Ashurst Paris FinTech Update

Regulation and Guidance

1. Crowdfunding regulation

#Crowdfunding

Order no. 2021-1735 of 22 December 2021 and Decree no. 2022-110 of 1 February 2022 (accessible here and here in French) aligned the existing French national regulatory framework with the European package on crowdfunding service providers, adopted on 7 October 2020 and creating a European status for crowdfunding service providers (“CSP”).

Modifications to the existing French regime include:

• The limitation of the activities carried out by a crowdfunding intermediary (intermédiaire en financement participatif – “IFP”) to loans free of charge, donations, and certain non-commercial project funding;
• The possibility for an IFP to carry out an e-money distributor activity;
• The removal of the status of crowdfunding advisor (conseiller en financement participatif - CIP) and of the possibility for an investment service provider to engage in crowdfunding activities without a CSP status; and
• The inclusion of the status of CSP in French law.

Affected entities will benefit from a transitional period running until 10 November 2022 to be licensed as a CSP.

2. Budget Act for 2022

#Crypto-Assets #NFTs #Tax

The Budget Act for 2022 (accessible here in French) dated 30 December 2021, includes several provisions:

• An increase in the AMF's budget limit, to boost its technical and human resources to deal with “emerging issues related to digital finance”;
• With respect to the tax regime applicable to capital gains made upon disposal of digital assets, as from 1 January 2023:
  • Gains realised by individual taxpayers involved in digital assets transactions while using specific skills and technology and thus qualifying as professional players will be qualified as non-commercial profits (bénéfices non-commerciaux – BNC);
  • Gains realised by individual taxpayers involved in digital assets transactions which are not carried out by professional players will be subject to the 30% flat tax; by derogation the taxpayer will be able to file a specific election in order to apply the progressive personal income tax scale up to 45% plus social contributions at a 17.2% rate rather than the 30% flat tax (specific non-global option)

The attempt to legally define NFTs has not been successful, due to the complexity of the subject.

3. ACPR Fintech Charter

#Licensing #e-Money #PaymentServices #CreditInstitution

On 10 January 2022, the ACPR published its Fintech Charter (accessible here in English), a guide to simplify and streamline the licensing process, bringing a safer and more transparent framework for Fintech applicants. This guidance includes detailed information on:

• The timing of the different stages of the process;
• The expectations of the ACPR at each stage to facilitate the review of the application;
• The scope of certain authorisation exemptions; and
• Extensive pedagogical documentations, including a Q&A to help Fintechs to legally qualify their activities, or guidance on what will be the focus points of the ACPR.

Reports

1. Report on the Project Jura

#CBDC #DLT

On 8 December 2021, the Banque de France, the BIS Innovation Hub and the Swiss National Bank published a joint report (accessible here in English) on their successful Project Jura which took place in November 2021.

• The experiment aimed at analyzing cross border settlements using two wholesale CBDCs (in euro and Swiss franc) and a French tokenized instrument, on a single DLT platform operated by a third party.
• Tokenised asset and foreign exchange trades were settled safely and efficiently using payment versus payment (PvP) and delivery versus payment (DvP) mechanisms, in a near-real setting.
• The report describes the experiment and provides for policy considerations.

2. Security of means of payment

#PaymentServices #Fraud

In the light of the yearly report of the French Observatory of the security of means of payment, published on 3 February 2022 (accessible here in French), the first half of 2021 was marked by:

• A continued growth in contactless payment cards and an increase in the use of instant transfers, however still marginal in terms of the overall number of transfers.
• In terms of fraud, fraud levels on remote payments, contactless payments and mobile phone payments are falling down (thanks to strong authentication processes), while cheques remain the most defrauded means of payment, with a fraud level still increasing.

3. Digital transformation in the banking sector

#CreditInstitution #AI #BigData

Based on a questionnaire sent to several banking institutions, the ACPR published on 14 January 2022 a report (accessible here in French) showing the main trends of digital transformation in the banking sector in France:

• The digital transformation is visible in traditional banking institutions, which are now exploring technologies related to artificial intelligence (AI) and Big Data. To a lesser extent, they show interest in DLT, quantum computing and biometric technologies.
• Banks seek to change their position vis-à-vis Fintechs and Bigtechs, and want to keep customer relationships. They increase their acquisitions of innovative players and partnerships; however significant efforts are required in relation to banking-as-a-service and banking-as-a-platform models.

4. Adoption of digital assets in France

#Crypto-Assets #NFTs

In an extensive report published on 14 February 2022 (accessible here in French), based on a public survey and interviews with French major companies of the crypto industry, the French Association for the Development of Crypto-Assets (ADAN) and KPMG provide an overview of (i) the structuring of the crypto industry and (ii) the adoption of digital assets by the general public, in France.

• The French population is interested in crypto projects: 1 in 12 people already owns digital assets.
• The French industry is dynamic and promising: nearly 600 projects identified, and globally renowned player.
• In terms of obstacles, the industry suffers from a negative image conveyed by political and media speeches, and actors of the crypto industry still face difficulties to open bank accounts with French banking institutions.
• In the light of a growing presence of foreign crypto players who are already overshadowing the French industry, a rapid response from the French government is desirable.

5. Report on the first ACPR tech sprint

#AI #CreditRisk

On 5 January 2022, the ACPR published its report on the first “Tech Sprint” (accessible here in French) organized in June and July 2021.

• The main goal promoted by the organisation of this Tech Sprint was to shed light on the regulatory challenges related to AI and Machine Learning (from the management of associated risks to the protection of consumers and the governance of impacted business processes).
• It focused on the explainability of AI: participants were challenged to explain the behavior of AI-based predictive credit risk models that can only be accessed in a “black box“.
• This initiative was an opportunity to illustrate French expertise and know-how in data science, to promote exchanges and collaboration between players in the sector and to guide future works of the ACPR related to AI.

Sanctions & Decisions

1. ACPR-Sanction Commission (14 October 2021, no. 2020-08)

#e-Money #AML-CTF

The French banking authority (the ACPR) sanctioned a credit institution with a fine of Euros 120,000 and a blame for failure to comply with its obligations under the AML-CTF regulations in relation to its electronic money activities.

The decision is accessible here in French.

2. CNIL-Restricted Committee (28 December 2021, no. 2021-020)

#PSD #DataProtection

The French data protection authority (the CNIL) sanctioned a payment institution with a fine of Euros 180,000 for insufficiently protecting users' personal data and failing to inform them of a data breach.

The decision is accessible here in French.

3. Cour de Cassation, Commercial Chamber (9 February 2022, no. 17-19.441 ; following CJEU, 2 Sept. 2021, no C-337/20)

#PSD #Fraud #Guarantor

The specific payment services liability regime provided under PSD (as transposed into French law) does not preclude the guarantor (caution) of a payment services user from relying – in case of a failure of the payment services provider to fulfil its obligations relating to an unauthorised payment transaction – on the general contractual liability regime.

The decision is accessible here in French.

Authors: Hubert Blanc-Jouvan, Partner ; Agathe Motte, Partner ; Maxime Gandibleux, Counsel ; Aurélien Fournier-Her, Counsel ; Francesco Assi, Senior Associate ; Oriane Lemesle, Associate ; Lucien Jarry, Associate