The new players in financing: beyond the traditional banks

The financial landscape is changing. Traditional banking institutions are no longer the only ones offering financing solutions for businesses and individuals. New players are emerging, authorised by recent legislative changes to offer services previously reserved for banks.

Electronic money institutions

These specific entities were introduced into French law by European Directive 2000/46/EC of 18 September 2000, transposed into French law by CRBF Regulation 2002-13 of 21 November 2002.

An electronic money institution is defined as "an undertaking or any other legal person, other than a credit institution [...] which issues means of payment in the form of electronic money" (art. 1.3.a of Directive 2000/46/EC).

These institutions must comply with strict prudential constraints:

• Initial capital and permanent equity of at least €1 million
• Prudent, low-risk investments with sufficient liquidity
• Permanent coverage of financial commitments by assets

To protect users, the legislator has imposed a redeemability obligation: the contract between the issuer and the holder must provide for the possibility of the latter demanding redemption at par value, without excessive costs.

Payment institutions

Created by Order no. 2009-866 of 15 July 2009 transposing Directive 2007/64/EC, these service providers can provide payment services without being banks.

Authorised services include:

• Execution of transfers and direct debits
• Transfer of funds
• Cash deposit and withdrawal services
• Payment account management

The considerable advantage is that they have fewer statutory obligations. Initial capital varies between €20,000 and €125,000 depending on the business, a far cry from the €5 million required for a bank.

This difference in treatment has a specific aim: to encourage competition in the payment market and drive down prices.

Digital asset service providers

The PACTE Act of 22 May 2019 (no. 2019-486) created a legal framework for cryptocurrency players.

These service providers cover a range of activities:

• Exchange of digital assets
• Operation of trading platforms
• Preservation of digital assets

There are two options for exercising:

1. Optional authorisation issued by the AMF
2. Mandatory registration for certain sensitive activities

Registration is required for:

• Preservation of digital assets on behalf of third parties
• Buying/selling digital assets in legal tender

This registration is obtained after receiving the assent of the Autorité de contrôle prudentiel et de résolution (ACPR) and verifying guarantees such as competence and good repute.

Promoters of Initial Coin Offerings (ICOs) may also apply for an AMF visa. Conditions: clear information document and sufficient guarantees.

Alternative financing organisations

Decree no. 2018-1008 of 19 November 2018 allows non-banks to grant loans directly.

A distinction is made between:

• Securitisation vehicles
• Specialised financing bodies

These structures, created by Order no. 2017-1432 of 4 October 2017, benefit from a derogation from the banking monopoly under certain conditions.

Law no. 2015-990 of 6 August 2015 (the Macron law) had already opened a loophole by authorising certain companies to lend to others. Joint stock companies and limited liability companies whose accounts are certified may grant loans of less than two years to companies with which they have "justifying economic links".

More recently, the law of 1 July 2021 allows associations sharing the same federation to grant each other interest-free cash loans.

These exceptions reflect the legislator's desire to diversify sources of financing for the economy without compromising the stability of the financial system.

Sources

• Monetary and Financial Code, articles L. 511-1, L. 511-5, L. 511-6, L. 511-7
• Directive 2000/46/EC of 18 September 2000 on electronic money institutions
• Order no. 2009-866 of 15 July 2009 on payment services
• Act no. 2019-486 of 22 May 2019 (PACTE Act), articles 85 et seq.
• Decree no. 2018-1008 of 19 November 2018 on financing bodies
• Law no. 2015-990 of 6 August 2015 (Macron law), article 167
• Law no. 2021-875 of 1 July 2021 aimed at improving the cash flow of associations