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Acquisition/assignment of non-matured debt – new exemption introduced to the French banking monopoly rule

The French Ordonnance no. 2017-1432 of 4 October 2017 (the Ordinance) has amended the French banking monopoly rule to allow foreign financial institutions which are not authorised or passported in France to provide banking services to acquire unmatured debt from French entities.

French banking monopoly rule

The acquisition of non-matured debt (créances non échues) is considered as a credit transaction under French law.

Generally, only credit institutions, financing companies (sociétés de financement) and certain investment funds, provided that such entities are established and licensed in France or passported from a Member State of the European Union (EU), are permitted to carry out credit transactions on a regular basis in France.

As a result, until recently, non-EU financial institutions which were neither licensed nor passported to carry out banking activities in France were not authorised to acquire non-matured debt in France.

New exemption regarding the acquisition/transfer of non-matured debt by/to foreign entities

The Ordinance has introduced into Article L. 511-6, 4° of the French Monetary and Financial Code (FMFC) a new exemption to the French banking monopoly rule.

In brief, the new rule provides that:

  • foreign entities/institutions whose object or activity is similar to that of a credit institution, a financing company, an investment fund (e.g. UCITS/AIF), a pension fund, a securitisation vehicle or another type of regulated entity mentioned in the first paragraph of Article L. 511-6 of the FMFC …
  • … are allowed to acquire (or through an assignment) non-matured debt that was previously accorded by French regulated entities …
  • … provided that the debtor is not a natural person acting for non-professional purposes (if the debtor is a natural person acting for non-professional purposes – the acquisition will be considered as null and void).

The new rule will apply from 3 January 2018.

Consequences of the new rule

The new rule aims to promote the transfer/assignment of non-matured debt to foreign regulated entities in order to diversify the refinancing sources available to French credit providers and to avoid situations where credit transactions are intentionally relocated outside France to circumvent the application of the French banking monopoly rule.

The new rule should simplify the transfer of debt (in particular syndicated loans) held in the books of French banks to non-EU banks.

Please contact us if you need further information on the above.

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