French draft law on the “green industry”: first implementing measures of ELTIF 2.0 under French law
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The “Projet de loi relatif à l’industrie verte” (the Bill) has been presented to the French “Conseil des Ministres” on Wednesday 17th May 2023 - i.e. an executive committee aimed at approving the draft law right before the French parliamentary voting process being initiated.
In terms of content, the provisions made in the Bill in relation to the ELTIF 2.0 aspects are in line with the outcome of the discussion that occurred between the French professional associations and the French Trésor:
- French AIFs structured as fonds professionnels spécialisés (FPS) or organismes de financement spécialisés (OFS) and authorised as "retail ELTIFs" under the ELTIF Regulation would be eligible as reference asset (so-called "unité de compte" - UC) (i) without being subject to particular investment constraints and (ii) without minimum investment ticket at the policyholder level. In other words, French FPS/OFS implementing debt strategies – including direct loan origination strategies – will be eligible as UC. The only constraints applicable to these UC-compliant funds would in that case be the investment/diversification rules set forth under the ELTIF Regulation (e.g. 20% capital exposure ratio per borrower). The French Financial Code shall also be amended to insert the same investment possibilities in professional investment funds to French retirement saving plans (“plan d’épargne retraite”);
- Existing French funds such as FCPR (retail private equity funds) and OPCI (retail real estate funds) authorised as ELTIF 2.0 would have the ability to elect for a particular regime under which they will be exempted of most of the domestic investment/diversification constraints normally applicable to FCPR/OPCI under French law. Technically speaking, these existing FCPR/OPCI would benefit from the same level of flexibility than French FPS, subject nevertheless to the obligation to (i) comply with investment/diversification rules set forth under ELTIF 2.0 and (ii) to maintain their original core strategy (i.e. having as main purpose an investment into private equity/debt assets for FCPR and investing mainly in real estate assets for OPCI). The rationale for such an approach is to avoid a competitive disadvantage – and thus a potential capital outflows – for these existing retail investment funds due to the implementation of ELTIF 2.0. The Bill introduces a 2-year period during which these existing funds would be able to elect for such a FPS-like status; and
- Vesting the French Government with the ability to amend/update the French Financial Code by mean of “ordonnance” (ordinance/order) in order to further fine-tune/adjust the regimes applicable to French AIFs with the ELTIF 2.0 Regulation. This flexible approach would technically allow the French Government to directly amend the French Financial Code with a view to updating certain provisions in order to put them in line with the ELTIF 2.0 regime. Concretely speaking, this is likely to cover certain items already identified by the French Trésor and the professional associations, notably with respect to the FPS/OFS regime, such as notably refining the scope of the eligible borrowers for FPS/OFS which are granting loans, providing for the ability for FPS/OFS to sell loans receivables before their term or increasing the leverage thresholds of FPS/OFS.
Note that the French Conseil d'Etat has not issued any particular objection regarding the developments of the Bill dealing with ELTIF 2.0.
In terms of next steps, from a pure legislative process perspective:
- The Bill has been submitted to the “Commission des affaires économiques” of the French Sénat for a first examination, which should take place on Tuesday 20th June and Thursday 22nd June 2023;
- The same examination process will then occur before the French Assemblée Nationale.
Please note that the official legislative calendar for the adoption of the Bill has not yet been published.
It is also worth noting that the EU regulatory framework relating to ELTIF 2.0 is in the process of being finalized with the recent publication by the ESMA, on 23 May 2023, of a consultation paper on the ELTIF 2.0 draft regulatory technical standards (RTS).