France: The Expected Changes in the French Securitization Regulatory Framework

On June 5, 2003, the French Sénat adopted the proposed amendments to the French securitization law during the second reading of the bill on financial security (Loi de Sécurité Financière) (the "Reform"). The amendments now provide more flexibility and liquidity to the French securitization market and clarify the legal and regulatory framework for the French securitization vehicle known in French as "fonds commun de créances."(1)

By way of background, a fonds commun de créances ("FCC") is a mutual debt fund with no separate legal identity, whose sole purpose is the acquisition of receivables and the issuance of units representative thereof. The FCC must be constituted jointly by a société de gestion ("Management Company") and a dépositaire ("Custodian") acting throughout the life of the FCC as, respectively, manager of its business and custodian of the FCC's assets.

The key changes introduced by the Reform are summarized below.

Foreign Custodian

Before the Reform, only credit institutions with registered offices in France could assume the role of Custodian. All credit institutions licensed in France, or French branches of credit institutions having their registered offices within the European Economic Area ("EEA") or any institution authorized by the French minister of economy, are now authorized to act as Custodian.

Ring-Fencing Compartments

The Monetary and Financial Code authorizes the creation of FCCs with sub-divisions or "compartments." In brief, this consists of allocating the FCC's assets to the various compartments created. The acquisition of the assets in each compartment is financed by the proceeds of the corresponding units issued by the FCC, and the remuneration and redemption conditions of each unit are determined on the basis of the amount collected from the assets allocated to each respective compartment. Before the Reform, it was unclear whether third-party creditors would be prevented from making claims against the assets assigned to other compartments of an FCC, if the sums resulting from the liquidation of their compartment were insufficient to repay amounts due to them. The Reform expressly provides that each compartment, set up within an FCC, shall be considered "ring-fenced" from the others, thus limiting the recourse of third-party creditors and unit holders to the assets allocated to their compartment.

Applicable Law for Priorities

French conflict of law rules provide that the enforceability of any assignment of receivables against third parties (other than the assigned debtor) is governed by the law of the assigned debtor's place of incorporation. Pursuant to the Reform, transfers to an FCC shall be deemed automatic and enforceable against all third parties (including the assigned debtor) with no further formalities, whatever the law governing the transferred receivables and the law of the assigned debtor's residence.

Enforcement of the Related Security

The Monetary and Financial Code states that any security interest or guarantee attached to a receivable acquired by an FCC is automatically transferred with and at the same time as such receivable, without any formalities. However, as the sole purpose of an FCC is to own receivables as opposed to tangible assets, it was unclear whether the FCC could become the owner of secured assets upon foreclosure, particularly when the FCC was the beneficiary of a real property mortgage. The Reform now clearly states that an FCC has the capacity to take title to assets upon the enforcement of security interests.

Collection Account

The Reform has introduced the concept of a third-party beneficiary account (or locked-box account) so as to isolate cash collections received by the seller or the servicer (and not yet transferred to the FCC) from the seller’s or servicer's receiver in the event of either bankruptcy. The FCC would then be entitled to claim any sum standing to the credit of such account notwithstanding the commencement of bankruptcy proceedings involving the seller or the servicer.

Issue of Debt Instruments

The Reform has widened the type of debt instruments that can be issued by an FCC.

Until the Reform, FCCs could only issue units and were not allowed to borrow money. The units of an FCC, representing co-ownership rights in a pool of receivables, are often not easily marketable under certain securities market regulations or due to investment restrictions for certain categories of investors, since such units are not characterized as debt instruments. As a result, a number of French securitization transactions have a two-step structure allowing the marketing of debt instruments issued by the two-step vehicle and backed by the units issued by the FCC. Under the Reform, FCCs now have the ability to issue debt instruments (titres de créance) such as bonds and short-term paper.

Use of Credit Derivatives

Until now, an FCC’s ability to use derivative instruments was restricted to transactions for hedging purposes only. The Reform enables FCCs to enter into credit derivatives subject to certain conditions that are to be specified in a forthcoming decree.

As a result, FCCs should be allowed to enter into synthetic securitization transactions in which, for example, the FCC will act as seller of protection in order to cover the exposure of a third party under credit default swaps.

(1) The fonds commun de créances is governed by Article L. 214-43 et seq. of Code monétaire et financier (the "Monetary and Financial Code").

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions