Structured Finance & Securitisation in France Report generated on 24 March 2020 The information contained in this report is indicative only. Law Business Research is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this report and in no event shall be liable for any damages resulting from reliance on or use of this information. © Copyright 2006 - 2020 Law Business Research Structured Finance & Securitisation Table of contents GENERAL FRAMEWORK Legislation Applicable transactions Market climate REGULATION Regulatory authorities Licensing and authorisation requirements Sanctions Public disclosure requirements ELIGIBILITY Originators Receivables Investors Custodians/servicers Public-sector involvement TRANSACTIONAL ISSUES SPV forms SPV formation process Governing law Asset acquisition and transfer Registration Obligor notifcation Credit rating agencies Directors’ and ofcers’ duties Risk exposure SECURITY Types Perfection Enforcement Commingling risk © Copyright 2006 - 2020 Law Business Research 1/17 Structured Finance & Securitisation TAXATION Originators Issuers Investors BANKRUPTCY Bankruptcy remoteness True sale Consolidation of assets and liabilities UPDATES AND TRENDS Key developments of the past year LAW STATED DATE Correct on © Copyright 2006 - 2020 Law Business Research 2/17 Structured Finance & Securitisation Contributors France Olivier Hubert [email protected] De Pardieu Brocas Maffei © Copyright 2006 - 2020 Law Business Research 3/17 Structured Finance & Securitisation GENERAL FRAMEWORK Legislation What legislation governs securitisation in your jurisdiction? Has your jurisdiction enacted a specifc securitisation law? Securitisation in France is mainly regulated by specifc legislation relating to the regulated funds specialising in securitisation activities, namely, fnancing entities (OF). Such legislation has been codifed in the French Monetary and Financial Code (MFC). EU Regulation 2017/2402 providing a general framework for securitisation also applies since it is of direct application in France. French banking monopoly rules are also of great relevance since an exemption from banking monopoly rules is generally necessary to conduct securitisation activities in France. This is because securitisation activities typically involve the acquisition or granting of receivables (either loans or commercial receivables), which are also typically considered as being a banking activity by French banking authorities and case law. Securitisation legislation has been deeply renovated by a 2017 ordinance of the French government, which entered into force on 3 January 2018 and replaced the old 1988 law. The purpose of this 2017 ordinance is to create a broad category of OF that regroups the old mutual securitisation funds (FCT) and other types of regulated funds now authorised to provide fnancing either by granting loans or by purchasing receivables. This 2017 ordinance also recaptures the provisions of the 1988 legislation establishing a robust legal framework for the transfer of receivables through a true sale process. The purpose of the 2017 legislation is to allow non-bank private investors to invest in any type of receivables (including debt, loans, commercial receivables or distressed debt) through a fnancing entity that can be structured either as a traditional securitisation entity (OT) or a specialised fnancing entity (OFS). This French legal framework aims at providing all OF, in other words, both OT and OFS, with a strong and clear legal regime that eliminates uncertainty regarding the true sale transfer of the receivables and reduces the seller’s or originator’s risk; both the OT or OFS can be created either as a corporation or as an organised and legally transparent co-ownership and are allowed to acquire receivables or to extend loans. In addition, an OFS is also allowed to hold other types of assets and qualify as an alternative investment fund (AIF), regulated by the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) (AIFM), which may qualify as a long-term European investment (ELTIF). The tax regime of an FCT will generally remain the same; the tax regime of an OFS will shortly be clarifed by the French tax authorities. Applicable transactions Does your jurisdiction defne which types of transactions constitute securitisations? The MFC does not specifcally defne which transactions qualify as a securitisation transaction; however, it broadly defnes the purpose of securitisation entities as being entities exposed to risks, including insurance risks, by acquiring receivables, granting loans, guarantees and security interest, underwriting risks through participation in credits, concluding forward fnancial instruments or contracts transferring insurance risks, and such securitisation entity fnances or covers those risks by issuing securities (shares or debt instruments) or forward fnancial instruments or borrowing money or through other resources (L214 of the MFC). © Copyright 2006 - 2020 Law Business Research 4/17 Structured Finance & Securitisation Market climate How large is the market for securitisations in your jurisdiction? The French securitisation market has followed the same trends as the European market. Since 2010, it has progressively re-established itself. According to a survey published by the association for fnancial markets in Europe, in 2017, France ranked second in Europe (after the UK) for the new issues of securitised receivables, which amounted to €36.9 billion in 2017, compared with €235 billion for the whole European Union. For investors, securitisation offers interesting investment opportunities with yields that are on average higher compared with those offered by corporate bonds, in particular on the lower tranches of collateralised loan obligation. Residential mortgage loans and auto loans represent a signifcant part of the total amount of securitised assets. Securitisation is of major importance to banks as a refnancing tool and for easing compliance with ratios imposed on banking institutions by the Basel Committee on Banking Supervision. In France, securitisation activity is fuelled by three main participants, including arranging banks, investors and legal counsel, developing the required high level of expertise. REGULATION Regulatory authorities Which body has responsibility for the regulation of securitisation? The main market institution responsible for regulating securitisation is the Financial Markets Authority (AMF). The AMF General Regulation (RGAMF) contains a number of detailed rules applied to creating securitisation entities and their management by a licensed fund management company. French securitisation entities are regulated entities that are not directly supervised by the French market authorities. However, their management companies and custodians are supervised entities. The management company is overseen by the AMF and the custodian is generally supervised by the French Prudential Supervisory Authority. Additionally, the law provides that instructions given by the management company will be performed by the custodian to the extent that only such decisions comply with the constitutive documents and regulations of the securitisation entity, and with the provisions of French law. The accounts of the securitisation entity are audited on a yearly basis. If the relevant securitisation entity’s management strategy includes active asset management or entry into credit derivatives’ transactions as a protection seller, the management company will need to be licensed for this purpose and will have to set up appropriate organisational and risk-control procedures. Licensing and authorisation requirements Must originators, servicers or issuers be licensed? No licence is required from originators for securitising receivables. An originator may be any type of commercial company, including any seller of goods, vehicles or commodities, any service provider or any banking or fnancial institution. Securitisation entities themselves need not obtain a specifc licence for issuing securities. However, specifc requirements apply to public offers of securities (including the publication of a prospectus approved by the AMF), but this does not in itself involve requiring a specifc licence for the issuer. © Copyright 2006 - 2020 Law Business Research 5/17 Structured Finance & Securitisation The servicing of the securitised receivables may be handled by the originator or by any entity that was in charge of the servicing before the transfer. The servicing may also be delegated by the management company to any other entity appointed for such a purpose. No specifc licence is required for servicing activities performed for a securitisation entity; these third-party servicers are exempted from complying with the decree relating to amicable recovery activities in France. Certain covered bonds’ companies issuing bonds such as the sociétés de crédit foncier must be licensed as a credit institution, but they are generally not considered to be securitisation entities. French authorities consider the purchase of non-matured receivables on a regular basis to be a banking activity requiring a banking licence; however, this requirement does not apply to French OF and French securitisation entities, which beneft from a specifc exemption from the banking monopoly rules. Foreign securitisation vehicles may also beneft from an exemption from the banking monopoly rules if their activities are conducted in a similar