FinTech Newsletter No 3

Regulation and Guidance

1. Short term credits and fractioned payments

Main topic: Short Term Credits, Fractioned Payments, BNPL 

On 12 July 2022, the ACPR published the results of its investigations (accessible here in French) on short term credits and fractioned payments also known as “buy now pay later” (BNPL) conducted on 11 credit institutions in the second term of 2021. The ACPR highlights that:

• Some entities marketing short term credits did not comply with the usury and the “global effective rate” rules

• Credit institutions could strengthen precontractual information and make it more accessible; and

• Fractioned payments and short-term credits must be formalized through written agreements and repayment period must be shorter than 90 days.

2. Cooperation agreement between the ACPR and the DGCCRF

Main topic: Customer Protection, Banking, Insurance

On 13 July 2022, the ACPR and the General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) published a press release (accessible here in French) about their agreement entered into on 17 June 2022 to strengthen their cooperation on customers’ protection in the banking and insurance sectors. The ACPR and the DGCCRF remind that they have been collaborating for a long time to protect customers:

• Their work allowed to reveal the scale of practices that are detrimental to the underwriters of insurance products;
• They conducted controls to ensure the compliance of banks with the rules pertaining to the cap on bank fees; and
• They have been carrying out joint actions to prevent and fight scams since the creation of the national anti-scam taskforce in April 2020.

3. Profitability of financial digital entities

Main topic: Profitability, Digital Actors

On 18 July 2022, the ACPR published a study (accessible here in French) about financial players or intermediaries offering banking or payment online services, or accessible through 100% mobile applications, in order to characterize their business model and assess their profitability in relation to their business strategies.

This study highlights the emergence of new actors competing with traditional credit institutions on segments that until now seemed to be reserved to such traditional actors (such as the financing of SMEs). In relation to this phenomenon, traditional credit institutions tend to adjust their offer or acquire these new competitors. The ACPR study adds that players offering fully mobile or digital access seem to have reached their break-even point or could reach it in the short term by targeting younger and less affluent customers and by relying on a limited range of services or by targeting a niche market.

4. National anti-scam taskforce

Main topic: Anti-Scams, Digital Actors

On 19 July 2022, the national anti-scam taskforce (including notably the AMF and the ACPR) published a guide (accessible here in French) noting that customers’ vulnerability has been enhanced by the COVID-19 pandemic. Frauds and scams take various forms and target both customers and companies.

In particular, the guide warns the public against the risk of scams relating to online shopping, savings/credits, false bank transfer orders and phishing.

5. The AMF and the ARPP strengthen their cooperation to promote clear and responsible advertising of financial products

Main topic: Advertising, Crypto, Influencers

On 19 July 2022, the AMF and the French Professional Advertising Regulatory Authority (ARPP) signed an amendment to their partnership agreement (accessible here in French) on communication in the financial services sector to include digital assets and services on digital assets. The AMF and the ARPP will also jointly work on the conduct of influencers in finance.

The two authorities have also drawn up a joint work program for 2022 and 2023. The priorities include in particular the creation of a recommendation on communications involving digital assets and tokens offerings.

6. ACPR position 2022-P-01 on limited network of acceptors and limited range of goods and services

Main topic: Payment Services, Exemption

On 20 July 2022, the ACPR published a position 2022-P-01 (accessible here in French) on the limited network of acceptors and limited range of goods and services exemption to payment services licensing requirements, to take into account recent market evolutions and the EBA Guidelines of 22 February 2022 (EBA/GL/2022/02).

Updates to the previous ACPR position 2017-P-01 include:

• The list of objective criteria also considered by the ACPR in its assessment, including without limitation the volume and value of payment transactions to be carried out an annual basis, the maximum amount to be credited to the payment instruments, the maximum number of payment instruments to be issued, the risks to which the user is exposed by using the payment instrument, etc.;
• The clarification that as an alternative to segregating the funds in a dedicated account, an insurance or a guarantee may be considered to protect the funds received; and
• Precisions on the modalities of cumulating exempted payment instruments and/or a regulated activity by the same company and on the modalities to declare the exemption to the ACPR.

7. Proposal to create a senatorial commission of inquiry on crypto-assets

Main topic: Crypto, Commission

On 22 July 2022, Ms. Nathalie Goulet (senator) submitted a proposal before the Senate in order to create a commission of inquiry on crypto-assets (more information accessible here in French) whose purpose would be to carry out an assessment of the current situation and to make concrete proposals aimed at regulating and securing the use of crypto-assets.

8. Extension of the transitional period for crowdfunding service providers

Main topic: Crowdfunding

On 31 August 2022, the ACPR published a document (accessible here in French) specifiying that further to an extension of the transitional period adopted by the European Commission, crowdfunding intermediaries (IFP) have until 10 November 2023 (instead of 10 November 2022) to comply with the new legal framework applicable to crowdfunding services and, if necessary, to obtain their license as crowdfunding service providers (CSPs) from the AMF.

Reports

1. Pierre Person’s report on crypto-assets environment

Main topic: Crypto, DAOs, DeFI

On 10 June 2022, the former MP Pierre Person (who was particularly involved in the crypto-assets industry) published a report entitled “Currencies, Banks and Finance: towards a new crypto era”. In his report, Pierre Person advocates for the adoption of an appropriate framework for crypto-assets, highlighting that such framework cannot be the same as the one for traditional finance.

As a result of this report, Pierre Person makes 22 proposals covering different topics such as the right to open an account, taxation, sustainable development, NFTs, monetary sovereignty and decentralised finance (DeFI).

2. Annual report of the ACPR and AMF joint unit for insurance, banking and savings

Main topic: Banking, Insurance, Savings

On 14 June 2022, the AMF and ACPR joint unit for insurance, banking and savings published its annual report (accessible here in French), where it points out in particular:

• The importance of information in the financial sector and the role played by the ABEIS platform (Assurance Banque Épargne Info Service – accessible here in French) to this end;
• The work of the scam prevention taskforce of the AMF-ACPR in order to raise awareness of the risk of scams on the Internet;
• The development of new online platforms offering to buy various financial instruments and targeting young people; and
• That advertisements relating to crypto-assets are closely monitored by the regulators, and only properly registered DASPs can carry out financial solicitation (démarchage financier) on digital assets.

 3. Report on NFTs

Main topic: NFTs, Art, Culture

On 12 July 2022, the Superior Council of Artistic and Literary Property (CSPLA) released a report (accessible here in French) on Non-Fungible Tokens (NFTs). The report analyzes the issues raised by the development of NFTs in the cultural industries. The report points out in particular that their development is synonym of opportunities for artists. However, the report reminds that NFTs are still relatively new and that their legal framework is yet to be determined.

4. ADAN’s report on the reform of digital financial securities

Main topic: DLT, Digital Financial Securities, Pilot Regime

On 18 July 2022, the French Association for the Development of Crypto-Assets (ADAN) published its second annual activity report (accessible here in French).

The report highlights the main topics addressed by the ADAN in 2021, in particular:

• The ADAN participated to the creation of a legal framework for crypto-assets:
• At the EU level, the ADAN contributed to the debates on MiCA leading to a provisional agreement reached by the EU institutions and for the adaptation of several regulations to anticipate the entry into force of the EU Transfer of Funds Regulation (TFR). The ADAN also replied to the European Commission consultation on the Digital Euro (response accessible here in French) highlighting the necessity to issue a digital euro complementary to and interoperable with stablecoins;

• At the national level, the ADAN helped the AMF to update its policy on DASPs and responded to its consultation on the update of the blockchain ordinance and on the legal regime of staking services.

• The ADAN issued proposals to improve the taxation regime applicable to crypto-assets and worked with the French Accounting Standards Authority (ANC) to fill in some of the accounting gaps existing in the crypto-assets industry.

5. HCJP report on the reform of digital financial securities

Main topic: DLT, Digital Financial Securities, Pilot Regime

On 19 July 2022, the Legal High Committee for Financial Markets of Paris (HCJP) published a report on the reform of digital financial securities (accessible here in French) before the Pilot Regime Regulation comes into force. The report deals with the following topics :

• The aspects of the current legal regime of book-entry securities which are inappropriate for digital financial securities; and
• The responsibility of the issuer on the holding of securities accounts, the trading of digital financial securities on a trading venue, and the identification of owners by the issuer.

The report explores two main options:

• First, the current legal regime could be amended to become more appropriate to digital financial securities by:
• Adding the possibility to register bearer securities (titres au porteur) on DLT when they are part of the Pilot Regime;
• Allowing the owner to choose to make its securities administered by a third party; and
•  Assimilating bearer securities registered on DLT to registered securities (titres au nominatif) for the rules relating to double voting rights and dividend gross-up.
• Second, a new legal regime could be created for digital financial securities by excluding the possibility for registered securities to be registered on DLT and reserving such registration for digital financial securities which are characterized by their medium of registration (i.e. DLT) and not by the custodian’s quality (as for bearer and registered securities).

Authors

Regulatory – Financial Services: Hubert Blanc-Jouvan, Partner; Maxime Gandibleux, Counsel; Francesco Assi, Senior Associate; Oriane Lemesle, Associate.

Structured Finance – Digital Lending: Agathe Motte, Partner; Aurélien Fournier-Her, Counsel; Lucien Jarry, Associate.