Crowdfunding in France
I. DEFINITION & LEGAL BASIS
Crowdfunding is a mechanism which permit the gathering of funds from a large public, generally of small amount of money, in order to finance a project of enterprise. In France, it is ruled by a new regime since 2014 with the ordinance n°2014-559 of May 30th, 2014 and the decree n° 2014-1053 of September 16th 2014.
There are three types of crowdfunding platform : collecting donation, concluding loans and, subscribing securities.
1 — The platform collecting donations receives funds on a specific account destined to the realization of a project. It shall be an activity of service which can be operated only by accredited service providers.
If the platform provides by itself the payment services, it has to be accredited as a payment/credit institution. This accreditation is delivered by the Autorité de contrôle prudentiel et de résolution (ACPR).
In a situation of partnership, if the platform delegate the management of funds to an accredited payment service provider, the platform has to be accredited in capacity as paying agent (agent de service de paiement) which requires its registration at the ACPR.
However, if the platform does not manage the reception of the funds and delegate it to a sole in contact service between the investors and the project provider, it will not be submitted to the law applicable to the financial intermediary.
Since October 1st 2014, platforms for donations benefit from a more advantageous regime with regard to the capital (of 40 000 euros minimum) when the amount of the transactions does not exceed the average of three million euros per month (total average amount realized by the financial institution during the last 12 months period). Platforms for donations may also use the new status of “intermédiaire en financement participatif (intermediary in crowdfunding)” created by the ordinance of May 30th 2014 and its implementing decree of September 16th 2014.
2 — The platforms with the conclusion of loans are submitted to different regimes as the loan is granted for free or for consideration ( à titre gratuity ou à titre onéreux). Because of the banking monopoly on the activity of loans for consideration in France, it is necessary to have a banking approval, or to cross by a bank, to free loans. The platform of crowdfunding which grants loans for consideration has to obtain beforehand the approval of credit institution delivered by the ACPR. This status requires an important minimum capital (between 1 and 5,5 million euros). The platform can also act as intermediary, the loans for consideration not being granted by itself but by a credit institution of which it is partner. In this case, it will not be approved as credit institution, but as intermediary's status in bank transactions and in service of payment (intermédiaire en opérations de banque et en services de paiement IOBSP), registered on the register of the ORIAS (Organisme pour le registre des intermédiaires en assurance). This register is available for consultation the site of the ORIAS.
On the other hand, if the platform of crowdfunding grants loans for free, no approval or special authorization is necessary. And even if a cheap counterparty (CD, concert tickets, invitation in the launch to the financed project …) is proposed, these contributions can be likened to loans for free. Also, no banking approval is necessary for the non-profit bodies and for the recognized foundations “reconnues d’utilité publique” which give loans to preferential conditions, on their own resources and within the framework of their mission. If they resort to borrowed resources, these bodies must be approved by the ACPR. At present, two associations of microcredit are approved: ADIE (Association pour le droit à l’initiative économique) and Crea-Sol.
A loan for consideration (prêt rémunéré) cannot exceed 1 000 euros per lender and per project. The duration of the credit cannot exceed 7 years. A loan for free cannot exceed 4 000 euros per lender and per project. The project manager cannot borrow more than a million euros per project (article D.548-1 Monetary and financial Code (Code monétaire et financier).
On October 1st, 2014, the platforms of loan have to have the status "of intermediary in crowdfunding" created by the ordinance of May 30th, 2014 and its implementing decree of September 16th, 2014. As such, their leaders have to satisfy conditions of worthiness, professional capacity and respect rules of good behaviour. These intermediaries are registered in the unique register of the intermediaries in insurance, bank and finance managed by ORIAS.
Statuts of intermediaries in crowdfunding
According to article L.548-1 of the French monetary and financial Code (Code monétaire et financier), intermediation in crowdfunding consist in gathering service providers and investors via a website, according to the following conditions:
- natural persons (personnes physiques) and legal entities (personnes morales) acting as professionals can get credits mentioned in article L. 511-6 7), interest free loans and donation.
- individuals wishing to finance a basic or continuous traning (formation initiale ou continue) may get credits mentioned in article L. 511-6 7), interest free loans provided that the lenders are not acting for a professional or commercial purpose, and donations.
- individuals acting for a purpose other than professional can get interest free loans provided that the lenders are not acting under its professional or commercial function, and donations. A project consist in a purchase or several purchase of goods or services aiming at realizing an operation with a specified object, price and agenda. Organisations mentioned may be beneficiaries of lending without interest and donations.
Moreover, according to article L. 548-2, intermediaries in crowdfunding are persons who habitually practice intermediation as defined in article L. 548-1 for operations of loans or free interest loans. Only legal entities may be intermediaries in crowdfunding. Intermediaries in crowdfunding are registered in a unique register mentioned in article L. 546-1. Natural persons conducting a crowdfunding shall fulfil requirements of honourability and professional skills as defined by decree (décret en Conseil d’Etat). An intermediary in crowdfunding shall be able to provide an insurance contract covering him for pecuniary consequences of his professional civil liability in case of breach of his professional duties. Intermediaries in crowdfunding shall respect ethical and organizational codes considering the nature of the operations they conduct.
They shall provide to the public any information identifying them in a comprehensive manner, inform the public of the selection criteria for the projects and the projects managers, publish an annual report of activity, provide information concerning the project characteristics to the lenders or donators, and also, when appropriate, information concerning the loan (interest rate applicable, total amount of credit, duration, terms of reimbursement, withdrawal option for the lender or not), warn the lender of the risks flowing from the crowdfunding for a project (insolvability of the borrower and project manager) provide the lenders with the necessary tools to assess the amount of the loan taking into account the revenues, the charges and all elements relevant to assess the economic viability of the project (business plan, remuneration of the intermediary in crowdfunding, potential expenses), provide the project manager, the ender, and when appropriate the donator, with a contract model allowing the formalization of the crowdfunding terms whose presentation requirements and mandatory clauses are defined by decree (décret en Conseil d’Etat), provide the project manager with a document stating the total amount of the operation and when appropriate, the conventional rate, duration, terms of reimbursement of the loan and total cost , make sure that the rate of loan offered to natural persons wishing to finance a basic or continuous training mentioned in the third section of article L. 548-1, or when appropriate, to legal entities concerned, is lower than the rate mentioned in article L. 313-3 of the French consumer Code (code de la consummation), define and organize the terms and follow up of the financing and management of operations until their end, including the case where the intermediary in crowdfunding stop his activity. The publicity regarding their activity shall mention it in a clear, precise and visible manner, since it shows an interest rate or figures linked to the operation of financing.
3 — The platforms based on the model of the private equity investment are subject to different regimes, according to one or several activities practised by these.
The status of investment services provider (PSI Prestataire de services d’investissement)
When the platform looks for subscribers for the project leader and receives orders of subscription on behalf of Internet users, it supplies services of investment on financial instruments. When these services are habitually supplied, the platform must be approved as investment services provider (Prestataire de service d’investissement PSI) or appointed as agent bound by a PSI. This approval is delivered by the ACPR after approval by the French authority of the financial markets (AMF Autorité des marchés financiers) of the program of activity of the future PSI. The list of the investment services providers is accessible on the site of the ACPR.
The status of adviser in financial investment (CIF conseiller en investissements financiers)
Previously, when these platforms of crowdfunding supplied opinions on a project of new business start-up or other, they had to exercise their activity as " adviser in financial investments " ( CIF) and to be registered in the register of the intermediaries of the ORIAS. In their guide of the crowdfunding destined to platforms and project leaders, ACPR and AMF remind that in this case, the platform has to apply the " protective rules for the investor, in particular the test of adequacy obliging the investment services provider to advise an investment only after having made sure that it corresponds actually to needs, objectives, knowledge or experience and financial situation of the customer (règles protectrices pour l’investisseur, notamment le test d’adéquation obligeant le prestataire de services d’investissement à ne conseiller un investissement qu’après s’être assuré qu’il correspondait effectivement aux besoins, objectifs, connaissances ou expérience et situation financière du client) ".
On October 1st, 2014, the platforms of crowdfunding in the form of securities can adopt the status of " adviser in participative investments " created by the ordinance of May 30th, 2014 and its implementing decree of September 16th, 2014. As such, their leaders have to satisfy conditions of worthiness, professional capacity and respect rules of good behaviour. These advisers are registered in the unique register of the intermediaries in insurance, bank and finance managed by ORIAS. They can also opt for the status of PSI and be accredited by the ACPR.
III. OPERATION PROCESS
The crowdfunding is organized by means of a platform on the Internet. This one puts in relation the investors and the project leaders. Here is the progress of the operation:
- the project leader opens an account on a platform and describes exactly its project, its mode of financing and the wished amount;
- the investor opens an account on the platform and chooses the amount that he wishes to assign to the project that he chose. The platform decides on a duration of financing. An investor can finance several projects at the same time.
When due of the duration of financing, two possibilities appear: - the wanted amount was reached, the accounts of the investors are debited and the project leader receives funds,
- the wanted amount was not reached, the accounts of the investors are not debited and the project leader does not receive funds.
As long as the wanted amount is not reached, the choices of the investors are only promises of financing.
According to the new texts, issuers may offer financial securities without constituting an offer to the public and without having to publish an information leaflet to be submitted to the French Financial Market Authorities ( AMF Autorité des marchés financiers) when the operation is made via an investment service provider or an online advisor in participative investment. The latter needs to fulfil requirements as for the characteristics of its online site according to article L. 411-2, I bis, 2° of the French Monetary and Financial Code (CMF Code Monétaire et Financier). Moreover, the new article D. 411-2 of the same Code provides a ceiling set at one million euros, and it is calculated on a 12 months period following the day of the first offer (RG AMF art 211-2, II), which is a regime likely to the one set for private placement.
Sites specialized in crowdfunding shall fulfil multiple criteria specified in the new texts (RG AMF article 325-32).
In addition to that, each investor has to register (name, surname, email address) and answer to questions in order to assess their loss aversion and understanding of risks inherent in the type of offers selected by the platform ; the site shall propose multiple offers ; and finally the sites will not be qualified as an unsecured service placement if the platform : fulfil the requirements provided by article 325-32 of RG AMF, do not actively look for subscribers for a specific operation, and provides its services of investment advisor as an investment service provider or an advisor in participative investment.
The issuers shall provide information to potential investors according to RG AMF, art. 217-1. The service provider or the advisor shall forward to the client these information for each project, and also provide information concerning the terms and conditions of subscriptions, the detail of the charges, the risks inherent in the project and the risk of total or partial loss of capital, the risk of illiquidity and the risk of absence of financial securities valuation (RG AMF, art. 314-106 et 325-38).
The information about the issuers must be mentioned in a document accessible online named “regulatory information document” on each page of the website. The document shall organized into three sections (introduction of the issuer and project, information introduced by the website service provider, regulatory information on the reselling of the securities offered at the subscription stage).
Finally, according to the directive “Prospectus”, the document shall be updated every time that there is a new fact or error which is likely to significantly influence the investment decision, and is asserted between the beginning and the ending of the offer. Also, the document and the update must be communicated to investors via email before any subscription. The document shall be written in a non technic language to be addressed to non-professional investors.
Dalloz.fr Entrée en vigueur du nouveau régime français du financement participatif (crowdfunding) – Pierre-Henri Conac – Rev. sociétés 2015. 60
RTD Com. 2014 p.672 Crowdfunding (Ordonnance du 30 mai 2014 relative au financement participatif) Dominique Legeais, Professeur à l'Université Paris Descartes, Sorbonne Paris Cité, Directeur du CEDAG
Lexis Nexis 1° Crowdfunding (financement participatif) JCl. Notarial Formulaire 26 Octobre 2015
Revue de Droit bancaire et financier n° 1, Janvier 2015, dossier 13 Banque alternative, finance solidaire, économie sociale et solidaire Etude par Jean-Marc MOULIN professeur – Université de Perpignan Via Domitia