Reed Smith on Next Steps in French Crowdfunding

Crowdfunding basically consists in the funding of a project by raising many small amounts of money from a large number of people, typically via the Internet. Primarily used in specific artistic sectors, such as the music or movie business, crowdfunding is booming as it may be considered as an interesting alternative to finance projects other than by bank loans and venture capital, in particular for small- to medium-sized companies.

Under French law, public offers, banking and financing activities are strictly regulated. Because of regulation of banking monopoly, only credit institutions may carry out banking and financing activities which are subject to heavy accreditations and monitoring procedures from the French securities, financial and banking regulators: the “Autorité des Marchés Financiers” (AMF) and the “Autorité de Contrôle Prudentielle” (ACP).

French law on banking and financing activities is not yet appropriate to cover crowdfunding and the expectations of certain professionals are high. In April 2012, the United States paced the way for specific and proper regulations with the JOBS Act, giving crowdfunding an adaptable legal framework.

On 14 May 2013, the AMF and the ACP jointly published crowdfunding guidelines to help dedicated crowdfunding platforms to comply with currently applicable French regulations.

Three kinds of activities are distinguished, some of which may fall into banking monopoly: (i) collecting donations against payment or other counterparts, (ii) financing projects via loans and (iii) financing entrepreneurial projects by way of the subscriptions of securities.

In these three situations, French regulators concluded and confirmed that when carrying out crowdfunding activities, specific regulations must be followed by crowdfunding actors. However, because the administrative formalities are burdensome, it is clear that the current French regulations are not appropriate at all to the needs of professionals, and may be a real hurdle to the development of crowdfunding in France.

When trying to solve these issues and simplify applicable regulations, some professional associations, like FinPart, recently alerted the French Government and drafted a white paper that contained propositions to adjust the French law to crowdfunding.

The French Government will put forward, in September 2013, propositions in order to create a new law, which will hopefully be tailor-made to crowdfunding.