This presentation gives a brief overview of the French regulation of unconventional or atypical assets, with a focus on the most interesting aspects (1). Next, the regulatory framework applicable to intermediaries in miscellaneous assets will be synthesized (2). Finally, this introduction will shed light on the main challenges of the regulation in this area (3).
In French law, atypical financial products are regulated under the concept of “miscellaneous assets”. The main goal objective of the regulation is to apply typical mechanisms of financial law to categories which, however, fall outside the scope of financial law because its usual criteria for application are not met (there are no financial instruments, for example). In short, it is about extending the authority of financial regulators to an area that is intrinsically part of consumer law.
Miscellaneous assets are a specific category of atypical investments subject to legislative and regulatory oversight, which targets the intermediary who engage with miscellaneous assets. Thus, regulation goes through intermediaries who will have to comply with specific rules. Until the 80s, the regulation of this area was very light and the legal framework was also too narrow, so that the regulation could be easily circumvented. Indeed, intermediaries were subject to this regime in specific cases: if they offered either life annuities or rights to movable or immovable property for which the purchaser did not handle the management themselves, or when the contract offered an option for repurchase or exchange with a revaluation of the capital invested. For example, a simple distinction between active management and custodianship of miscellaneous assets was sufficient to elude the grasp of this regulatory framework.
This is why new rules have been added to rectify these limitations, inspired by consumer law and transparency legislation in 2014 and 2016. These texts created a new category of intermediaries in miscellaneous assets, which would encompass anyone offering rights to one or more assets while highlighting an expectation of direct or indirect financial return. Thus, the new criteria are based on a speculative intent. But not everything is settled, because the concept of «miscellaneous assets» is not precisely defined by the Monetary and Financial Code (articles L. 551-1 and following). No list of assets that can be classified as miscellaneous assets is provided by the regulatory texts, either indicative or exhaustive. Most scholars thus point out the flaws of the definition. They stress the very abstract nature of these provisions because, any investment is, in principle, likely to generate a «direct or indirect financial return». This raises the question of what type of investment could – in fact – fall outside the scope of the text.
Furthermore, the absence of a list of miscellaneous assets requires characterization on a case-by-case basis. In summary, the criteria are not clear, functional, or operational. But against all odds, this problematic definition could become an advantage with the development of the digital economy. Indeed, these dematerialized assets are, for the most part, assets with intrinsic value, traded on secondary markets, and considered by their holders as investment products. Their classification is far from obvious and academics point out how hesitations about their legal qualification lead to legal uncertainty. However, on this last point, the concept of “miscellaneous assets” is so flexible that it could encompass new digital assets, if they meet the qualification criteria.
There is nothing to prevent a cryptocurrency offer structured as an investment offer from falling within the scope of miscellaneous assets: in this case, the cryptocurrency is an object of investment and speculation, not a means of exchange. Financial return is thus well highlighted, and the offer may potentially be subject to regulatory constraints related to miscellaneous assets.
The last debate focused on NFTs or Non-Fungible Tokens. Again, these new instruments do not (yet) have a clear legal definition, nor an official functional definition. Academics view NFTs as «property titles» and/or «certificates of authenticity for an object or file,« which have the particularity of having an «inherent value» materialized by the existence of a secondary market. Hence, there is confusion in Scholarship regarding their classification, with the majority tending to reject the notion of digital assets as unnecessary and a source of complexity. On the contrary, the proposition of classifying NFTs as miscellaneous assets seems relevant. Indeed, offers involving NFTs can perfectly correspond to proposals to acquire rights to one or several assets, emphasizing the possibility of financial returns.
A structured framework of compliance has been established to frame the trading of atypical assets. The intermediaries must comply with regulatory and statutory requirements (set by articles L. 551-2 and following of the Monetary and Financial Code). They find themselves bound by a web of legal obligations encompassing not only the governance of their operations but also the dissemination of information to investors, all under the watchful eye of the Autorité des marchés financiers (AMF). We feel here the influence of financial regulation: indeed, intermediaries are required to act in the best interests of investors, and the information they have provided, which may include promotional content, should be precise and free of any element likely to mislead investors.
To facilitate transparency in the landscape, the AMF maintains two distinct lists: the «white list» for registered intermediaries and the «blacklist» serving as an advisory tool to alert investors to certain entities of concern. It should be noted, however, that the inclusion of entities in the blacklist does not constitute a prohibition. This issue has also given rise to intricate legal debates surrounding the due diligence obligations imposed upon financial institutions, particularly banks. The question was whether banks were legally obliged to take into account these blacklists within their due diligence responsibility.
We can see that this topic is truly cross-cutting, as it encompasses financial law, consumer law, and banking law simultaneously. This leads to a trend towards co-regulation: it has recently been observed that regulators are joining forces to act jointly. The Autorité des Marchés Financiers (AMF) and the Autorité de Régulation Professionnelle de la Publicité (ARPP) have jointly pioneered the development of an educational module tailored for influencers in the financial sector. The objective is to elevate and professionalize the conduct of commercial influence.
The regulation of miscellaneous assets may seem like a “niche topic” within the broad field of financial law. However, it is a subject that is not only challenging but also highly interesting to analyze from a regulatory point of view. Indeed, this theme intersects with various interests:
– firstly, there is a desire to protect investors, and even the general public. This legitimizes a certain approach in terms of investments protection and consumer law;
– secondly, there is also a desire to safeguard market integrity, as a marginal phenomenon can have significant consequences within the framework of digital economy development. This can justify an approach in terms of financial law and even banking law.
Yet, this topic remains challenging: historically, the regulation of miscellaneous assets was peripheral. The French regulator itself showed little interest, and consumer law could suffice to protect the weaker party. However, the landscape has changed with new technologies (blockchains, tokens) exerting significant disruption on legal qualifications. Indeed, the digital world necessitates a rethinking of traditional and structuring legal categories such as property law, asset law, and contract law. The challenge for lawyers lies in qualifying new practices based on concepts that do not entirely align, raising many tricky questions : for example, can a social network lead to a market manipulation? can a web influencer fall under the scope of solicitation? does an NFT entail the creation of a new asset, in addition to the underlying asset? All these questions are delicate, which is why the regulation of miscellaneous assets is a complex subject, as regulation oscillates between two inspirations: financial law and consumer law. The result is an ambiguous regulation that favors obligations of disclosure, information, and transparency (this is the «consumer law logic»), while also promoting regulatory action (at the initiative of regulators, such as the AMF and the ACPR) to exercise a form of market practice policing, notably the publication of blacklists.
The main difficulty lies in determining the criterion for the application of regulation: that is, from what threshold or what practice should the investor be protected? In other words, what justifies and legitimizes the application of regulation on miscellaneous assets? There could be two solutions: the first would be based on the nature of operations or assets. The second would be based on the investor’s profile, depending on their level of expertise. However, experience has shown pitfalls in both approaches: regulation based on the nature of operations or assets may overlook certain practices that fall outside the regulatory scope. Conversely, a definition that is too broad risks creating a default category, which could encompass all practices, including likely NFTs.
Thus, this subject poses a challenge for regulators, in a context of strong innovation that underscores the age-old dilemma: regulate to protect without stifling innovation. How to achieve this?
In summary, the regulator is well aware that the legal framework for miscellaneous assets raises a series of more or less serious practical difficulties:
– complexity of regulation: the regulation can be complex due to the diverse nature of miscellaneous assets. This complexity can be a challenge for both investors and providers in understanding and complying with the rules;
– inadequate information: despite regulatory efforts, there may still be cases where investors do not receive sufficient information about the risks associated with miscellaneous assets. This can lead to uninformed investment decisions;
– enforcement challenges: enforcing regulations in the realm of miscellaneous assets can be challenging, especially if providers operate in a decentralized or offshore manner. Some fraudulent schemes may still go undetected;
– innovation vs. regulation: balancing the need for investor protection with the desire to encourage innovation in financial products can be a delicate matter. Overly stringent regulations could stifle legitimate investment opportunities;
– market evolution: the market for miscellaneous assets can evolve rapidly, with new and innovative products emerging. Keeping regulations up-to-date and adaptable to changing market dynamics can be a continuous challenge;
– overreliance on regulation: investors may sometimes rely too heavily on the assumption that government regulations will safeguard their investments. This can lead to complacency and a failure to conduct proper due diligence;
– grey areas: some assets may fall into a “grey area” where they do not fit neatly within existing regulatory categories. This can create uncertainty about how certain assets should be treated under the law.
It might be interesting to mention, in conclusion, a source of inspiration drawn from new regulations in the digital and Artificial Intelligence (AI) fields. Indeed, the last regulations in this area have adopted a “risk-based approach” instead of an approach based on actors or practices (see for example, the AI Act). This risk-based approach justifies the application of a “compliance-type” regime, which imposes obligations based on the nature of the risks created, regardless of the nature of the actors and products. It is a shift in regulation that looks not only at objects but also at effects. However, it is worth noting the context of this regulation, which is explained by urgent considerations of protecting the general interest. However, in the realm of regulating miscellaneous assets, this dimension is more or less absent. n
