French Finance Regulators Embrace Fintech

With more than 1700 participants from 35 countries, the recent Paris Fintech Forum demonstrated the strength of the French Fintech ecosystem and the attractiveness of Paris as a financial center. French officials and financial regulators participated in the event with a strong delegation and asserted their determination to support Fintech and accelerate their own digital transformation.

The old Paris Stock Exchange, the Palais Brongniart was buzzing again as international Fintech startups, bankers, insurers, and investors gathered there for two days of panel discussions, Fintech startup pitches and networking at the second edition of the Paris Fintech Forum last week.

Officials & Regulators Make a Strong Show

The two-day event was opened by Michel Sapin, the French Minister of Economy and Finance. It is of significance that the Minister took the time from his schedule –right before the weekly Council of Ministers– to address the audience and walk around the exhibitors’ hall. He shared his conviction that France can lead in forward-looking sectors such as Fintech and named recent government measures, for example in finance regulation and fiscal policy, which support this ambition.

Later in the day, Francois Villeroy de Calhau, the Governor of the French Central bank, Banque de France, and head of the French financial services regulator, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), presented the goal of the finance regulators, the ACPR and the Autorité des Marchés Financiers, AMF, who jointly regulate financial markets and services, to provide a “stable, reliable and agile” regulation.

While “stable” and “agile” may sound like a contradiction in terms, Francois Villeroy de Calhau insisted that they are not. Regulation is a positive asset for Fintechs as it strives to limit potential risks for customer protection and financial stability. He said:

“There is no tradeoff between innovation and security, they go together to build trust”.

At an earlier ACPR meeting, the governor had already expressed the link between innovation and trust:

“The digital revolution can rebuild what the financial crisis had partly destroyed: the trust of the French public in its financial services”.

What does agility mean in this context? It means issuing regulations that are proportionate to the risks of innovation, promoting fair competition, and hastening the digital transformation of the regulation process itself. In this regard, the governor appealed to Fintech startups to help improve Regtech.

The authorities and the regulators demonstrated their determination to embrace Fintech through their strong presence at the Paris Fintech Forum with a large booth and an active delegation. In addition to the above-mentioned, several official delegates spoke on panels, answered questions, and mingled with the crowd, including Axelle Lemaire, Minister of State for Digital Affairs, Nathalie Beaudemoulin, CEO of the ACPR Fintech Innovation, and Thierry Bedoin, Chief Digital Officer of the Banque de France.

Spurred by Brexit

2016 was a turning point. The French regulators were already attuned to the needs of Fintech startups and to the imperative of their own digital transformation. Within Continental Europe, many outside observers found the French regulators to be among the most open to financial innovation, for example through their crowdfunding regulation. However, the Brexit has prompted them to intensify their efforts.

The French authorities see the Brexit as an opportunity for France to regain a stature as a financial center. Shortly after the Brexit vote, the French regulators launched the AGILITY program, a program designed to attract UK Fintechs to France through a “2WeekTicket”, a provisory pre-authorisation, and an English-speaking service with a single point of access for both the AMF and the ACPR.

But the French authorities does not ignore that Brexit poses serious threats, too. In the past, the UK financial regulator has always put the growth and competitiveness of the UK financial sector, including the fostering of financial innovation, much higher of its agenda than the French regulators. This more offensive UK approach manifested itself in the so-called “regulatory sandbox”, a space of experimentation in which the Financial Conduct Authority let selected Fintechs test financial innovation, albeit under its close scrutiny. Another major boost to innovation came from the significant tax benefits granted to UK alternative finance investors.

The danger for the Continent is now that the post-Brexit UK, freed from the yoke of EU directives, could decide to compete with the Continent through large scale financial and fiscal deregulation. The UK, which already enjoys an 80% share of the European alternative finance sector, could then maintain or even widen the gap.

Digital Transformation and Regtech

The French regulators have indicated that there will be no French regulatory sandbox. Instead, they will focus on accelerating their regulatory processes, such as the transposition of European directives into French law. Strengthening the communication with fintech firms, implementing their own digital transformation and developing Regtech are key elements of the regulators’ strategy. A few milestones, so far:

  • In June 2016, the ACPR created the ACPR Pole Fintech Innovation, and the Autorité des Marchés Financiers (AMF) launched the Fintech, Innovation et Compétitivité to assist fintech entrepreneurs in regulatory issues, 
  • In July 2016, the AMF and ACPR jointly launched the Fintech Forum, a consultation body which gathers 34 Fintech heads and experts. The Banque de France launched a blockchain experiment to process SEPA payment identifiers.
  • October 2016, Banque de France appoints a Chief Digital Officer in charge of its Digital transformation.

A tribute to the French Fintech Ecosystem 

The structured representation of the French Fintech ecosystem has played a major role in helping the French authorities and the French regulators understand the necessity, if not the urgency, of the digital transformation of the financial sector and the role of Fintech startups in this transformation.

To name but a few of these agencies: Finance Innovation, a public-private agency dedicated to fostering innovation in Finance; France Digitale, an association of Tech startups, venture capitalists and business angels; France Fintech an association of Fintech startups and corporates; Financement Participatif France, the association of crowdfunding platforms; and last but not least, the Paris Fintech Forum, which has now become a major international Fintech conference.

Hopefully, these voices will continue to be heard when a new government comes into place after the French May 2017 elections.

Therese Torris, PhD, is a Senior Contributing Editor to Crowdfund Insider. She is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She has covered crowdfunding and P2P lending since the early days when Zopa was created in the United Kingdom. She was a director of research and consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French personal finance blog, Le Blog Finance Pratique.

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