The growth of unlisted assets and the diversification of distribution channels are making unsecured investment services increasingly important in capital-raising operations. Given the sophistication of distribution arrangements, the use of an investment services provider (ISP) or its tied agent offers a structured, compliant and controlled framework. This is an opportunity to review the contours of this service and the players authorised to implement it. Legal column by Valentine Baudouin, Partner Compliance & Regulatory at Regvantage.

Qualification based on two cumulative criteria

The non-guaranteed placement service is defined as seeking subscribers or purchasers on behalf of an issuer or transferor of financial instruments or greenhouse gas emission allowances without guaranteeing a subscription or purchase amount (Monetary and Financial Code, art. D 321-1, 7°).

This definition has been clarified in AMF and ACPR positions (AMF Position 2012-08 “Placement and marketing of financial instruments" amended on 24 July 2019 and ACPR Position 2014-P-08 on unsecured investment and participative financing of 30 September 2014 amended on 7 October 2019).

To be defined as such, the service must meet two cumulative conditions:

• the existence of a service rendered to an issuer or seller of financial instruments; and
• the search - whether direct or indirect - for subscribers or purchasers.

This second condition is a direct consequence of the first: the search for subscribers or purchasers is carried out solely for the purposes of the service provided to the issuer or transferor. If either of these two conditions is not met, the placement service does not qualify.

A monopoly reserved for authorised ISPs and their tied agents

Once these two conditions have been met, the non-guaranteed investment service is reserved for authorised investment services providers, in accordance with articles L.321-1 et seq. of the French Monetary and Financial Code. Pursuant to the provisions of the European Directive MIFID II, an investment firm may entrust a third party, known as a “Related Agent”, with the provision of investment services.

May be referred to as a “Related Agent”any natural or legal person who, under the full and unconditional responsibility of a single company investment company on whose behalf it acts, promotes investment and/or ancillary services to clients or potential clients, receives and transmits instructions or orders from clients concerning investment services or financial instruments, financial instruments and/or provides clients or potential clients with advice on these financial instruments or services”(Article 4, paragraph 1, point 29 of Directive 2014/65/EU (MiFID 2) transposed into Article L. 545-1 et seq. of the French Monetary and Financial Code).

Full and unconditional responsibility

Provided it is itself authorised to provide these services, an investment firm may therefore appoint a tied agent to carry out the non-guaranteed investment service, with the latter acting under the full and unconditional responsibility of its principal. This framework enables investment services providers to rely on distribution channels, while maintaining traceability and risk control.

As Esma pointed out in 2022, when investment services providers use tied agents, they must document all supervisory arrangements, assess the governance structure of the tied agents and ensure that they have genuine organisational autonomy, in particular by avoiding any control by third-party or non-European entities.

The relationship between the authorised ISP and its tied agent must also be the subject of a formal agreement specifying information rights, control procedures, the prohibition on unauthorised subcontracting and transparency commitments to clients. Failing this, the investment services provider could be held liable for the entire intermediation chain.

Non-guaranteed placement is a key instrument in the structuring of fund-raising and is a flexible yet regulated distribution tool. To master the issues involved, it is essential to adhere strictly to the scope of the service as defined by the regulations and the case law of the AMF, which has defined its boundaries over the last ten years.