New status for French credit institutions
February 2014 | LEGAL & REGULATORY | BANKING & FINANCE
Financier Worldwide Magazine
In order to prepare the entry into force of EU Regulation no. 575/2013 on prudential requirements for credit institutions and investment firms (known as CRR) which aims to harmonise the definition of credit institutions and to apply the same prudential rules to such institutions within the European Union, France has adopted Order no. 2013-544 relating to credit institutions and financing companies. This Order entered into force on 1 January 2014.
The main reforms introduced by the Order relate to: (i) the modification of the definition of credit institutions; (ii) amendments to the categories and to the regime of the regulated institutions that can be authorised to perform banking transactions; and (iii) modification of the definition of taking repayable funds from the public.
In order to align the definition of credit institutions under French law with the definition resulting from the CRR, the Order defines credit institutions as legal entities, the activity of which consists in taking repayable funds from the public and granting creditfor their own account and by way of habitual business. Therefore, only those entities performing both credit and deposit-taking activities are eligible to the status of credit institutions and subject to the full regime resulting from the CRR.
The Order also creates financing companies (sociétés de financement), a new category of banking services providers which are not credit institutions but are licensed to perform credit activities. Financing companies are regulated entities licensed to carry on credit activities for their own account by way of habitual business within the terms and limits of their licence.
In addition, financing companies and credit institutions can be also licensed to provide payment services, to issue and manage electronic money and to provide investment services. However, the scope of activities available to financing companies is reduced compared to credit institutions to the extent that financing companies cannot take repayable funds from the public nor perform certain ancillary banking operations. Financing companies are licensed by and subject to the supervision of theAutorité de contrôle prudentiel et de résolution (ACPR). They are subject to some rules governing credit institutions (such as banking secrecy rules) as well as to some other rules specifically governing financing companies (e.g., prudential requirements). One of the major differences between credit institutions and financing companies lies in the European passport regime which is not available to financing companies (save in circumstances where such financing companies could be treated as financial institutions (établissements financiers) within the meaning of the Capital Requirements Directive 2013/36).
The Order creates a new subcategory of credit institutions which comprises specialised credit institutions (établissements de crédit spécialisés). Specialised credit institutions are credit institutions, and therefore must be licensed for both credit and deposit-taking activities, which can only perform the activities within the limits resulting from legal and regulatory provisions specific to them. Specialised credit institutions benefit from the European passport regime to the extent that they constitute a category of credit institutions.
The reforms introduced under the Order impact a number of entities licensed in France as financial companies (sociétés financières) which constituted a category of credit institutions, the activities of which were limited by their licence or applicable laws and regulations. The Order abolished the status of financial companies and set forth transitional provisions to allow existing financial companies to adapt to one of the newly created regimes.
The Order contains transitional provisions including a grandfathering clause with respect to the entities licensed as financial companies before 1 January 2014. Such entities are deemed, as of that date, to be licensed as specialised credit institutions (or payment institutions if these entities are licensed solely for the activity of money transfers). The entities that were licensed on 1 January 2014 as financial companies will also be able to opt for the status of financing companies by notifying the ACPR before 1 October 2014. Entities that choose this option and already benefit from a licence for the provision of investment or payment services will be automatically authorised to provide investment services or payment services, as the case may be, from the date they are licensed as financing companies by the ACPR.
The question as to whether financial companies that have used the grandfathering clause and are therefore licensed as specialised credit institutions will be able to continue carrying on credit activities exclusively (i.e., without receiving repayable funds from the public) remains debatable. Furthermore, this will depend on the latitude that the ACPR would leave to such entities to stay licensed as specialised credit institutions if they do not carry on any deposit-taking activity.
As regards companies that will request their licence from 1 January 2014, they will not be able to be licensed as specialised credit institutions if they do not receive repayable funds from the public.
Finally, the Order amended the definition of repayable funds by including the issues of debt securities subject to terms and limits set out by a decree published on 14 December 2013. Issues of debt securities should be assimilated to the receipt of repayable funds from the public where the following conditions are satisfied: (i) such securities qualify as debt securities under Article L. 211-1 II 2 of the French Code monétaire et financier; (ii) the issues of securities are not exclusively intended to persons providing individual portfolio management service (within the meaning of Directive on markets in financial instruments no. 2004/39 as implemented in France) nor to qualified investors (within the meaning of Directive no. 2003/71 on the prospectus to be published when securities are offered to the public as implemented in France); and (iii) if the securities are not negotiable debt securities (titres de créances négociables), the nominal value of each security is less than €100,000.
In addition, the following debt securities are not considered as repayable funds: (i) lowest ranking subordinated securities governed by Article L. 228-97 of the FrenchCode de Commerce; (ii) equity-like securities (titres participatifs) governed by Articles L. 213-32 and seq. of the French Code monétaire et financier; (iii) other lowest ranking securities, the issuance agreement of which provides that such securities absorb losses on a going-concern basis; and (iv) securities, the issuance agreement of which provides that in the event the issuer is subject to a liquidation procedure, such securities will be redeemed after payment of the secured and unsecured creditors.
Considering the new definition of redeemable funds, entities granting credit by way of habitual business and issuing debt securities assimilated to the receipt of redeemable funds would have to be licensed as credit institutions.
Hubert Blanc-Jouvan is a partner and Olga Goncharska is an associate at Ashurst LLP. Mr Blanc-Jouvan can be contacted on +33 1 53 53 53 97 or by email: firstname.lastname@example.org. Ms Goncharska can be contacted on +33 1 53 53 54 84 or by email: email@example.com.
© Financier Worldwide
Hubert Blanc-Jouvan and Olga Goncharska