Alternative Finance is Now Regulated in France

The fledgling French alternative finance scene is now fully regulated.

“Financement participatif” – which roughly translates to peer-to-peer lending and crowdfunding activity – is now subject to a sector-specific set of rules and regulations. France is home to just one major platform – Pret d’Union – which has facilitated upwards of €100m in cumulative lending to consumers. That equates to roughly 4% of the value of the UK alternative finance industry as a whole.

The new regulations, though very much provisional and subject to significant changes going forward, should make it easier to operate an alternative finance platform in France. The key features of the new regulatory framework are as follows:

• Equity, debt and donations-based platforms have been split into three distinct categories.
• Debt-based operations fall under the heading “intermediaire en financement participatif (IFP).
• Equity providers are defined as “conseiller en investissement participatif (CIP). CIPs may not offer services to users in other EEA countries.
• Another type of platform – “prestataire en services d’investiseement” (PSI) – may also offer securities. By our understanding, these PSIs may be listing larger deals – as they have certain minimum capital requirements in place.
• All three types of structure must be registered with the ORIAS (which is structure similarly to the FCA).
• Individual crowdfunding campaigns may raise up to €1 million.
• Interestingly, the senior management teams of all platforms are expected to have a background in banking or finance.
• All platforms are required to make a substantial effort to prominently display the risks of investing in unlisted securities.
• Prior to investing, all investors must confirm that they are aware of the risk that they might lose all of their money.

The visionary behind the development is Minister Fleur Pellerin – who has long been an advocate of equity-based crowdfunding. Indeed, Pellerin once published an article entitled “Innovation: The French Way” – pushing for more to be done in support of economic innovation. An extract from that paper reads:

“Innovation is the engine that drives competitiveness, growth and employment in the fastest-growing economies all over the world. Making innovation a priority has become a must for France and for Europe.”

Up to now there has been a somewhat puzzling dearth of alternative finance activity in France. The only French alternative finance platforms that spring to mind are the aforementioned consumer lender Pret d’Union and soon to launch invoice finance provider Finexkap.

It’s not yet clear whether a more stringent regulatory backdrop will spur on increased activity in the short term. On the one hand, regulation will surely play a valuable role in bolstering the confidence of any investors who are sizing up the space. On the other, too onerous a regime can make it extremely difficult for new entrants to get off the ground. In the long run, a dedicated regulatory framework will be a key instrument in ensuring the prolonged growth, and sustained quality, of currently nascent French alternative finance sector.