Sat. Dec 14th, 2019

Planet Compliance

Innovation & Regulation in Finance

A look into France’s FinTech Ambitions and its Regulatory Framework

6 min read

With Brexit (still) looming, other European locations have been pushing hard to get a piece of London’s FinTech crown. Paris has arguably profited the most from the uncertainty created by the British referendum that decided by a small margin to leave the EU and has since caused established financial institutions and start-ups alike to reconsider their situation. Ever since the UK has announced its intentions for a life outside the EU, France has made its ambitions for a leading FinTech role very clear. Time to take a look at it the current situation and the all-important regulatory framework.

 

The FinTech Landscape

France without doubt has a thriving FinTech ecosystem covering all aspects of the FinTech space. From payment service providers to firms focusing on investment innovation in the form of wealth management and robo-advisory, crowdfunding and lending platforms to algotrading or cryptocurrency firms. And then there are of course those firms the focus on the “supporting” functions: RegTech, Risk Management and Cybersecurity, accounting, data management and InsurTech – an overview of the French FinTech Landscape  alone listed hundreds of companies and there are certainly more that did not make the list or have entered the arena.

Like the UK, France has a group of challenger banks that seek to battle it out with its traditional institutions:

  • Compte Nickel with over a million customers already;
  • Ditto Bank, which was launched by Travelex early last year;
  • Morning, a bank that has been at loggerheads with French regulator leading to the loss of its authorization and reborn thanks to outside investment;
  • Orange Bank, the mobile bank launched by French telecoms operator Orange;
  • Kard, a Paris-based fintech raised that raised round of $3.3 million of pre-seed funding a few months ago, aiming to become a bank that is “cool, social and free”;
  • Pixpay, that seems to follow a similar strategy as the former and also raised more than €3 million to launch its banking solution for teens;
  • And Xaalys, another challenger bank for teenagers (and others).

 

There are, of course, “other” challenger banks like Hello Bank!, the digital banking answer of BNP Paribas, one of the largest French incumbent banks or the various subsidiaries of foreign FinTechs that have entered the French market more or less recently:

  • The Belgian Anytime with its presence on the southern side of the border;
  • Bunq, originally launched in the Netherlands and since November 2018 active in France;
  • The German fintech phenomena N26 that has crossed the border in January 2017 and already accumulated more than 600,000 customers; or
  • UK’s Revolut, active in France since 2017 and with a similar amount of French customers

 

FinTech in “real” numbers

What is regularly more meaningful to take the temperature of a FinTech ecosystem than its sheer number of companies is the investment that flows into these startups. Last year saw a record year for French Fintech startup funding according to Invyo with more than €300 million raised and 2019 is already on course to eclipse 2018 with close to €600 million invested in the first quarter alone.

Still, with the recent news that London  had overtaken even New York by attracting 114 investments with a record-breaking value of more than $2bn (£1.6bn) in the first eight months of this year, the top spot is still firmly out of sight and even Germany with a total investment $825million in 2018 is ahead of its French peers.

 

The French Regulatory FinTech Framework

Yet, these are impressive numbers and it is in part due to the work of the government and regulators. Driven by the French national bank, the Banque de France, and its integrated institution, the Autorité de Contrôle Prudentiel et de Résolution (“French Prudential Supervision and Resolution Authority”) together with the stock market regulator AMF (“Autorité des marchés financiers”), a number of initiatives have been launched to foster financial innovation in France.

Of course, the basis of the French regulatory framework with a view to its European competitors is easily explained: as a member state of the EU, much of its financial regulation is determined by Brussels and as such many rules are very similar to its neighbors. Like any EU member state though, France can interpret certain rules in its own way (for example, EU Directives that provide an element of flexibility in respect of their implementation into the law of its member states – for more on the general setup of the legislative process for EU financial regulations have a look here).

In particular, the so-called Loi PACTE (“Loi relative à la croissance et la transformation des entreprises” or Action Plan for Businesses’ Growth and Transformation), that was launched in 2017, came into force in spring 2019 and addresses aspects like Crowdfunding and Initial Coin Offerings among other measures, is an important piece in the French Regulatory FinTech Framework.

Especially the relation between Blockchain Technology, Cryptocurrencies and ICOs on one side and the French regulators on the other has not always been an easy one though. Like other jurisdictions, France chose to observe first before it took action.

For example, the AMF’s approach to regulating ICOs under existing securities regulations was far from straightforward though the financial watchdog did not rule out the possibility of covering token offerings under such rules when it published a consultation paper on the matter in 2017 during the height of the ICO frenzy. Subsequently, and following up on its ongoing work, the AMF has sent a questionnaire to French ICO project initiators to measure the impact of these fundraising transactions on the financing of the economy. The legal framework for cryptocurrency service providers and initial coin offerings adopted through the Loi PACTE is the result of these efforts and it will be interesting to see what comes out of it now that the ICO wave appears to be over. However, with STOs potentially taking over the baton, it will be interesting to see how this effects the current framework, in particular in light of the decisive statement that France will block the development of Facebook’s Libra, considered by some the mother of all stable coins.

Naturally, the French regulators have established innovation facilitators and taken additional measures like other jurisdictions: for instance, the ACPR has created a FinTech Innovation Hub and the AMF has introduced dedicated services for FinTechs  and the setup of a Fintech, innovation and competitiveness division.

 

The Bottom Line

It is a mere clipping of what is going on in France currently and while it serves to give an impression, predictions of what the future may hold are hard to fashion.

Will this be enough to overtake its European competitors eventually and steal London’s crown? Certainly not and it surely is only a beginning. In the end, only time will tell and some of the factors are out of France’s hands: Is the UK going to shoot itself in the foot (again) by some form of Brexit that harms its existing ecosystem? It certainly can’t be ruled out though it is not said that this would automatically favour the French aspirations. In any case, some has been done to buttress its ambitions and more will need to be done.

 

 

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