French Investment Firms Permitted to Carry Out More Nonfinancial Activities
An order was published on December 23, 2020, amending the order of September 5, 2007, relating to the nonfinancial activities that French investment firms may conduct.
As a matter of principle, and similarly to credit institutions, investment firms in France are meant to carry out only those activities that are expressly provided for by statutes. In addition to investment services and listed ancillary services, the order of September 5, 2007, authorized investment firms to provide services that: (i) constitute the incidental use of resources primarily allocated to investment services activities (such as IT services or software); and (ii) were the extension of investment services without being ancillary investment services. Those activities commonly designated as "nonfinancial activities" could be carried out provided that the annual amount of all revenues from activities other than investment services and ancillary services did not exceed 20% of revenues from financial activities.
The order of December 23, 2020, clarifies the activities considered as the core business of an investment firm that may be carried out, as well as nonfinancial activities.
The core activities, set out in a new article 1, now include those activities that have emerged from MiFID2 (such as data reporting services and other activities) or services for which the firm may be authorized pursuant to financial regulations (such as clearing activities). This redrafting allows for a comprehensive list of activities that are core to financial activities.
The permitted "nonfinancial activities" are defined in articles 2 to 4:
- Article 2 remains unchanged and covers any type of agency activity (when the investment firm acts as a broker, dealer, or any other kind of agent), which notably includes insurance mediation;
- Article 3 has been enlarged, covering activities incidentally using resources primarily allocated not only to investment services activities but to any financial activity listed in article 1; and
- Article 4 remains substantially unchanged in scope, but its wording has been slightly modified to cover activities directly or indirectly linked to financial activities.
As provided under the 2007 Order, nonfinancial activity revenues must be recorded in specific accounting entries separate from revenues generated by financial activities.
The main change in the regime applicable to these nonfinancial activities lies in the cancellation of the 20% cap on revenues. There is no limit as to the revenues from these activities in proportion to financial activity, although one may expect that in practice, these revenues should remain proportionally lower that those resulting from financial activities.
These new rules entered into force on December 28, 2020.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.