2 implemented and the creation of PISPs, the merchant and the bank can communicate with each other directly.
Furthermore, PSD2 create and develop Account Information Service Providers.
What significant trends exist in the fintech market presently? Are you seeing these just domestically or internationally as well?
There are three significant trends internationally: the growth of fintech, the importance of the blockchain technology applied to fintech services, and the solution offered by fintech with respect to compliance.
What are the biggest challenges to practising fintech in France at the moment?
The biggest challenges for French fintechs are low use (including lack of notoriety) of services offered by fintech, users’ reluctance regarding security issues, and the various asperities (lack of harmonisation, lack of regulation or legal answers, etc.) in the regulatory framework.
How does fintech fit into the firm as a whole? Is it easy to collaborate with other teams?
The fintech team grew organically over the years within the banking and financial services department. It is not structured as a separate team but rather included in the banking and finance department. All banking and finance lawyers are encouraged to:
- monitor regulatory changes related to fintechs;
- improve their understanding of technological issues (such as understanding how a distributed ledger work); and
- deepen their knowledge of the fintech industry (by monitoring new start-ups, attending industry events, etc.)
Advising fintechs requires understanding the technological challenges faced by startups in this area. Our goal is not to develop an independent fintech practice, but to encourage our banking and finance lawyers to develop an interest and an expertise in technological innovations in the financial industry.
What advice would you give to the next generation of fintech lawyers?
The main advice would be to deepen their understanding of the technological angles. Understanding technically distributed ledger technologies, decentralised applications, crypto-assets, and other technological innovations is essential to advice fintech executives.
What are your predictions for fintech in France over the next five years?
The French fintechs ecosystem should attract more talents and investments in the future, says a survey by Exton Consulting. Conducted on behalf of centre of excellence Finance Innovation, the study draws an overview of fintech in France.
France has ‘comprehensive regulations’ with respect to fintech, with clearly defined rules for companies looking to scale up. Fintech can rely on a strong governmental and ministerial support. Moreover, Paris is home to a high concentration of financial institutions and asset managers.