United States: Chambers Global - Fintech

1. FINTECH MARKET

1.1 The Development of FinTech Products and Services

Supply side

The French finance industry, with more than 1.2 million direct and indirect jobs created and accounting for 4% of the French GDP, is an enabling environment for the development of innovative financial products and services. The French FinTech industry consists of 750 FinTechs reported to be particularly competitive in four areas: payments and electronic currencies (24 payment institutions registered with the French banking regulator); robo-advisers; crowdfunding (89 platforms); and online bank services. They offer innovative solutions regarding new methods of payment; dematerialisation of currency; disaggregation; cashless transactions; interconnection; connection between buyer and seller; trading robots; alternative loan platforms; savings management; process outsourcing; automated investors; and fund-raising.

Demand Side

According to the French national bank, France is the EU Member State with the greatest use of online banking services, the second biggest crowdfunding market (after the UK) and one of the most dynamic markets in Europe for payment innovations.

According to a Deloitte survey, the products and services offered by leading French FinTech companies are still underused by French consumers. France's adoption rate (ie the percentage of customers using at least one non-traditional firm for financial services) is only 36%, compared to 85% in China, 80% in India, 50% in the UK and 45% in the US. Account aggregation (used by 9% of French consumers), financial planning (6%) and participatory financing (6%) are the most used FinTech innovations in France.

This is largely due to the fact that FinTech services and products are still relatively unknown to the public: while 38% of French consumers were familiar with crowdfunding services, only 28% had ever heard about account aggregation and financial planning. According to Deloitte, once consumers know about those services and products, they show a high level of interest, which leads us to believe that the FinTech market has strong development potential. The number of potential users for FinTechs in France was estimated to be around 80 million in 2017 and is expected to grow to 95 million before 2020.

In 2016, nearly EUR235 million was collected by crowdfunding platforms, a growth of 40% of funds raised in one year, and 2.6 million French consumers have already financed a project through a crowdfunding platform.

1.2 The Market for FinTech Products and Services

The transactional value of FinTechs in France was USD72 billion in 2016 and is expected to be around USD145 billion in 2021.

Investments in FinTechs jumped from EUR19 million to EUR167 million (a 750% increase) between 2014 and 2015 and are still increasing. Those investments experienced a 67% increase during the first quarter of 2016. In 2016, French FinTechs carried out many successful fund-raisings: Lendix (ETI crowdfunding platform) raised EUR12 million while Wynd raised EUR30 million.

1.3 The Key Market Participants in the Specified Activities

The most promising French FinTechs are:

  • Slimpay, an online debit system for companies with clients who have standing orders. This start-up experienced a +4.000% growth between 2010 and 2014;
  • Younited Credit, a platform for investors and borrowers which is licensed as a credit institution with the French banking regulator;
  • Lydia, creating QR codes for secured payments;
  • Leetchi, a crowdfunding platform, bought for more than EUR50 million in 2015;
  • Yomoni, a robo-adviser company; and
  • Kantex, a start-up offering ways to transfer money without credit institutions.

Other promising French FinTechs include Advize, Paymium, Utocat, Lendosphere, Prexem, Anaxago, Fundshop, Kyriba, FinexKap and Fluo.

France has hosted multiple FinTech related events, including the Paris FinTech Forum (January 2017, +2,500 attendees) and the FinTech R:evolution (March 2017, +1,000 attendees). The latter is organised by France FinTech, a non-profit association of FinTech entrepreneurs created in 2015 and which federates more than 60 French companies.

1.4 FinTech Technologies/Companies

Most FinTechs are not looking to partner with traditional finance institutions but to bypass them in order to gain market share by offering consumers innovative services and new methods of consumption.

According to a 2016 Business Insider survey, 43% of French banks see French FinTechs as a possible threat, while 24% see them as collaborators and 15% see them as possible technology acquisitions.

1.5 Partnerships Between Traditional Institutions and FinTech Companies

The relationship between traditional finance and FinTechs seems to be moving from confrontation to co-operation. The competitiveness clustering "France Innovation," in a 2016 white paper, emphasised on the complementarity between banks and FinTechs and on the necessary co-evolution of those two industries. On one hand, banks are experiencing a strong dematerialisation trend (only 17% of their clients visit their local bank more than once a month, as opposed to 62% five years ago) and thus have a strong incentive to support technological innovation by FinTechs in order to reinvent their business model and customer service. On the other hand, banks enjoy large market shares and a solid expertise that can be useful for FinTechs looking to develop their activities and to benefit from economies of scale.

FinTechs, therefore, seem bound to complement and inspire traditional finance rather than replace it. A few examples of this co-evolution trend can be observed in the French FinTechs market such as:

  • Consortium Euronext, ie BNP Securities Services, Euroclear, Euronext, Société Générale and other institutions, have joined forces to develop blockchain-based post-market infrastructures for ETIs.
  • In 2017, BNP Paribas acquired Nickel, a start-up developing an online bank account that can be opened in five minutes.
  • In June 2017, the French bank La Banque Postale acquired the crowdfunding platform KissKissBankBank.
  • Since 2014, the French bank Crédit Agricole has welcomed around 90 start-ups, including 15 FinTechs, in Paris to help them develop and to find clients and partners.
  • BNP Paribas has developed the WAI (We Are Innovation) centre in Paris, which works as a business incubator for FinTechs.
  • In 2012, BPCE created its own internal start-up, S-money, for payments-related innovations. It then started acquiring FinTechs.

Other incubator initiatives include the Finance Innovation cluster, which helps to facilitate innovating projects and research projects related to FinTechs. More than 380 projects presented by start-ups, SMEs and large undertakings have already received the "excellence label" delivered by Finance Innovation. Finance Innovation supports and advises more than 1,000 businesses. This cluster also aims at facilitating discussions and exchanges between stakeholders in the FinTech industry.

1.6 Approach to FinTech Innovation

For a long time, the traditional finance industry was protected by the regulations in place (ie the banking monopoly, investment services regulations, etc). However, today, those regulations constitute a burden for traditional finance institutions since they prevent them from quickly adapting their business model to technological innovations (capital requirements, compliance, etc). Moreover, those regulations are evolving in order to promote and support FinTech activities.

French authorities have indeed shown they consider FinTechs to be an important alternative way to provide new sources of financing. François Villeroy de Galhau, Governor of the French central bank and chairman of the French banking regulator, recently said that "the digital revolution is creating challenges but also incredible opportunities that are just waiting to be seized, whether by FinTechs themselves, by the entire financial system – banks and insurers – or by the French and European economy as a whole."

Many regulations implemented in the last few years demonstrate French regulators' commitment to quickly establish appropriate regulations that foster the development of FinTech companies while ensuring investors' protection such as:

  • A dedicated crowdfunding framework has been enacted in French law through an ordinance dated 30 May 2014. The ordinance is aimed at allowing crowdfunding activities to quickly develop in France while guaranteeing investors' protection. This framework has been amended regularly, notably to increase the maximum amounts that can be raised, lent or invested through crowdfunding platforms.
  • An ordinance dated 1 October 2016 amended promissory notes (bons de caisse) regulatory framework and establishes a new crowdfunding regime for those notes. Minibons, for example, are promissory notes issued via internet platforms of a crowdfunding investment adviser or investment services providers. Transfer of minibons can be done either by an assignment notified to the issuer, or by a distributed ledger technology referred to as a blockchain, pursuant to procedures to be set out in a future decree.
  • Law No 2015-990 dated 6 August 2015 offers consumers the opportunity to switch banks without any cost and through an entirely automated online platform, without having to worry about redirecting their standing orders. This law will make it easier for French consumers to switch banks and thus foster competition between banks and FinTechs. It might accelerate the rate at which FinTechs gain market shares.

Furthermore, French regulators are starting to establish working groups or incubators to co-operate with FinTech innovators.

1.7 Laws or Policy to Encourage Innovation

The French central bank (Banque de France) opened a LAB to work with start-ups, while the French banking regulator has welcomed more than 100 innovators since the creation of its FinTech Unit and has set up the FinTech Forum with the French securities regulator. These institutions make it possible for regulators to identify the needs, risks and expectations of the various stakeholders.

The FinTech Unit was established in 2016 as a one-stop shop for FinTechs wishing to discuss regulatory issues with French banking and securities regulators. The unit was set up in order to streamline discussions between stakeholders and regulators, but also to facilitate the administrative steps and regulatory requirements for FinTech start-ups. The main role of the unit is to advise and guide FinTechs so that regulatory uncertainties do not obstruct financial innovation. FinTechs do not need to discuss with every regulator separately: the unit works as a one-stop shop, integrating teams from the French securities regulator, the French banking regulator and the data protection regulator. Moreover, the FinTech Unit provides foreign start-ups with a fast-track registration and authorisation process. Between June 2016 and June 2017, the FinTech Unit welcomed 133 innovative stakeholders.

The FinTech Unit launched two new communication programs in 2017: an e-learning program (a series of short, informational videos regarding financial regulation) and a periodical meeting with stakeholders during which a specific regulatory issue will be presented in detail.

Moreover, the French securities regulator established, in June 2016, a FinTech division to follow FinTech innovations and the regulatory issues arising from it. This division works to identify regulatory issues that will impact the competition of French FinTechs and their ability to innovate, and to provide clear and simple answers to reduce the regulatory uncertainty surrounding FinTech activity.

Crowdfunding Regulation

France adopted a specific regulatory framework for crowdfunding activities in 2014. The main objective was to ensure investors' protection and information, while allowing crowdfunding activities to develop.

A central provision of this framework established a new exemption from public offering requirements (prospectus requirements, etc). Indeed, before the introduction of this regulatory framework, crowdfunding transactions offering over EUR100,000 in equity or bonds were subject to the public offering regulations. In 2014, a provision was included to ensure that crowdfunding transactions under EUR1 million were exempt from the public offering requirements. This maximum amount has since been raised to EUR2.5 million.

The 2014 reform included a new exemption from the banking monopoly (ie the rule prohibiting entities other than licensed banks from granting interest-bearing loans) for crowd lending activities, allowing individuals to grant loans through crowdfunding platforms. However, this exemption from the banking monopoly is limited to individuals (ie not businesses) acting outside of their professional activities. Moreover, loans are limited to EUR2,000 by lender and by project (EUR5,000 if the loan is without interests), the loan maturity has to be less than seven years, and the borrower cannot borrow more than EUR1 million per project.

Crowdfunding internet platforms have to register with the French securities regulator either as crowdfunding intermediaries (for donations and crowd lending platforms) or as crowdfunding investment advisers (for investment-based crowdfunding). They are not required to register with the French securities regulator if they already benefit from a licence as financial services providers (prestataires de service d'investissement).

Crowdfunding intermediaries and crowdfunding investment advisers have to comply with specific regulatory requirements, including rules of good conduct, professional integrity and the abilities of their managers, professional insurance requirement, etc. Moreover, the regulatory framework details information that crowdfunding intermediaries are required to disseminate to their members in order for them to be able to make informed investment decisions, and information they are required to request from their members to verify their identity.

Regulation of Minibons

Prior to the entry into force of the abovementioned ordinance dated 1 October 2016, no specific regulation governs the issuance of promissory notes through crowdfunding platforms. Small and medium-sized enterprises (SMEs) used crowdfunding to fund projects by issuing promissory notes without being subject to any specific regulatory requirement.

The ordinance amends the general regime of promissory notes (as these amendments are described above) and establishes a new crowdfunding regime for them. Promissory notes issued via a crowdfunding platform are referred to as minibons.

Those minibons, since they are not financial instruments, are not subject to the prospectus requirements. They are also not subject to the French banking monopoly: the ordinance specifies that issuers of promissory notes are not violating the monopoly regarding reception of deposit funds from the public, and there is an exemption from the loan granting monopoly for individual investors subscribing to minibons outside of their professional activity and for legal entities which do not do so as a principal activity.

Those minibons can be issued in a series (which is not the case for other promissory notes since the 2016 reform) by French corporate companies whose share capital is fully released. They are materialised by a registration certificate including specific mentions given to the investor. They bear a fixed interest rate, which is limited by the usury rate for the professionals' overdrafts and is amortised at least quarterly in a constant total amount of principal and interest (so that bullet payments at maturity are prohibited). The maximum amount of minibons' issuance for a single issuer over a rolling 12-month period is EUR2.5 million.

Minibons are necessarily issued via internet platforms of a crowdfunding investment adviser or investment services providers. Rules of conducts for the intermediation of shares and bonds also apply in respect of minibons. These platforms may provide for subscription notices and hold a minibons' register.

Transfer of minibons can be done either by an assignment notified to the issuer, or by a distributed ledger technology referred to as blockchain, pursuant to procedures to be set out in a future decree.

2. REGULATION

2.1 Regulatory Regimes for Specified Activities or FinTech Companies

While heavily influenced by EU Regulations (ie MiFID, UCITS, PSD or CSDR), the French regulatory framework for FinTech activities do exhibit certain specificities.

French regulators, and especially the French securities regulator, are dedicated to helping new financial participants grow in the FinTech market. One important aspect of FinTech is that it gives alternative sources of funding to SMEs that mainly compose France's economic market.

Indeed French companies, and especially SMEs, are traditionally heavily reliant on the traditional banking system, with low levels of disintermediation compared to the US and the UK. By fostering innovation and competition, FinTechs can provide multiple advantages including:

  • lowering prices (by providing better competition);
  • providing a better funding solution (by shaping better funding, notably regarding the structure of a borrower);
  • providing funding to companies not able to borrow money from banks because of their characteristics or weaknesses (too risky, too young, lack of collateral to secure the loans etc).

FinTech is perceived as an important means to support economic growth.

Banking Monopoly

As a general matter, the provision of banking services in France is a highly regulated activity and is subject to licensing requirements. More specifically, pursuant to Article L.511-5 of the French Monetary and Financial Code, an entity engaging in banking activities on a habitual basis in France must either hold a French banking licence (agrément) authorising it to act as a credit establishment and/or a French financial company, or be duly "passported" under the European Union Banking Directive to provide such services in France. This is referred to as the French Banking Monopoly.

Accordingly, as a general rule, all non-French licensed or non-EU passported banks and financial institutions must refrain from performing banking services on French territory, unless they are licensed to carry out these activities in France by the French banking regulator.

The carrying out of banking operations in France without a licence may trigger criminal sanctions, ie a fine up to EUR375,000 for individuals or EUR1,875,000 for legal entities and up to three years imprisonment (Article L.571-3 of the French Monetary and Financial Code). However, from a civil point of view the transaction entered into in breach of the monopoly is not invalidated.

As listed in Article L.311-1 of the MFC, banking services include:

  • the acceptance of funds from the public (réception de fonds remboursables du public), defined as the receipt of funds from a bank, including by way of deposits, with the right for such bank to dispose of such funds for its own account, provided such funds are eventually returned to the client (Article L.312-2 of the French Monetary and Financial Code); and
  • credit operations (opérations de credit) which cover all acts by which an entity, acting on a remunerated basis, provides or promises to provide funds to another person, or, on behalf of such person, undertakes to provide funds either by way of guarantee, surety or other type of obligation.

As mentioned above, the 2014 crowdfunding reform included a banking monopoly exemption, allowing individuals acting outside of their professional activities to grant loans through crowdfunding platforms. Loans are limited to EUR2,000 by lender and by project (EUR5,000 if the loan is without interests), the loan maturity has to be less than seven years, and the borrower cannot borrow more than EUR1 million per project.

In addition to the banking monopoly, French regulation also provides for a separate regulatory regime for banking solicitation (démarchage), set out in Articles L.341-1 et seq. of the French Monetary and Financial Code. Only French and EU providers may undertake solicitation activities in France. Article L.341-1 of the French Monetary and Financial Code defines solicitation as any unsolicited (and in certain cases, solicited) contact by a provider with a legal entity or an individual with a view to obtaining an agreement on the provision of a banking service (ie a credit operation).

Crowdfunding

A dedicated crowdfunding framework has been enacted in French law through the ordinance n°2014-559, of 30 May 2014. Crowdfunding regulations are divided into two main types: crowd lending (ie the granting of loans, bearing interests or not, through crowdfunding platforms) and investment crowdfunding (ie the acquisition of equity shares and debt securities through crowdfunding platforms).

Crowd lending investors are allowed to invest a maximum of EUR2,000 by person and by project if the funding bears interest, and up to EUR5,000 if not; the total amount must not exceed EUR1 million for each. Though relatively simple, crowd lending requires the borrower to apply specific regulations in order to protect the investor (ie information, usury rate, maturity date limit). The funding is managed by a dedicated intermediary: the crowdfunding intermediary (intermédiaire en financement participatif, IFP).

Equity-based crowdfunding is subjected to a different regulatory framework. Since it falls under the scope of MIFiD, France used the exemption provided for in Article 3 to create a legal framework tailored for investment crowdfunding. French law created a specific intermediary, the crowdfunding adviser(conseiller en investissements participatifs,CIP), to which specific rules apply.

Securities issued through a crowdfunding platform will benefit from a prospectus exemption (ie an exemption from the obligation to draw up and disseminate a prospectus pursuant to Regulation (EU) 2017/1129) if they are not to be listed on a regulated market or a MTF. Moreover, to benefit from this exemption they will be offered through a dedicated platform managed by a CIP and must not exceed EUR2.5 million over a period of 12 months.

IFP and CIP are supervised by the French securities regulator and have to register at theORIAS (the register for bank and insurance companies). IFP and CIP have to comply with a specific body of rules as well as a code of ethics. However, they benefit from lighter regulatory requirements compared to traditional credit institutions and other investment services providers.

This regulatory framework guarantees an investor's information and protection. It is, however, less successful in terms of issuers' protection and of the operating processes of crowdfunding platforms. Moreover, it has been argued that French regulation do not tackle in a satisfying fashion the specificities attached to the carrying out of financing activities through an internet platform, including issues of customer relationships carried out exclusively through digital channels; the fact that there is usually a large number of investors for small individual amounts; the dual typology of clients (investors and issuers); and the notion of advice on several securities offers.

In the case of infringement of the legislation, the French securities regulator can impose financial sanctions, without prejudice of liability actions initiated by stakeholders. Still, the French securities regulator is providing great help for CIP and IFP through its website. The French regulator is committed to supporting the FinTech markets.

Blockchain

Crowdfunding is the first industry for which blockchain is specifically intended as a tool for the issuance and sale of specific securities. The abovementioned ordinance regulating minibonsenables their issuance and sale through a blockchain, defined as an "electronical distributed ledger enabling the certification" pursuant to Article L.223-12 of the French Monetary and Financial Code. France became one of the first countries to introduce in its legislation the definition of the distributed ledger technology (DLT).

Furthermore, the French government is preparing a new securities law regime for non-listed securities in order to enable their transfer and representation through a DLT. Indeed, the Law No 2016-1691 dated 9 December 2016 (referred to as Sapin II Law) authorised the government to amend the provisions governing securities issuances in order to allow their registration and transfer through DLT. The French Treasury launched a public consultation on 24 March 2017 in order to gather stakeholders' needs and opinions on the scope and content of this future DLT regulation.

So far, there is no authority that has been designated to supervise blockchain activities. Supervision itself could be a problem. If, for public/opened blockchains, it is hardly conceivable to impose a supervision authority without jeopardising its core principle, it is not known whether private/closed blockchains need such supervision.

3. FORM OF LEGAL ENTITY

3.1 Potential Forms of Charter

There are no legal organisation form restrictions for FinTech. All French legal organisation forms are potentially possible, but the more commonly used forms are:

Sociétés Anonymes (SA)

This is, for example, the legal form under which Lendix is incorporated.

The French SA is a joint-stock company. A shareholders' liability is limited to their participation in a company. SAs are required to have a minimum capital stock of EUR37,000 and at least seven shareholders. A statutory auditor has to be appointed.

There are two types of SAs: those managed by a board of directors (conseil d'administration) and those with an executive board (directoire) and a supervisory board (conseil de surveillance). The rights of shareholders mainly include the following prerogatives:

  • The right to any profits, resulting in the obtaining of dividends and/or a portion of the surplus after the liquidation of a company;
  • The right to take part in corporate life, ie participation in the general assembly, the possibility of forcing the convocation of a meeting, obtaining economic and financial information; and
  • The right of preference allowing existing shareholders to subscribe to future capital increases before any third party and in proportion of their part of the share capital.

An SA is a suitable form for large companies and is necessary for companies to be listed and to operate in the banking or in the insurance service. However, SAs are more cumbersome and less flexible than other available business structures (especially the SAS).

Société par actions simplifiée (SAS)

This is, for example, the legal form under which Tiller Systems is incorporated.

The SAS is a commercial company defined by Articles L.227-1 to L.227-201 and L.244-1 to L.244-42 of the French Commercial Code. It is an alternative to the public limited company with a shareholders' agreement.

It distinguishes itself from the abovementioned SA by the greater flexibility granted to its associates. SAS indeed do not require a minimum capital stock or a minimum number of shareholders. Statutory auditors only have to be appointed if a company exceeds specific thresholds (EUR1 million of assets on balance sheet, EUR2 million of net sales or 20 employees). Moreover, the management of an SAS is essentially defined by the by-laws, and not by the French Commercial Code as is the case for SAs. The by-laws can thus reflect the investors' preferences regarding corporate governance and shares transfer. As a result, SAS is therefore very popular with start-ups and more generally for private equity firms. The principal characteristic of the SAS is that it makes it possible to dissociate capital from power: a partner may thus have prerogatives that are uncorrelated from the portion of share capital it owns.

Under an SAS, certain decisions must be taken collectively at the general meeting of shareholders of a company, including minority shareholders. This is particularly the case for the appointment of an auditor, the modification of the share capital or the dissolution of a company.

If the SAS only has a single shareholder, it will be incorporated as a Société par actions simplifiée Unipersonnelle (SASU). This is, for example, thelegal form under which KissKissBankBank is incorporated.

Société à Responsabilité Limitée (SARL)

This is, for example, the legal form under which VeraCash is incorporated.

The SARL is a limited liability company with no minimal capital stock requirement and a number of shareholders between one and 100. Shareholders' liability is limited to their participation in a company. Statutory auditors have to be appointed only if a company exceeds specific thresholds (EUR1.55 million assets on balance sheet, EUR3.1 million of net sales or 50 employees). The company is run by managers (gérants). SARLs are quick and simple to set up but do not offer the same flexibility as an SAS.

Other legal forms available for entrepreneurs include Incorporated Commercial Partnerships (Sociétés en nom collectif, SNC), Limited Partnerships (Sociétés en commandite par actions, SCA and Sociétés en commandite simple, SCS).They usually do not limit the liability of their partners and are thus considered as more risky vehicles for setting up a business.

4. LEGAL INFRASTRUCTURE (NON-REGULATORY)

4.1 Desirable Changes to Facilitate Specified Activities

There are no changes to areas of law regarding Specified Activities to our knowledge.

4.2 Access to Real-Time Gross Settlement Systems

Central security depositories (CSDs) are regulated on a national basis and at an EU level by Regulation 909/2014/EU, which seek to harmonise the timing and conduct of securities settlement across Europe and the rules governing CSDs, and to create a common authorisation and supervision framework.

Most securities owners will use the services of an intermediary financial institution which has an account at the CSD (a CSD member) in order to avoid the cost of maintaining CSD accounts.

Prior to the settlement date for a trade, the relevant parties to the trade will need to issue instructions to settle the trade to their CSD, directly or via an intermediary CSD member. On the settlement date, the securities will be transferred provided there is a corresponding instruction (matching entries in the CSD's books) to transfer cash from the cash account of the buyer at the CSD to the cash account of the seller at the CSD.

It is unlikely that start-up and other SMEs would become CSD member because of the costs associated with such a membership.

4.3 Special Insolvency Regimes

  1. FinTechs do not benefit from a specific regime regarding insolvency proceedings and are governed by general law provisions relating to this matter.

4.4 Electronic Signatures

Under certain conditions, electronic signatures are treated as equivalent to handwritten signatures since EU Directive n°1999/93/CE dated 13 December 1999 was transposed into French law in March 2000. French regulation regarding electronic signatures includes:

  • Law n°2000-230 dated 13 March 2000;
  • Decree n°2001-272 dated 30 March 2001;
  • Decree n°2002-535 dated 18 April 2002;
  • Law n°2004-575 dated 21 June 2004; and
  • Order dated 26 July 2004.

4.5 Standards for Proving Identity in Electronic Transactions

Article 1366 of the French Civil Code explicitly states that electronic signed agreements are treated as equal to (ie have the same evidentiary strength as) traditional handwritten agreements. The electronic signature process needs to be carried out using a reliable process of identification.

The requirements are set out in a Decree dated 30 March 2001. If the e-signature meets those requirements it will be presumed reliable until proof to the contrary. If it does not, its reliability will have to be proven by the party relying on it.

"Presumably reliable" need, according to the 2001 Decree, is defined as being capable of identifying the signatory; uniquely linked to the signatory; created using a mean the signatory can prove was under his sole control; and be linked to the data in a way that makes it detectable if there is any change to the data. In order to meet those requirements, the e-signature needs to be made using a device certified by the French Network and Information Security Agency.

However, it should be noted that electronic signatures are not commonly used in France.

Electronic Signature and Blockchain

Blockchain technology and electronic signatures both rest on asymmetric cryptography. It would be possible to use blockchain technology to develop an electronic signature solution that meets the security and confidence requirements of the French and European regulations.

The traditional electronic signature solution presents several technical and organisational challenges that could be avoided by using a blockchain electronic signature solution. For example, such a solution would potentially require the use of fewer actors (and thus limit the risk of mistakes by those actors). Generally speaking, the electronic signature solution would be much more secure on the blockchain than they are now.

Moreover, such a blockchain-related electronic signature solution would need to comply with the provisions of the regulation on electronic identification and trust services for electronic transactions within the single market (hereinafter the eIDAS Regulation), which regulates, in particular, electronic signatures.

The eIDAS Regulation distinguishes between three types of electronic signatures: the single signature, the advanced signature (corresponding to the secure signature in France) and the qualified signature (corresponding to the signature presumed to be reliable in France). Under the eIDAS Regulation, all electronic signatures must be accepted as evidence but it is up to the person who relies on them to prove their reliability. Only the use of a qualified signature creates a presumption of reliability, which allows the burden of proof to be reversed.

  • The simple signature: any acceptance of an online contract (by simply ticking a box for example) is a simple electronic signature. This type of signature can be implemented without difficulty in a blockchain since it is already what is used today to carry out transactions and since it is not associated with a specific regulatory framework. However, this type of signature involves a high probative risk since it can be very difficult to identify the signatory with certainty.
  • The advanced signature:four cumulative conditions are set forth by the eIDAS Regulation. The signature must be uniquely linked to the signatory; must make it possible to identify the signatory; must be created using electronic signature creation data that the signatory can use under its exclusive control; and, finally, must be linked to the data associated with that signature so that any subsequent modification of the data is detectable. Regarding the first condition, the principle of asymmetric cryptography allows, through a public key, to identify the bearer of the private key. The pair makes it possible to verify that the signature corresponds unambiguously to the signatory. The second condition would require binding the public key and the private key to the identity of a given person so that it can be identified with certainty. The third condition requires proving that the signatory is the sole master of his private key, that it cannot be used by anyone else and that it cannot be counterfeited. The last condition is generally fulfilled by using a "hash," which ensures the integrity of the message.
  • The qualified signature: three cumulative conditions must be met. The signature must be an advanced electronic signature; created using a qualified electronic signature creation device; and be based on a certificate as an electronic signature issued by a trusted service provider verifying the identity of the signatory face-to-face.This type of signature requires a service provider to develop an electronic signature protocol operating on the blockchain.

5. DATA PRIVACY AND CYBERSECURITY

5.1 Data Privacy and Cybersecurity Regulatory Regimes

These matters are governed by the Directive 95/46/CE but will be replaced in 2018 by the Regulation (UE) 2016/679 dated 27 April 2016.

The French Commission Nationale de l'Informatique et des Libertés (CNIL) is competent regarding data privacy issues and the protection of personal data, regardless of who is dealing with it (administration, company, association, etc). The CNIL is informed of data processing methods used by controlled entities and shall grant an authorisation for these methods. The CNIL also disseminates information to customers and has the power to lead investigations and issue sanctions. It is notably competent for biometric data, which is considered as personal data under French law.

The French National Cybersecurity Agency is competent regarding cybersecurity issues.

5.2 Recent and Significant Data Privacy Breaches

To our knowledge, there has not been any publicly reported major data privacy breach or other cybersecurity attack involving French FinTech companies.

5.3 Biometric Data

Biometric data is governed by the French Data Protection Act dated 6 January 1978 (as amended), and more specifically by its Article 25, which states that biometric devices/data must be authorised by the CNIL. The CNIL published two authorisation processes (AU-052 and AU-053) regarding this matter. Biometric data is also governed by the applicable EU regulations regarding this matter.

6. INTELLECTUAL PROPERTY

6.1 Intellectual Property Protection Regime

The French Institut National de la Propriété Industrielle (INPI) acts in favour of economic development through its actions to promote innovation, including registration and issuance of industrial property titles, receipt and processing of applications for geographical indications, etc.

Intellectual property is protected by law through patents, copyrights and trade mark registrations, which allows creators to derive recognition or financial benefit from their inventions or creations. Reference should therefore be made to the following answers.

6.2 Trade Secret Regime

Trade secrets apply to any legal person whenever it is carrying on its activity, in whole or in part, in a competitive environment. It may be the same as a private company or an association or a public institution (Conseil n ° 20065044 of 21 December 2006, Conseil 20092103 of 2 July 2009).

It has three dimensions (for a reminder see Council20045291 of 6 January 2005):

  • The secrecy of processes: protects information that can disclose a company's know-how, in particular manufacturing techniques and research, as well as all the information on technical and human resources mobilised.
  • The secrecy of economic and financial information: covers information relating to the economic situation of a company, its financial condition and the level of credit, which shall include all information likely to reveal the level of activity.
  • The secrecy of financial strategies: refers to the strategic decisions of a company and its positioning in its competitive environment: prices and discounts; list of suppliers; export development policy; level of improvement of the medical service rendered by a pharmaceutical laboratory; reasons for the withdrawal of the bid from the company to a tender; and dates of opening stalls of second-hand dealers.

6.3 Copyrights, Patents, Trade Marks

Patent

Depending on the specific activity carried out by FinTechs, and generally speaking, in the sense of industrial property the patent protects technical inventions, ie products or processes that bring new technical solutions to a given technical problem. To be patentable an invention must be new, involve an inventive step and be susceptible of industrial application.

To be new, the invention must not be known to the public (previous patent applications, newspaper articles, marketed prototypes) without limitation of duration or place. To be inventive, the invention must not be evident from the state of the art for a person skilled in this art. An obvious improvement or modification of what is known is therefore not patentable. The inventive step in France is left to the judges' discretion and is in any case a complex criterion to be assessed. In order to be industrially applicable, the invention must be technically feasible and have a technical function that meets a technical problem. An abstract idea or concept is therefore not patentable.

Copyright

Depending on the specific activity carried out by FinTechs, and in order to be protected by copyright, the work must result from creative activity, be formatted and be original.

Copyright protection does not require any formality to be carried out as it is automatically triggered by the creation of work meeting the three abovementioned requirements. The work is protected as of the day of its creation. However, the

work bearing the mark of its author will need to be able to provide proof of the date on which the work was created in the event of a dispute.

In the case where several authors are at the origin of the work, the French Industrial Property Code, in its Article L.113-2, distinguishes three types of work:

  • Collaborative: creation to which several natural persons have concurred (L.113-2 al.1). It is necessary and sufficient that the authors have contributed, ie realised a single work together and at the same time. The contribution of each individual cannot be individualised. The work of collaboration is managed under the undivided co-ownership (L.113-3), that is to say that it requires the unanimous agreement of all co-owners (co-authors) of the work to be used.
  • Composite: a new work incorporating a preexisting work without any collaboration between the two authors (L.113-2 al.2). In order to realise a composite work, the agreement of the author of the preexisting work is necessary, as for any other exploitation of this work (L.113-4).
  • Collective: a work created on the initiative of a natural or legal person who publishes and disseminates it under his direction and name in which the personal contribution of the various authors participating in its elaboration is based on the whole for which it is conceived without it being possible to attribute to each of them a distinct right over the whole realised.

6.4 Protection of Intellectual Property or Trade Secrets

If a company does not use the protections offered by the French Industrial Property Code, it could act a posteriori on the ground of "parasitisme," ie the forbidden act of using someone else's notoriety or know-how.

6.5 Joint Development of Intellectual Property

Please see 6.3 Copyrights, Patents, Trade Marks.

6.6 Intellectual Property Litigation

Intellectual property disputes are no more important than in other matters.

6.7 Open Source Code

Please see 6.3 Copyrights, Patents, Trade Marks.

7. TAX MATTERS

7.1 Special Tax Issues, Benefits or Detriments

The tax regime depends on the legal organisation form of a company and the nature of FinTech does not change taxes.

8. Issues Specific to the Specified Activities

8.1 Additional Legal Issues

Usury Rate

Under the French Consumer Code, a loan is usurious when it is granted at a rate exceeding at least one third of the average rate applied during the prior quarter of the year by credit institutions for loans of the same nature with similar risks. The French national bank determines the usury rate for different categories of loans specified by an executive order. However, the usury provisions have been narrowed down so that they do not apply to corporate loans (except for overdraft facilities).

Violation of the French usury rate prohibition is a criminal offence subject to fines and imprisonment sentences.

The French banking regulator and the French securities regulator, in a joint publication regarding the new crowdfunding regulation, specified that loans made through crowdfunding platforms shall not exceed the usury rate. IFP shall indicate on their website that the interest rate does not exceed the usury rate.

Virtual Currencies Legal Qualification

Under French law, virtual currencies are not clearly defined or qualified. While some authors argue that they exhibit all the uses traditionally attached to state money and should thus be treated as such, others consider that the fact they are not issued and controlled by a central bank means that they should not be qualified as "money." Under French law, the euro is indeed the only "state currency" (Article L.111-1 of the French Monetary and Financial Code).

In a position dated 29 January 2014, the French banking regulator concluded that exchanging bitcoins against "legal currencies" qualified as a provision of payment services (fourniture de services de paiement). This activity therefore requires a licence as payment service provider and triggers the application of specific capital requirements. This is in line with the jurisprudence of the CJEU, which considers that platforms for the distribution of crypto-currencies qualify as payment services providers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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