Recommendation 2017-R-02 of 22 December 2017 on the wind-down management of crowdfunding intermediaries

Recommendation on the wind-down management of crowdfunding intermediaries 2017-R-02 of 22 December 2017

1. Context The activity of crowdfunding intermediation consists of connecting, via an internet site, holders of a specific project - natural persons or legal entities - with natural persons who lend them money with or without interest. Although theoretically, contractual relationships between these two parties could be established autonomously, the crowdfunding intermediary (IFP) is the actor that made them possible through its internet platform, notably by providing them with a standard loan contract and a financial flow management system. The legislator thus imposed on IFPs the obligation to define and organize the procedures for monitoring financing operations and managing operations until their maturity, including in the event that they cease their activity. In this context, wind-down management corresponds to the set of means and procedures aimed at ensuring that financing operations can be carried out to completion in the absence of the IFP. It implies that the IFP must have defined the key management processes for financing that must be ensured to allow operations to reach maturity. The ACPR has identified various aspects that could hinder the proper implementation of wind-down management. It appeared that the monitoring and operations ensured by IFPs and which must be maintained to allow operations to reach their maturity are not always precisely defined. The list of management acts that the platform ensures during the life of the loans and which should be maintained in the event of its disappearance is not always established or updated. Furthermore, the ACPR notes that contracts entrusting wind-down management, required by regulation, are not necessarily in place at the start of the platform's activity or that this contractualization is not explicit enough regarding the tasks actually taken over by the Payment Service Provider (PSP) or the PSP agent. The purpose of this recommendation is therefore to clarify the conditions under which the ACPR expects IFPs to implement the regulatory obligation regarding wind-down management.

2. Regulation Article L. 548-6 of the Monetary and Financial Code (CMF) states that IFPs "must define and organize the procedures for monitoring financing operations and managing operations until their maturity, including in the event that the crowdfunding intermediary ceases its activity." To this end, Article R. 548-9 of the CMF specifies that "the crowdfunding intermediary concludes with a payment service provider or payment service provider agent a contract relating to the wind-down management of its activities, in the event that it is no longer able to continue exercising them." Article R. 548-5, 1°, b) of the CMF provides that the IFP "requests every lender and project holder (...) to certify that they have read and expressly accepted the regulations setting out the general terms of use of the internet site and the general terms of sale of the intermediary." These documents may include monitoring procedures necessary for managing operations until their maturity. Article R. 548-6 of the CMF specifies the details of the standard loan contract concluded between the lender and the project holder, including the existence or not of a possibility of early repayment and its conditions of exercise, or the management procedures in the event of default by the project holder. These elements may be necessary for managing operations until their maturity.

3. Scope of the recommendation This recommendation applies to IFPs referred to in I of Article L. 548-2 of the Monetary and Financial Code.

4. Recommendation In order to provide for adapted, secure, and transparent wind-down management, and in accordance with the provisions of Articles L. 612-1, II, 3° and L. 612-29-1, second paragraph of the CMF, the ACPR recommends the following best practices to IFPs:

Means and procedures 4.1.1 Establish a mapping of the key processes of the entire activity related to crowdfunding intermediation in order to identify those that are indispensable to the continuity of services provided to clients, lenders, and project holders. 4.1.2 Identify the key processes that will need to be entrusted to the payment service provider (PSP) or PSP agent, both vis-à-vis lenders and project holders, in order to ensure the management of the activity until the extinction of the loans, with regard to the stipulations contained in the standard loan contracts as provided for in Article R. 548-6 of the CMF but also the General Terms of Use and Sale (GTUS) of the Platform. For example, the payment of installments process could be analyzed as a whole to notably ensure the continuity of direct debits on the project holders' payment accounts (SEPA mandate), while anticipating events likely to occur during the life of the loan (change of bank details, possibilities or not of early repayment) and provided for in the various contracts. Similarly, when the platform's GTUS have included guarantee and/or insurance mechanisms or have provided for mandating the platform to proceed with the recovery of unpaid debts, the analysis of these processes becomes necessary to allow their transfer in the event of the platform's cessation of activity. 4.1.3 Identify all contractual relationships that the platform has put in place to manage its activity, so that the PSP or PSP agent can directly take over the activities necessary for the implementation of wind-down management of the activity or that substitution procedures for the platform are provided for in contracts with third parties, and to analyze any constraints and procedures to be respected to allow this transfer. It is useful, in particular, to question the conditions for the transfer of personal information of lenders to third parties, notably with regard to personal data regulation. The case may arise, for example, if a platform has entrusted a service provider with the recovery of debts. 4.1.4 Document and keep up to date the analysis of these processes and the list of contractual partners involved during the entire life of the loan contract;

Contract concluded with the PSP or PSP Agent 4.1.5 Provide for and contract, prior to the implementation of operations, with the PSP or PSP agent:

• the possible remuneration terms for all services that will be ensured by the PSP or PSP agent for the wind-down management of the activity;
• the list of data and a data transmission protocol, including notably the format and mode of transmission, to allow the transfer of activity management;
• the conditions for taking over any service subcontracted to a third party by the platform or the possibility for the PSP or PSP agent to involve a new subcontractor. These provisions will ensure that the PSP or PSP agent will be able to take over the management of all operations that must be ensured within the framework of wind-down management. 4.1.6 Maintain an up-to-date list of services, services, or activities that would not be taken over by the PSP or PSP agent, identifying operations likely not to persist, and verify that their impact on lenders or borrowers does not hinder the continuity of the exercise of their contractual rights and obligations. For example, if it is not provided that the platform's internet site is retained due to the cessation of payment of the license to a third-party developer, it is necessary to question the consequences of this cessation and the minimum alternative measures to be put in place until the maturity of the operations, notably access to information made available in the client areas of lenders and borrowers. 4.1.7 Regularly ensure that the contract concluded with the PSP or PSP agent is up to date, and notably that it takes into account all modifications in the processes involved in wind-down management. For example, in the event of a substantial change to the standard loan contract by the platform during its activity, the latter must verify that this has no impact on the provisions taken with the PSP or PSP agent for the wind-down management of its activity.

Testing and technical prerequisites for wind-down management 4.1.8 Conduct integrity tests on the data exchanged, mentioned in 3.1.5, between the two information systems, of the IFP and the PSP or PSP agent. 4.1.9 Ensure the traceability of flows at each level of execution of payment operations, in order to be able to reconstruct the operations. 4.1.10 Verify the proper functioning of the wind-down management system by conducting activity transfer tests (IT switchover). 4.1.11 Evaluate the results of the tests and implement corrective actions as soon as possible to ensure the proper functioning of the switchover operation. 4.1.12 Document the tests of the system as well as the corrective actions to be or implemented.

Information on wind-down management 4.1.13 Provide clear, balanced, and prior information on the general system provided for in wind-down management, describing the consequences of a cessation of activity of the platform for lenders and borrowers, identifying the PSP or PSP agent responsible for wind-down management, and specifying any possible rights or services that could not be maintained in the event of wind-down management. For example, if a service offered by the IFP such as a guarantee fund is not taken over by the PSP or PSP agent, it must specify this scenario in the prior information provided before the use of the platform. 4.1.14 Provide in the contract concluded with the PSP or PSP agent, the deadlines and responsibilities for communication to borrowers and lenders in the event of wind-down management of the activity. 4.1.15 Provide in the contract signed with the PSP or PSP agent that, in the event of wind-down management, the latter informs the platform's clients of its role and responsibilities, regarding wind-down management and in accordance with the agreements agreed with the IFP. 4.1.16 Warn clients of the necessity, if applicable, to save contractual documents, prior to the closure of the internet site.

This recommendation will be effective as of July 1, 2018.