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Friday, 25 October 2013

French Crowdfunding Proposals

French officials are consulting on their own crowdfunding proposals until 15 November. These appear to be more consistent with the industry recommendations made last December, and seem somewhat more proportionate than the FCA's proposals for the UK.

Unfortunately, no official English version has been made available but Frederic Baud has kindly pointed me to an article by Aurélie Daniel on the proposals.

Frederic has explained that the intention is to use the transposition of the small payment institution provisions of the Payment Services Directive to require registration by donation-based and loan-based crowdfunding platforms. As a small payment institution, platforms would need capital of €40K, and be subject to a rolling 12 month average limit of €3 million transaction per month (that could be lowered to €1 million under proposals for PSD2). Above that threshold, platforms would need to be fully authorised as a payment institution, with minimum capital of €125K and higher amounts based on various optional calculations.

So far, that is completely consistent with the regulatory approach that the industry called for at the Peer-to-Peer Finance Policy Summit in London last December (which the FCA has ignored), and would represent a far lighter regime than the FCA has proposed for UK loan-based platforms. Regulating loan-based crowdfunding via payment services regulation is also consistent with the traditional view that simple loans are not 'debt securities' and therefore do not properly fall within the scope of specified investments currently regulated by the FCA.

But Aurélie points out that the French proposal contains controversial "upper limits for loan-based crowdfunding... [namely] a maximum loan amount around €250 per individual per project and a global maximum loan amount around €300,000 per project." While this might not trouble consumer loan-based platforms, it would negatively impact platforms that facilitate loans to businesses and for the purchase or development of larger assets such as commercial property. Ironically, the French appear to have reserved such loans for banks, and in this respect the FCA's proposals are of course more helpful. The limits apparently do not apply in relation to investment-based crowdfunding.