PAYMENT INSTITUTIONS PRACTICAL PAYMENT …

1 1 PAYMENT INSTITUTIONS PRACTICAL GUIDEWith the participation of: PAYMENT INSTITUTIONS PRACTICAL GUIDEWith the participation of:2 The P le de comp titivit FINANCE INNOVATION aims to contribute to the development of innovation in the financial sector. It therefore explores the way and the means to bring out innovative projects such as to improve the financial ecosystem for the benefit of the real economy. In the PAYMENT area, a study group has been created in relation with other INSTITUTIONS (TES, PICOM) in order to shed light on the appropriate trends and to promote and accompany new innovations so as to allow France to participate successfully in the current competition. In this context, the agreement of PAYMENT INSTITUTIONS appears to be a key the first project, it therefore appears necessary to identify the best practices enabling the most efficient approach of the Autorit de contr le prudentiel (ACP) process of authorization concerning innovative projects accredited by the P le, in a good mutual understanding between the guide has been written with the participation of Pole Finance Innovation (Mr.)

2 Edouard F. de Lencquesaing), the French Association of PAYMENT INSTITUTIONS and Electronic Money (Association Francaise des Etablissments de paiement et de monnaie lectronique, Mr. Thibault Lanxade), the law firm Wragge & Co (Mrs Laetitia de Pellegars, Mr. Pierre-Emmanuel Chevalier), Eurogroup Consulting (Mr. R gis Bouyala) and FACO University (Mrs. Sabine Lepic).We would like to thank: Mr. Didier Peny (Aurorit de controle prudentiel) and Mr. Jerome Fanouill re (Banque de France) for their of publication: April 20123 TABLE OF : Emergence of new What is a PAYMENT service?.. Criteria for distinction between PAYMENT services and other The various statuses of PAYMENT service Relationships with authorization application The processing track of an authorization application form (3 - 6 months).. Content of the authorization application (a)Description of the activity ( The program of activity ).

3 11(b)Own funds requirements and financial (c)Safeguarding (d)The (e)Governance requirements and internal Anti-money laundering and anti-terrorism financing The expectations regarding the security of means of PAYMENT : the opinion of the Banquede (a)The opinion of the Banque de (b)Risk (c)The expected level of (d)Human and organisational Reporting and later (a)Reporting requirements applicable to PAYMENT (b)Later notifications and European European passport and territorial application of the European Action of the Banque de France concerning PAYMENT INSTITUTIONS providing services in France under the European passport of authorized PAYMENT INSTITUTIONS in point on electronic money (April 2012)..225 ForewordAny entity willing to provide one or more PAYMENT services in the European Economic Area, must be authorized as a PAYMENT institution and be granted the authorization before the start of the regulated activity.

4 This guide is intended to facilitate the authorization process by outlining the main regulatory requirements as well as the best practices in order to develop this is the purpose of this guide? Clarifying the PAYMENT services and regulated transactions. Informing newcomers about the requirements to meet in order to be be authorized as a PAYMENT institution. Guiding the entrepreneur through the different steps of the authorization procedure and providing information on the passport allowing to provide services in : This guide shall be considered as a general information document outlining the main legal requirements. It is not intended to be a support for decision making. We invite you to make contact to specialists for a personalized assessment of your situation and your : Emergence of new entitiesSince 1st November 2009, PAYMENT services can be provided in the European Economic Area by new entities and are no longer exclusively covered by the monopoly of credit regulation also implies harmonised operational rules of PAYMENT in the 27 countries of the European Union (+ Lichtenstein, Norway, Iceland), orchestrated by the Single Euro payments Area (SEPA) concerning up to date credit transfers and direct information, the second Electronic Money Directive provisions concerning electronic money issuers have not been transposed so far into the French national is a PAYMENT service?

5 PAYMENT services include all activities rendered by an intermediary and relating to the transfer of funds registered on a PAYMENT account or of cash for the account of a third party (except for legal cases falling within the scope of another regulation).Schematically speaking, the different PAYMENT services fall into two broad categories: services which consist in the execution of PAYMENT transaction combined with a PAYMENT account and those made without services combined with a PAYMENT accountPayment services provided without the opening of a PAYMENT accountCash placing on a PAYMENT account, cash withdrawal on a PAYMENT accountMoney remittanceExecution of PAYMENT transaction including the execution of credit transfers, direct debits, execution of PAYMENT transaction through PAYMENT card (or similar instruments)Issuing of PAYMENT instrumentAcquiring of PAYMENT ordersExecution of PAYMENT transactions where the consent of the payer to execute a PAYMENT transaction is given by means of any telecommunication, digital or IT device and the PAYMENT is made to the telecommunication, IT system or network operator, acting as intermediary between the PAYMENT service user and the supplier of the goods and granted exclusively in connection with the execution of PAYMENT transactions, credit transfers, direct debits, execution of PAYMENT transactions through PAYMENT card (or similar instruments), execution of PAYMENT transactions as an telecommunication, IT system or network operator.

6 For distinction between PAYMENT services and other activities In order to help you to determine whether your business requires prior authorization, we invite you to ask yourself the following questions:7 Do you receive funds from a third party ?If not, you do not provide a PAYMENT so, you need to determine in which context you receive such funds: Are the funds received in consideration of your activity of goods or services provided to the customer who has transferred the funds?If so, you do not provide a PAYMENT not, you must determine under which qualification you are acting on behalf of a third party to collect these funds. Are these funds received in consideration of the practice of any other regulated activity (bailiffs, lawyers, recovery, ..)?If so, you do not provide a PAYMENT not, you need to determine the legal and contractual framework of your intermediation activity.

7 If so, you must probably receive the funds:As an intermediary between a payer and a payee,Or as an intermediary between a PAYMENT Service Provider (or an electronic money issuer) and a payer or both cases, you provide a PAYMENT or an electronic money service in your name or in the name of a PAYMENT Service should make contact to a lawyer in order to determine the appropriate legal statusto develop this activity. The PAYMENT institution licence is not always required in order to provide these PAYMENT services. The legislation provides simplified legal licences, special cases falling without of the scope of the PAYMENT Services Providers monopoly (this category includes PAYMENT and credit INSTITUTIONS ) and exemption various statuses of PAYMENT service providersPayment service providers may be: PAYMENT INSTITUTIONS , credit INSTITUTIONS and credit INSTITUTIONS with a restricted authorization (French soci t financi re ) duly authorized for providing PAYMENT , companies benefiting of an exemption granted by the ACP are allowed to provide PAYMENT services as a regular business activity.

8 These companies must provide PAYMENT services based on instruments that can be used to acquire goods or services only in the premises used by the issuer or under a commercial agreement with the issuer either within a limited network of service providers or for a limited range of goods or services. According to the applicable legislation, these companies are not qualified as PAYMENT in PAYMENT services: PAYMENT agents must be registered in order to provide PAYMENT services on behalf of a PAYMENT service provider within the limit of the granted Intermediaries in Banking Operations and PAYMENT Services (French Interm diaires en operations de banque et services de paiement , referred as IOBSP) are allowed to develop marketing activities and assist the client for the conclusion of electronic money operations (issuing and managing).8 Following the transposition of the second Electronic Money Directive (referred as 2 EMD) in France, entities acting on behalf of electronic money issuers as distributors will be allowed to collect funds and to refund the electronic money on behalf of the with investorsBecoming a PAYMENT service provider requires a reorganization of the ownership structure of the fact, the regulation requires the service provider to comply with a minimum level of own funds requirement (see page 11).

9 Except when the initial founders or shareholders have enough money in order to provide additional proper funds, it will be necessary for the company to invite new partners to join the project. From a PRACTICAL point of view, the structure will be in the obligation to raise capital. Typology of investors: regulated investment funds (venture capital mutual investment funds (French Fonds Commun de Placement Risque), Innovation UCITS (French Fonds Commun de Placement dans l'Innovation ),..)) or unregulated investment funds (venture capital company [French soci t de capital-risque ], family office, French or foreign investors (a special attention should be paid to the nationality of investors with regard to the authorization requirements), business angels and founders. Method of fund raising: share capital increase subscribed with convertible bonds, bonds refundable in shares, bonds and warrants enabling the founders and employees to benefit from the growth of the company (BSA/BSPCE).

10 Contractual framework:amendment of the statutes of the company in order to take into account shareholder s rights, conclusion of a shareholder agreement which aims at regulating the relationships between shareholders, the transfers of shares between the previous ones and the exit process of investors. This shareholders' agreement should not include any clause that could block the activity of the company. Management control: most of the time, the fundraising comes along with the creation of collegial organs in charge of advising the management on strategic issues and monitoring the decisions through authorizations within a variable scope of application. These collegial bodies may be created either on statutory or contractual basis (shareholders agreement) and can take any denomination (Strategy board, Board of censors). (Source: Wragge & Co, Private Equity Team)92 The authorization application formWhen a project is sufficiently mature, the first contact must be made with the Agreement and Regulation Department of the ACP (Direction des agreements des autorisations et de la R glementation referred as DAAR), by phone or email in order to schedule a presentation meeting:ACP- Direction des agr ments des autorisations et de la R glementation61 rue Taitbout75436 PARIS Cedex 09 Tel: + 33 1 42 92 39 75 Fax: + 33 1 42 92 30 80 The DAAR will set up an appointment in order to present the project and determine a will therefore be necessary to send in advance a briefing paper (5-10 pages) enabling to: confirm the need for an authorization or the possibility of exemption; answer questions concerning among other things legal issues and the initiators of the project.