In many European countries including France, not only lending is a regulated activity but so are loan intermediation and debt collection activities. In other certain forms of lending, such as consumer credit, and credit broking and debt collecting, are regulated but others, such as commercial lending are generally not.
Faced with a country per country analysis of the risks incurred without a harmonized regime allowing them to freely provide their services across Europe, lending agents, servicers and even a number of factoring companies would generally not want to obtain a banking licence, since the “CRDIV” burden that goes with it is much more too heavy.
However, one route which has so far not been widely considered is the obtaining of a payment institution (PI) licence as defined by the 2007/64/EC “Payment Service Directive” (PSD) transposed in all EEA countries.
Behind the jargon used by the PSD to define “payment services”, any business activity consisting in transferring funds from one payer to a payee is captured. Payment services are, therefore, not only concerning service providers such as Western Union but also potentially anyone earning a living of any third-party fund transfer activity.
At least one debt collection company in Europe has decided to get a PI licence: FDI Payment Institution, a French company authorised by the Autorité de Contrôle Prudentiel et de Résolution since 2012. It must have found some benefits in doing so.
In addition to solving the above-mentioned lending and bank intermediation monopoly issues across the EEA, on the basis of an easily obtainable EU passport to carry out activities outside the country where the licence has been granted, one benefit drawn from holding a licence as a PI is, subject to conditions (minimum thresholds or hybrid nature of activities carried out by the PI) provided for in some Member States, the security provided to customers: their funds, while in the hands of a PI, are protected against other creditors (including when the payment institution becomes insolvent) either by law as a result of choosing to segregate client money or, without segregation in place, by an independent third-party insurance or bank guarantor (Article 9 of the PSD).
Of course, turning an unregulated business into a regulated one is not an easy task and the conversion costs, as well as the licence maintenance costs and additional liability (vis-à-vis the regulator), must be assessed against all possible benefits.
But sometimes there is hardly any choice: it is either continuing breaching licensing or other regulatory requirements (and the criminal sanctions that go with them in certain jurisdictions) or ceasing to do so.
And sometimes the conversion is about dropping a banking licence to operate under a much lighter one. This can be the case for factoring companies to the extent they are authorised as credit institutions.
Regulations can understandably be seen as problematic for business. But benefits can hopefully be drawn from them too.
This bulletin should not be taken as definitive legal advice on any of the subjects covered.
