Few financial mechanisms are as markedly dual as securitisation. A powerful financing tool for companies, securitisation has also become synonymous with the 2008 financial crisis. This complex reputation masks a rich legal reality and a constant evolution in French law, which has taken several decades to tame and regulate this technique. Understanding the history of this framework means deciphering how France has gradually built a legal environment for what is now a key instrument in its economy. To help you navigate through this dense subject, a lawyer with expertise in banking and finance law is often essential. This article sets out to retrace the major stages in the development of this legislation, a journey that perfectly illustrates the way in which the law adapts to innovations in finance. For an overview of the mechanism, see our main page on securitisation: understanding this key mechanism in banking and financial lawThis article focuses on the history of the legal framework for securitisation undertakings in France.
From American origins to late adoption in France
Securitisation emerged in the United States in the 1970s in response to a pressing need for mortgage financing. The American legal system had a tool that was particularly well suited to this operation: the trust. This common law allows ownership of an asset to be split between legal ownership (legal ownership), held by a director (the trustee), and an economic property (equitable interest) to the beneficiaries. In a securitisation transaction, the trustee receives the receivables, manages them in assets separate from its personal assets and issues financial securities to investors, who become the beneficiaries. This structure ensures a watertight separation of assets, protecting the securitised receivables from the bankruptcy of the assigning company.
France, on the other hand, has long been held back by the absence of an equivalent in the trust. French civil law, based on the uniqueness of patrimony, made it difficult to create such isolated legal vehicles. In addition, there were two major obstacles. Firstly, the assignment of receivables was governed by the cumbersome formalities of article 1690 of the Civil Code, which required service on the debtor to render the assignment enforceable against third parties. Secondly, the Banking Act of 1984 introduced a "banking monopoly", reserving the purchase of unmatured receivables for professional purposes to credit institutions only. These legal obstacles made the emergence of securitisation in France impossible without specific legislative intervention.
The original legal foundations: the 1988 Act and its limitations
The foundation stone of the French securitisation system was laid by the Act of 23 December 1988. This law created the first securitisation vehicle under French law: the fonds commun de créances (FCC). At the time, the mechanism was strictly regulated. Only credit institutions and Caisse des Dépôts et Consignations could sell their receivables to an FCC. In return, the FCC issued shares representing these claims, which were then placed with investors. The FCC was an unincorporated joint venture jointly managed by a management company and a custodian institution.
Despite this progress, the initial framework had severe limitations that largely contributed to its failure. The monopoly of assignors, restricted to the banking sector, considerably limited the scope of eligible receivables. In addition, the rules governing the operation and transfer of receivables, although relaxed, remained restrictive. As a result, the Paris securitisation market failed to take off, and the system remained largely underused, awaiting successive reforms to make it more attractive and flexible.
Successive changes: towards greater flexibility and modernisation (1993-2007)
Aware of the limitations of the initial system, the legislator has intervened on several occasions to make the securitisation framework more flexible and modern. These adjustments, made in successive stages, have gradually broadened the scope and possibilities offered by FCCs. The Act of 4 January 1993 marked an important first step by authorising insurance companies to assign their receivables to a securitisation vehicle. It also allowed the fund to acquire new claims after its initial issue of units, making it "rechargeable". Lastly, it simplified the transfer of collateral securing receivables, based on the effective Dailly assignment mechanism.
The 1996 Financial Activity Modernisation Act then classified FCCs as undertakings for collective investment (UCIs) and the units issued as financial instruments, thereby clarifying their legal nature. A decree issued in 1997 further increased flexibility by authorising the acquisition of different types of claims, including doubtful or disputed claims, opening the way to more diversified management strategies. The 1998 reform represented a major turning point, extending securitisation to all companies, not just financial institutions. The commercial receivables of SMEs and large companies thus became eligible, offering a new financing alternative. In the same year, any minimum duration requirement for receivables was abolished, and the securitisation of future receivables was expressly authorised.
In 1999, the law introduced the concept of compartments, a structuring innovation. A single securitisation vehicle could now be divided into several watertight compartments, each with its own assets and liabilities and issuing its own securities. This technique made it possible to carry out several separate securitisation transactions within a single structure, optimising costs and management. Finally, the Financial Security Act of 2003 authorised FCCs to issue debt securities (such as bonds) in addition to traditional shares, thereby diversifying their sources of financing.
The major reform of 2008: emergence of securitisation undertakings and dual forms of securitisation
The Order of 13 June 2008 radically overhauled the legal framework, marking the true maturity of securitisation in France. The term "fonds commun de créances" was replaced by the broader concept of "organisme de titrisation" (OT). This reform introduced a duality in the forms that the securitisation vehicle can take: it can be either a fonds commun de titrisation (FCT), which retains the nature of an unincorporated co-ownership, or a société de titrisation (ST), incorporated as a société anonyme (SA) or a société par actions simplifiée (SAS) and endowed with legal personality. This choice offers greater flexibility to arrangers.
The very purpose of TOs has been redefined. It is no longer simply a question of acquiring receivables, but of being "exposed to risks" (including insurance risks) and financing or hedging them. This wording made it possible to carry out synthetic securitisations, in which only the risks are transferred, without transferring the underlying assets. Above all, the 2008 reform brought French law into line with international standards by enshrining the principle of "bankruptcy remoteness (removal of the risk of bankruptcy). The text expressly declares bankruptcy law inapplicable to securitisation undertakings. This protection is essential for rating agencies and investors, as it ensures that the assets of the securitisation vehicle are used exclusively to pay security holders, sheltered from the creditors of the transferor or the management company.
The contributions of the 2013 and 2017 ordinances: integration into fia and financing bodies
The evolution continued with the incorporation of European law. The Order of 25 July 2013, transposing the Alternative Investment Fund Managers Directive (AIFM), classified securitisation undertakings (TOs) in the large family of alternative investment funds (AIFs). This classification has made them easier to understand on the international stage, although, in principle, TOs are not subject to the full restrictive regime for AIFs, except in specific cases designed to prevent circumvention of the regulations.
A new step was taken with the Order of 4 October 2017, which created a broader legal category, that of "financing bodies". This category is now subdivided into two branches: securitisation undertakings (TOs), which retain their regime, and a new structure, specialised financing undertakings (SFOs). The SFO has been designed as a more flexible and competitive vehicle, fully subject to the AIFM directive and benefiting from the European passport. Unlike the TO, whose assets are mainly debt, the OFS can invest in a much wider range of assets (equity securities, tangible assets, etc.) and grant loans directly to companies. The same ordinance also modernised the operation of OFSs by putting an end to the system of "co-foundation" by the management company and the depositary, in favour of "monofoundation" by the management company alone.
The latest developments and the democratisation of securitisation
The legal framework continues to be refined by regulatory texts. Recent decrees have specified the conditions under which financing organisations can grant loans to businesses, marking a further step in the disintermediation of financing for the economy. The 2019 PACTE Act also provided important clarifications on the terms and conditions for recovering receivables transferred to a financing organisation, thereby securing the rights of investors and the standing of management companies.
Today, although the French securitisation market remains smaller than its American counterpart, the objective of democratisation has been partly achieved. Major banks and industrial companies have integrated securitisation as a balance sheet and cash management tool. Innovative platforms are even offering dematerialised securitisation solutions for SME trade receivables. At the same time, French law has to deal with the harmonisation of the European framework with the regulations on STS securitisation (Simple, Transparent and Standardised)which aims to promote products that are safer and easier for investors to understand.
Solent avocats: your expert on the history and current law of securitisation
The legislative history of securitisation in France is one of slow but constant adaptation, from an initial rigid framework to a diversified and complex financing ecosystem. Each reform has added a layer of technicality, creating a superposition of regimes and vehicles with distinct purposes. Mastering this field requires an in-depth knowledge of both its foundations and its most recent developments. Whether you are a company looking to optimise its cash flow, an investor assessing an investment opportunity or a financial player structuring a transaction, the assistance of an advisor is fundamental to securing your steps. For an analysis of your situation and tailored advice, contact our law firm in banking and finance law.
Sources
- French Monetary and Financial Code, in particular articles L. 214-166-1 et seq.
- Commercial Code.
- Law no. 88-1201 of 23 December 1988 relating to undertakings for collective investment in transferable securities and creating debt securitisation funds.
- Order no. 2008-556 of 13 June 2008 reforming the rules governing securitisation undertakings.
- Order no. 2013-676 of 25 July 2013 amending the legal framework for asset management.
- Order 2017-1432 of 4 October 2017 modernising the legal framework for asset management and debt financing.
- Act no. 2019-486 of 22 May 2019 on the growth and transformation of businesses (PACTE Act).
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