Introduction
France has emerged as a dynamic and thriving hub for cryptocurrency and blockchain innovation, positioning itself at the forefront of the rapidly evolving digital economy landscape. With a burgeoning ecosystem of pioneering startups and established enterprises, France has solidified its status as a central European hub for the development, adoption and advancement of blockchain technology.
In recent years, France has witnessed a significant surge in the number of cryptocurrency and blockchain companies establishing themselves within its borders. These companies, ranging from innovative startups to industry leaders, have been drawn to France's supportive regulatory environment, robust infrastructure and vibrant entrepreneurial culture. As a result, the country has become a magnet for talent, investment and advancement in the realm of decentralized technologies.
Action Plan for Business Growth (PACTE Act) and Monetary Financial Code (CMF)
The dynamism observed in France's cryptocurrency and blockchain sector can largely be attributed to the implementation of dedicated legislation aimed at positioning the nation as a premier jurisdiction for blockchain technology. The adoption of the PACTE Act on May 22, 2019, or Action Plan for Business Growth and Transformation, introduced a comprehensive regulatory framework specifically tailored for Digital Asset Service Providers (DASPs) and Initial Coin Offerings (ICOs).
DASPs
Central to the PACTE Act's regulatory framework is the requirement for DASPs to register with the French Financial Markets Authority (Autorité des Marchés Financiers, or "AMF") if they provide certain specified services. These services include:
- custody of digital assets on behalf of third parties,
- buying or selling digital assets in legal currency,
- exchanging digital assets for other digital assets, and
- operating a digital asset trading platform.
By mandating registration with the AMF, the PACTE Act aims to enhance investor protection, mitigate financial risks and promote market integrity within the burgeoning digital asset ecosystem.
The PACTE Act also establishes stringent penalties for the illegal provision of DASP services without proper registration. According to the provisions outlined in Articles L.54-10-2 and L.572-23 of the Monetary Financial Code ("CMF"), individuals found engaging in unauthorized activities related to digital asset services may face up to two years of imprisonment and a fine of EUR 30,000. These penalties underscore France's commitment to combating financial misconduct and safeguarding the integrity of its financial markets.
Furthermore, the PACTE Act delineates clear criteria for distinguishing digital assets that qualify as financial instruments or electronic money from those falling under the digital asset legal category. Assets incorporating features or rights associated with financial instruments or electronic money are subject to separate regulatory regimes and must adhere to applicable regulations governing their issuance and trading.
Initial Coins Offerings (ICOs)
A fundraising endeavor utilizing Distributed Ledger Technology (DLT), commonly referred to as a public token offering, is subject to regulation under Article L.552-3 of the Monetary Financial Code (CMF). This regulation outlines the process whereby tokens are issued to raise capital.
Under Article 85 of the PACTE Act, issuers have the option to seek a voluntary approval from the French Financial Markets Authority (AMF) for their Initial Coin Offering (ICO). This approval, known as a "visa," signifies that the information document provided to potential investors has been vetted and approved by the regulator, ensuring transparency and adequacy of information disclosed. Issuers granted this visa gain access to a broader array of communication channels, including solicitation, sponsorship and patronage.
To obtain the approval, issuers must meet specific criteria:
- the issuing entity must be established or registered in France,
- the white paper accompanying the ICO must adhere to stringent requirements outlined in the AMF General Regulations and relevant instructions
- issuers must implement measures for asset monitoring and safeguarding, as well as anti-money laundering and counter-terrorism financing procedures.
Accompanying the “visa” application are several requisite documents, including:
- a compliant information document,
- up-to-date articles of association,
- financial statements,
- criminal record checks of corporate officers,
- and documentation pertaining to asset monitoring and anti-money laundering compliance.
The AMF thoroughly evaluates the entire project, with a 20-day review period to grant or deny the “visa”. Any refusal must be justified by the regulator.
It's crucial to differentiate this regulatory framework from that governing Security Token Offerings (STOs). The PACTE Act and AMF guidelines stipulate that tokens classified as financial instruments fall outside the scope of ICO regulations and should instead be issued through an STO.
The Law of March 9, 2023 "DDADUE Law"
The legislative response to the evolving landscape of cryptocurrency markets culminated in the enactment of the Law of March 9, 2023, and its accompanying Implementing Decree of August 19, 2023. These measures were prompted by events such as the FTX trading platform bankruptcy and Terra Luna scandal, which underscored the need for robust regulatory frameworks.
The legislation, known as the DDADUE Law, aligns with the EU's MiCA Regulation to harmonize cryptocurrency service provision across member states. Effective January 1, 2024, the DDADUE Law strengthens registration requirements for Digital Asset Service Providers (DASPs), mandating enhanced security and internal control systems, particularly in conflict management and IT infrastructure resilience. DASPs offering third-party custody services face additional obligations, including retention policy establishment and asset segregation.
Furthermore, the law grants the AMF authority to enact precautionary measures to safeguard DASP solvency, liquidity, and customer interests.
Regulatory frameworks for financial transactions and anti-money laundering protocols
Money laundering in France constitutes a serious offense, punishable by up to five years of imprisonment and a fine of EUR 375,000, as stipulated under Article 324-1 of the Criminal Code. Similarly, financing of terrorism is regarded as a grave infraction, carrying penalties of up to ten years' imprisonment and a fine of EUR 225,000, according to Article 421-5 of the Criminal Code.
Entities operating within the realm of digital assets are mandated to adhere to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations, such as the (already mentioned) Monetary Financial Code. The AMF clarifies the main measures to be implemented by digital assets service providers in this document. These measures are especially dedicated to DASPs that are registered and /or licensed and must comply with AML and CFT frameworks:
- Implementation of risk classification for investors, determining vigilance measures level.
- Classification of client relationships into business or occasional based on duration.
- Vigilance measures for client identification and verification.
- Collection of client identity information including name, date of birth, and address.
- Verification of client identity through official documents.
- Use of electronic identification means if the client is not physically present.
- Collection of information on purpose and nature of relationship, updated regularly.
- Strengthened vigilance measures for high-risk transactions or products.
- Implementation of internal controls and appointment of compliance officers.
- Compliance with asset freeze measures.
- Possibility to outsource compliance tasks to external providers.
- Obligations of declaration to TRACFIN and appointment of TRACFIN correspondent.
- Adaptation of AML-CFT scheme based on business size, nature, and identified risks.
Registered DASPs are obligated to conduct risk assessments and implement appropriate AML/CFT measures to ensure compliance with regulations. The AMF and the Prudential Supervision and Resolution Authority (ACPR) oversee the effectiveness of these procedures through initial assessments and ongoing monitoring. Notably, the AMF took unprecedented action on September 28, 2022 by withdrawing registration from a DASP due to non-compliance with AML/CFT requirements following an ACPR inspection.
Sales regulation
Under French law, securities and commodities are not recognized concepts. Instead, Bitcoin and other cryptocurrencies are classified as digital assets according to Article L.54-10-1 of the Monetary Financial Code (CMF). These digital assets are categorized into two groups:
- Tokens representing one or more rights, which can be issued, recorded, held, or transferred using a distributed database enabling owner identification. Financial instruments are excluded from this category under Article L211-1 and cash vouchers under Article L. 223-1 of the CMF.
- Digital assets, referring to digital representations of value not issued or backed by a central bank. These digital assets are not necessarily linked to legal tender and lack the legal status of a currency. However, they are accepted as a medium of exchange and can be electronically transferred, stored, or exchanged.
In essence, French law classifies cryptocurrencies/ crypto assets as digital assets, delineating them into tokens and digital assets based on their characteristics and functions within the financial ecosystem.
Taxation
Understanding the tax implications for both individual investors and companies is essential for compliance and effective financial planning. Let's explore the key elements of cryptocurrency taxation in France.
- Subject to a flat rate of 30% on total capital gains.
- Option to opt for taxation under the industrial and commercial profits category.
- Rates potentially reaching up to 60%.
- Companies follow accounting standards set by the French Accounting Standards Authority.
- Exchange of cryptocurrencies with traditional currencies.
- Transactions between digital assets.
- Exemption attributed to the uncertain nature of future benefits.
- Absence of a direct link between service provided and benefit received in certain transactions like mining.
Next Steps
Starting December 30, 2024, Digital Asset Service Providers (DASPs) will undergo a significant regulatory shift with the implementation of the European Markets in Crypto-Assets Regulation (MiCA). This regulation supersedes the existing French framework and mandates licensing for Crypto-Asset Service Providers (CASPs), aligning closely with France's current optional licensing regime for DASPs.
Under MiCA, DASPs without prior registration or licensing by December 30, 2024, must acquire the mandatory license, enabling them to operate across the EU.
However, DASPs already registered or licensed by the Autorité des Marchés Financiers (AMF) before the MiCA Regulation's enactment will enjoy a transitional period until June 30, 2026, to continue serving the French market. After this date, they must obtain the MiCA mandatory license to maintain operations, including catering to French clientele.
Conclusion
In conclusion, France has demonstrated a proactive and forward-thinking approach to cryptocurrency regulation, positioning itself as a leading jurisdiction in the global blockchain ecosystem. Through legislative initiatives such as the PACTE Act and subsequent regulatory enhancements like the DDADUE Law, France has established a robust framework to regulate Digital Asset Service Providers (DASPs) and Initial Coin Offerings (ICOs), fostering innovation while prioritizing investor protection and financial stability. With the impending adoption of the MiCA Regulation and its provisions for mandatory licensing of Crypto-Asset Service Providers (CASPs), France aims to further align its regulatory regime with European standards, ensuring a harmonized approach to cryptocurrency regulation across the EU.
If you're keen on delving deeper into France's intricacies and shaping forthcoming rules and regulations, we invite you to connect with us and schedule a complimentary consultation.
