This country-specific Q&A provides an overview of Fintech laws and regulations applicable in France.
What are the sources of payments law in your jurisdiction?
Payment services are mainly regulated in France by European Union laws. Indeed, Payments law is a strongly harmonised set of payment rules amongst the European Union Member States and more precisely, the payment law landscape has been shaped by the Directive No 2015/2366 on payment services (“PSD2” which repealed the first payment Directive No 2007/64/EC).
PSD2 has been transposed into French Law by Ordinance No 2017-1252 and Decree No 2017-1313 which amended the French Monetary and Financial Code.
In addition, payment services are also subject to anti-money laundering and terrorism financing regulations deriving from Directive (UE) 2015/849 (“AML4”) as modified by Directive (EU) 2018/843 (“AML5”). Both directives have been transposed in the Monetary and Financial Code. The amendments introduced by AML5 have been transposed by Ordinance n° 2020-115 and Decrees n° 2020-118 and n° 2020-119 dated 12 February 2020.
The aforementioned laws are supplemented by a range of guidelines from the European Banking Authority and the French Banking authority named the Autorité de contrôle prudentiel et de resolution (“ACPR”).
Can payment services be provided by non-banks, and if so on what conditions?
Yes, under French Law, banks refer to credit institutions which are authorised to provide credit services and to receive repayable funds from the public in addition to the provision of payment services. Payment institution (“PI”) and electronic money institution (“EMI”) are also authorised to provide payment services. Payment service can also be provided by non-authorised entities if the services meet the requirements to benefit from an exemption.
PIs and EMIs shall be authorised by the ACPR to provide payment and electronic money services. The procedure to be authorised either as PI or EMI requires the submission of a complete application file demonstrating compliance with the various requirements set by French Law as specified by the applicable ACPR guidelines. These requirements include conditions relating to minimum capital requirement, internal control, governance, money laundering and outsourcing.
Several alleviated status are also provided for in French Law such as: small PIs (for PIs processing less than 3 million euros per year) or small EMIs (for EMIs issuing less than 5 million euros e-money) licenses. Exemptions can also be granted for payment or e-money services which can only be used within a limited network of merchants or within a limited range of goods or services. Companies providing services under the exemption are required to address an exemption request to the ACPR and annual reporting demonstrating they comply with the conditions of their exemptions as soon as the volume of their services exceeds EUR 1 Million.
What are the most popular payment methods and payment instruments in your jurisdiction?
Payment card seems to be the most popular method of payment within the French market with an increasing use of contactless payment (NFC) followed by direct debit. Credit transfers are the third most used means of payment in terms of volume, but remain largely predominant in terms of value, since they are used in particular for the payment of salaries and pensions, as well as for payments between professionals. Finally cheques and electronic money come last.
What is the status of open banking in your jurisdiction (i.e. access to banks’ transaction data and push-payment functionality by third party service providers)? Is it mandated by law, if so to which entities, and what is state of implementation in practice?
Open banking has been generalised by PSD2 and the European delegated regulation which introduced standards for open APIs to allow third party providers to access end-customers’ accounts data. The implementation of API by account service provider was due on 14 September 2019. The API systems need to have contingency measures in case of an unplanned unavailability of the interface and that of a systems breakdown. An exemption to contingency measures can be asked to the ACPR under certain conditions. PSD2 transposition created two types of payment service provider using open banking (i) account information service provider and (ii) initiation service provider.
How does the regulation of data in your jurisdiction impact on the provision of financial services to consumers and businesses?
The legislative framework for the protection of personal data in France is based on the Law on Computer Technology and Freedom dated 6 January 1978 (Loi Informatique et Liberté, or LIL). This law has been amended several times since then, and especially by the General Data Protection Regulation (GDPR) (Regulation 2016/679 of 27 April).
The LIL is generally applicable to all public bodies and all non-public entities that process personal data but does not specifically address data protection within the context of providing financial services.
Every collection, processing or use of personal data needs to be justified under French data protection law. In principle, the ground for legitimate processing must be the consent of the data subject, but the LIL introduced statutory legal exemptions to obtain the consent of the data subject for some processing.
Therefore Fintechs companies have to pay attention to the lawful processing of personal data as failure to comply with the LIL can result of heavy fines from the French data protection authority (CNIL).
What are regulators in your jurisdiction doing to encourage innovation in the financial sector? Are there any initiatives such as sandboxes, or special regulatory conditions for fintechs?
French regulators have undertaken initiatives and projects to follow technology developments and analyse opportunities in the Fintech Sector. The supervision of the financial sector is shared by the Autorité des marchés financiers (AMF) and two banking authorities Autorité de contrôle prudentiel et de resolution (ACPR) together with the Banque de France.
The ACPR has created the ACPR-FinTech Innovation Unit dedicated to foster innovation across the supervisory authorities. This dedicated unit has also been created in order to provide specific support to innovative projects and facilitate approval or authorization. As some projects require a close coordination between the ACPR and the AMF, The AMF also has a FinTech Innovation and Competitiveness Unit, as the entry point for the projects sponsors.
In addition, and with the AMF, the ACPR-FinTech Innovation Unit leads the FinTech Forum, which gathers together professionals several times a year, in order to discuss regulatory and supervisory subjects related to Fintech and innovation.
Even if French regulators have not adopted regulatory sandboxes, government and public authorities have taken numerous initiatives to promote the French fintech scene. Those initiatives have included: in 2013 the creation of ‘La French Tech’ (or the French Tech Mission) which constitutes a major development to facilitate and promote technology firms’ growth; in 2017 the opening of the world’s biggest business incubator, Station F and, more recently, the launch of the Next40 which is an annual list that honors 40 of France’s highest performing tech champions and grants them access to France’s most powerful growth-stage program.
Do you foresee any imminent risks to the growth of the fintech market in your jurisdiction?
There are no particular risks for the growth of the Fintech market and on the contrary, Brexit could be an opportunity for France with the actions of the French banking supervisor aiming to attract British Fintechs looking to relocate in order to provide their services to European consumers.
What tax incentives exist in your jurisdiction to encourage fintech investment?
Although there is no specific tax incentive specifically for Fintech, France has a competitive R&D tax regime, a temporary exemption scheme for young innovative companies and new businesses. The exceptional over-amortization scheme also supports SMEs making investments in digital transformation and robotization in 2019 and 2020. Eligible companies can amortise eligible investments on 140% of their value.
As regards to VAT, operators that are willing to obtain legal certainty with regards to the interpretation of the legislation by the French Tax Administration guidelines can ask for rulings.
Rulings are one of the solutions found to secure punctual queries.
Which areas of fintech are attracting investment in your jurisdiction, and at what level (Series A, Series B etc)?
There has been a large amount of investment in Fintech and areas that have raised the most funds during the first half of 2020 are: operational services 379,75 M€ (representing 54,3% of the raised funds), insurance 139,75 M€ (representing 20%), finance 47,4M€ (representing 6.8%), payment services 43,6 M€ (representing 6,3%) and Regtech 37,2 M€ (representing 5.3%).
If a fintech entrepreneur was looking for a jurisdiction in which to begin operations, why would it choose yours?
France is one of the most important financial markets in the European Union and intends to build a regulatory and entrepreneurial environment to support Fintechs. In addition Paris is well connected to other EU capitals and financial centres which make the city an attractive location for businesses (London, Brussels, Amsterdam, Luxembourg etc.).
French corporate law can also be very attractive for fintech entrepreneurs as it can, depending on the corporate form of the company, provide for a lot of flexibility. However one corporate form in particular, the “société par actions simplifiée” (simplified joint-stock company or “SAS”) can be particularly interesting and is now the most common corporate form, as the governance of the company can be freely decided in the articles of association (by including for instance a board of directors, appointing general managers, including a supervisory board etc.), with the unique requirement to have one President (individual or company) who will have the power to represent the company.
It should also be noted that French corporate law is more and more digitalized and welcoming of new technologies, with the possibility for instance to hold boards or general meetings of shareholders by conference calls or other electronic means, or the dematerialized share transfer registry and the development of the use of the blockchain technology.
Access to talent is often cited as a key issue for fintechs – are there any immigration rules in your jurisdiction which would help or hinder that access, whether in force now or imminently? For instance, are quotas systems/immigration caps in place in your jurisdiction and how are they determined?
EU/EEA citizens benefit from the freedom of movement of workers and therefore they are allowed to work in France without a work permit.
For non EU/ EEA citizens, a multi-year “talent passport” residence permit was created to simplify the installation of foreign workers, whether employed or self-employed, who want to contribute to France’s economic attractiveness. The employment contract or the duration of their installation must be longer than 3 months. It will allow the individual seeking the visa to stay for a maximum of 4 continuous years from the date of her/his arrival in France. They may be accompanied by their family, who will benefit from a multi-year residence permit. This “talent passport” is mostly aimed to highly skilled individual earning a yearly gross salary exceeding a threshold.
If there are gaps in access to talent, are regulators looking to fill these and if so how? How much impact does the fintech industry have on influencing immigration policy in your jurisdiction?
Although French regulators did not recognise a specific gap in access to talent in the Fintech market, the French legislator has created the “French Tech visa” which is a procedure that simplifies and accelerates the administrative formalities for obtaining a residence permit for foreign workers recruited by innovative French companies, as well as for their families.
The Fintech industry, as an integral part of the wider technology industry, may have influenced French policy to attract highly qualified people in order to make France a world-class location for innovation.
What protections can a fintech use in your jurisdiction to protect its intellectual property?
Depending on their business model, Fintechs may rely on various intellectual property rights. The most significant ones are the following.
Software used by Fintech can be protected by copyright provided that the software is original and has an individualised structure. This applies in particular to start-ups using blockchain technology.
In addition, databases are protected both by common copyright and by a sui generis right of the producer of the database by which he/she could prohibit the extraction and reuse of all or part of the contents of the database.
Fintech may protect their trademark through registration to the French national institute of intellectual property (INPI).
Fintechs can also rely on the protection of their intangible assets through mechanisms other than intellectual property. Thus, Fintechs can benefit from domain name protection which must be registered with the Association Française pour le Nommage Internet en Coopération (AFNIC).
Finally, Fintechs may also rely on the provision regarding business secrecy which has been recently transposed into French Law.
How are cryptocurrencies treated under the regulatory framework in your jurisdiction?
The recent French Act No. 2019-486 of 22 May 2019 (PACTE Law) has introduced a new legal framework for digital assets (which include cryptocurrencies) and Digital Asset Providers (DASP).
DASP providing services of digital asset custody and/or buying or selling digital assets for legal tender in France must register with the AMF which will collect the assent of the ACPR.
For DASPs offering other services than the ones needing registration, there is an optional approval. In order to apply for this optional approval the company must be established in France and comply with certain requirements in terms of organisation, business conduct and financial resources.
How are initial coin offerings treated in your jurisdiction? Do you foresee any change in this over the next 12-24 months?
The PACTE law has created an optional approval issued by the AMF for initial coin offerings. This approval aims to promote utility token but does not apply to security token. Only those public offers that have received the AMF approval may be marketed directly to the public in France.
Issuers of tokens coming within the category of utility tokens may request an approval in view of carrying out an ICO. The AMF approval is issued to the ICO and not to the token issuer and the issuer must comply with a numerous of requirements to obtain the approval (incorporation in France, draft of a white paper, funds safeguarding monitoring, AML/CTF processes…).
Are you aware of any live blockchain projects (beyond proof of concept) in your jurisdiction and if so in what areas?
There are many live operating blockchain projects within France including for example initiatives from the French authority named Banque de France which this year began an initial test with Société Générale on a blockchain developed in-house. This test is part of an experimental approach to the use of digital currency by the Banque de France.
More than half of the blockchain’s companies develop their activities around crypto-currencies: trading, distribution, foreign exchange, storage and portfolio management. Other identified companies directly create technologies or registry protocols adapted to the banking and insurance environments, enabling, for example, the creation of smart contracts for industry-specific uses, such as transactional record keeping (particularly in trade finance) or data authentication. Finally, certain applications are emerging in the fields of parametric insurance or KYC data to streamline and simplify authentication and control processes.
To what extent are you aware of artificial intelligence already being used in the financial sector in your jurisdiction, and do you think regulation will impede or encourage its further use?
Numerous start-ups and projects related to AI, notably in the field of Insurance and Finance have been developed. These solutions are aimed at optimising business processes, replacing the solutions based on RPA (Robot Process Automation) that have been used in recent years, and meet the high expectations of banks, insurance companies and asset management companies.
Although there is no specific regulation applicable to AI, aspects of regulatory compliance include compliance with regulations relating to the protection of privacy or personal data, starting with the GDPR and also the consideration of regulatory constraints specific to a use case.
French regulators have launched various public consultation regarding AI in the financial sector with voluntary actors on concrete cases of AI use in the financial sector. The objective of the discussion paper is to link the state of the art in AI techniques to financial sector regulation. Principles of good AI governance are thus identified: from the design of an algorithm to its permanent or periodic control, through its integration into operational processes.
Insurtech is generally thought to be developing but some way behind other areas of fintech such as payments. Is there much insurtech business in your jurisdiction and if so what form does it generally take?
France is an attractive place for Insurtechs and French new actors propose to renew experiences or to bring strong technological innovations. This is for example the case of the new insurer Alan, which has positioned itself in the strong vertical of healthcare. The main trends in Insurtech include the increase in the number of companies that aim to improve the efficiency and profitability of traditional insurers in a B2B approach. They aim at productivity gains for core business activities such as risk assessment, pricing and for other low-value tasks. In addition the Insurtech industry has seen the development of solutions aimed at the SMEs or independent markets.
Are there any areas of fintech that are particularly strong in your jurisdiction?
We would say that the PayTech sector is the leading segment of French FinTech alongside with Insurtech, alternative funding and saving and investment.
What is the status of collaboration vs disruption in your jurisdiction as between fintechs and incumbent financial institutions?
Traditionally, incumbent financial institutions were more focused on the product and new entrants place the emphasis on the customer which put pressure on the traditional business model of the former. Indeed Fintechs position themselves as direct competitors of the banks with their individual and corporate customers, whom they seek to capture by offering them new types of relationships based on a renewed customer experience.
However, incumbent financial institutions have been able to react to the pressure exerted by these new entrants by implementing by getting closer to Fintech through programmes, incubators, partnerships aimed at enabling them to quickly integrate innovative solutions that they were unable to develop internally.
There is today both a disruptive and collaborative approach between Fintechs and incumbent financial institution.
To what extent are the banks and other incumbent financial institutions in your jurisdiction carrying out their own fintech development / innovation programmes?
Banks and other incumbent financial institutions seem to defend themselves very well in the face of the disruptions in their strategic environment. These establishments have taken the initiative to modify their operating system by also integrating new technologies.
In addition, they are actively involved in innovation programmes and some traditional bank & financial institution developed their own accelerators such as BNP PARIBAS or incubators.
As described above, traditional bank & financial institution are also actively involved in partnership with Fintech. These partnerships are part of the strategy of traditional bank & financial institution to internalise innovation quickly. For the same reason traditional bank & financial institution actively purchase Fintech with strategic positioning, for instance La Banque Postale with Fintech such as KissKissBankBank, BNP PARIBAS with Nickel, the BPCE with Dalenys, Wynd or Comitéo.
Are there any strong examples of disruption through fintech in your jurisdiction?
There are many examples of successful disruption in the French market. For instance the start-up Alan disrupted the Insurance market with its online health-insurance offer and raised 50 million this year.
One other good example is Kyriba which became the first French Fintech unicorn after its acquisition by Bridgepoint.
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