Safeguarding in France: L. 522-17 and L. 526-32 CMF

Safeguarding in France sits in Article L. 522-17 of the Code monétaire et financier for payment institutions and Article L. 526-32 for e-money institutions, but the rule that shapes daily practice is the ACPR’s: any change to your set-up needs its prior authorisation. The code gives the two European methods. Two ministerial orders, one for each type of institution, add the prudential detail and a model guarantee contract. The ACPR’s September 2024 webinar on protection des fonds de la clientèle then sets out what the supervisor checks. This piece covers all three layers and works through three cases.

1. The texts

The ACPR lists six references for safeguarding by French payment institutions (EP) and e-money institutions (EME):

• Article L. 522-17 CMF, the safeguarding duty for payment institutions, transposing Article 10 of PSD2 (Directive (EU) 2015/2366).
• Article L. 526-32 CMF, the e-money equivalent, transposing Article 7 of EMD2 (Directive 2009/110/EC).
• Articles 6, 14, 33 bis, 34 and 35 of the arrêté of 29 October 2009 on the prudential regulation of payment institutions.
• Articles 6, 14, 37, 38 and 39 of the arrêté of 2 May 2013 on the prudential regulation of e-money institutions.
• Articles L. 613-30-1 (EP) and L. 613-30-2 (EME) CMF, in the part of the code dealing with institutions in difficulty, which the ACPR lists alongside the safeguarding articles.

The code sets the methods; the arrêtés, which also hold the model guarantee contract, and the ACPR’s expectations set how to run them.

2. The methods under L. 522-17 and L. 526-32

Both articles offer the two directive methods. The French text adds one investment route of its own.

Segregation in a cantonnement account. Client funds are never mixed with the funds of anyone other than the users for whom they are held. Funds still held at the end of the business day after receipt go into a separate account at a credit institution authorised to receive demand deposits from the public. The ACPR’s slides describe this as a credit institution authorised in the EU or EEA, which needs a passport under the freedom of establishment or freedom to provide services if it is authorised outside France.

Investment in financial instruments. As an alternative to the cash account, funds may be invested in financial instruments held in accounts opened specially for this purpose at one of the persons listed in points 2° to 5° of Article L. 542-1 CMF. The ACPR reads these as credit institutions and investment firms authorised in France. The only eligible instruments are units of a qualified money market fund, by reference to the definition used in the arrêté of 6 September 2017 on safeguarding investment-firm client funds.

Guarantee or cautionnement. The funds are covered by an insurance policy or a guarantee. The insurer or guarantor must not belong to the same group as the institution, and the contract follows the model annexed to the relevant arrêté.

The methods can be combined. The ACPR’s reporting example shows a EUR 500,000 safeguarding requirement split three ways: EUR 400,000 in a cantonnement account, EUR 30,000 in money market fund units and EUR 70,000 covered by a guarantee.

3. Prior authorisation for every change

This is the main difference from other member states. The ACPR requires prior authorisation for any change to an institution’s safeguarding arrangement. It answers within two months of receiving a complete file, meaning the final, signed versions of the documents, revised as its case handlers asked.

There is one exception. A guarantee amount going up or down with payment or e-money volumes does not need authorisation. A new bank, a new account, a new guarantor, a move into money market funds or a change of method all do.

4. What the ACPR expects of the cantonnement account

The account agreement, both general and specific conditions, must fit the purpose of the account. The ACPR’s list of features:

• debits and credits are limited to clearly identified transactions, made by transfer only — no payment instruments and no cash withdrawals;
• no deduction of fees or commissions from the account;
• no merger or netting agreement with any other account;
• the account can only be in credit;
• no pledge (nantissement) over it.

The same features apply to the securities and cash accounts used for money market fund investment. There the institution also gives a commitment letter.

The agreement must also protect continuity. The bank cannot reserve a right to terminate on grounds that would defeat the account’s purpose — financial difficulty or the opening of safeguard, receivership or liquidation proceedings. Termination must carry a reasonable notice period.

Two further expectations matter for treasury. Safeguarding must be accurate to the euro, with neither under-safeguarding nor over-safeguarding. And the deadline is strict: end of the next business day for payment services; for e-money, five business days, or one business day where the e-money is funded by a cash deposit.

5. Instant payments: business days become seven days

The ACPR has drawn a direct consequence from instant credit transfers. If an institution lets its clients send or receive them, every day counts as a business day, so it must be able to safeguard funds every day, including Saturdays, Sundays and public holidays.

Both sides must work every day: the institution initiating transfers from its settlement account to the cantonnement account, and its bank executing them. A weekday batch does not meet the rule.

6. Money market funds and guarantees

The money market fund route comes with its own monitoring duties. The ACPR expects institutions to check that instruments meet the criteria before investing, including when they change instruments. They must meet the deadline even where they invest directly from the settlement account, and they must manage liquidity and concentration limits. The ACPR also flags interest-rate risk: if rates turn negative, the institution makes up the shortfall from its own funds. Own funds and the coverage ratio must be monitored as rates move.

For the guarantee route, the cover is calibrated on the peaks of the client-funds balance, not the average. The ACPR expects the institution to monitor that balance and to plan ahead for any increase in cover. It must also confirm the guarantee is renewed before each maturity and prepare well ahead for any change of guarantor.

The ACPR acts when this goes wrong. In 2021 it imposed conservatory measures under Article L. 612-33 CMF on an e-money institution whose guarantee was about to expire. It found that clients would no longer be protected.

7. Agents, branches and bank refusals

In its March 2022 statement on the payments market, the ACPR said that payment and e-money institutions must safeguard their clients’ funds, including funds received through their agents, in a dedicated account at a credit institution or through an insurance contract. Institutions remain fully responsible for their agents, so agent collections count towards the amount to safeguard on the same timing.

In the same statement, the ACPR reminded credit institutions that they must give it the reasons for refusing to open a cantonnement account. If a bank refuses you, the ACPR should already know why.

For branches, safeguarding follows the home state, as the hub piece in this series explains. The French regime binds institutions authorised in France. A French branch of an institution authorised elsewhere in the EEA safeguards under its home rules.

8. Payment institutions and e-money institutions side by side

9. Reporting and internal control

The safeguarding position is reported to the ACPR in the CANTON_EP or CANTO_EME state. Part I gives the amount to safeguard: funds received from users and through other providers, by client type, received on day D and still on the books at D+1 (payment services) or D+5 (e-money). Pending amounts owed to clients are added. Part II gives how that amount is protected: deposits in cantonnement accounts, money market fund investments, and the funds actually covered by a guarantee. The guarantee line is not the face value of the guarantee. The full guarantee amount goes in off-balance-sheet commitments received in the SITUATION state.

Two reporting points cause problems. A table filed with zero means the institution had nothing to report for that date; a table left empty means it is not subject to that return. And the amounts in the different states for the same reporting date must be consistent, even if they are filed on different days. The institution must resubmit if its data change.

For internal control, the ACPR expects a defined perimeter of funds to safeguard, updated at least whenever the arrangement changes; procedures, training and a control plan with incident escalation; and the governing bodies’ involvement. Institutions should tell the SGACPR as soon as they expect or find an anomaly, such as over- or under-safeguarding or a missed deadline.

10. Worked case: instant transfers over a long weekend

Facts: a French payment institution launches instant credit transfers. Its sweep from the settlement account to the cantonnement account runs on weekdays only. Over a public-holiday weekend, client funds build up in the settlement account for three days.

What the rule says: for an institution offering instant transfers, every day is a business day, so funds received on Saturday must be safeguarded by the end of Sunday.

What the practitioner does: makes the sweep run every day, and confirms in writing that the bank executes transfers into the cantonnement account seven days a week. It reports the past breach to the SGACPR as an anomaly rather than waiting for the next CANTON_EP to show it.

Outcome: the deadline is met every day of the year, and the supervisor heard about the gap from the institution first.

11. Worked case: a guarantee sized on the average

Facts: an e-money institution covers part of its float with a guarantee calibrated on its average monthly balance. Its balance peaks at month-end, when salaries arrive, and exceeds the cover for several days.

What the rule says: the ACPR expects the guarantee to cover the peaks in client funds. Adjusting the amount to follow volumes is the one change that needs no prior authorisation.

What the practitioner does: recalibrates the cover on the observed peaks plus a margin, sets an internal trigger that warns treasury before the balance reaches the cover, and diaries the renewal date well before maturity.

Outcome: no client funds are unprotected at month-end, and no change of guarantor is forced at short notice.

12. Worked case: moving surplus into money market funds

Facts: treasury wants to move part of a large cantonnement balance into money market fund units to earn a return, using a custodian already used by the group.

What the rule says: a move into financial instruments is a change of arrangement and needs prior ACPR authorisation. The custodian must be one of the persons in points 2° to 5° of L. 542-1, the units must be of a qualified money market fund, and the accounts must have the same restrictions as the cantonnement account.

What the practitioner does: checks the custodian and the fund, negotiates account terms without set-off, pledge or fee debits, then files a complete, signed request with the ACPR and moves no money until it answers.

Outcome: a higher return without a breach of the authorisation rule.

FAQ

13. What to do, today

1. Legal: check every cantonnement account agreement for fee debits, set-off, pledges and termination on insolvency grounds.
2. Compliance: list every change made to the arrangement since authorisation, and confirm each one had prior ACPR approval.
3. Treasury: if you offer instant transfers, test the safeguarding sweep on a weekend and a public holiday.
4. Finance: calibrate any guarantee on peaks, not averages, and check that CANTON lines show covered funds, not the face value of the guarantee.
5. Operations: include agent collections in the perimeter of funds to safeguard and in the daily calculation.

Related: Safeguarding compared across the EU · Safeguarding in Luxembourg · Safeguarding in Spain