Cryptocurrency Laws and Regulations | France

Definition of digital assets in France

Utility Tokens

The French regulation defines utility tokens as “any intangible asset represented in digital form, representing one or more rights which can be issued, recorded, stored, or transferred using a shared electronic recording device (such as a blockchain), which allows the owner of the asset to be identified, directly or indirectly.” This definition highlights the representation of a right to access a service or technology provided by the issuer.

Cryptocurrencies or Virtual Currencies

Cryptocurrencies, also known as virtual currencies, are defined as “any digital representation of value that is not issued or guaranteed by a central bank or public authority, not necessarily attached to legal tender, and does not have the legal status of money, but is accepted by individuals or entities as a means of exchange and can be transferred, stored, or exchanged electronically.” Examples of cryptocurrencies include Bitcoin or Ethereum. They are considered intangible movable assets by the French courts and may be subject to proprietary rights and legal actions like any other asset.

Stablecoins

The classification of stablecoins should be based on a case-by-case analysis. The AMF considers stablecoins, which are not necessarily attached to legal tender, to fall within the definition of digital assets. However, the banking regulator considers that stablecoins, especially those backed by official currency, should be classified as e-money. Further clarification is expected in the European Union’s MiCA regulation.

Non-Fungible Tokens (NFTs)

There is no legal definition or position from the regulators on non-fungible tokens (NFTs). NFTs are generally excluded from the definition of digital assets as they are non-fungible assets that cannot be used as units of account or medium of exchange. They do not give access to a specific service or technology, but only represent an asset or image. However, the AMF has stressed that the classification of NFTs as digital assets depends on their features.

Security Tokens

Security tokens represent financial instruments or tokens with similar characteristics. The qualification of a security token is based on the European definition of a financial instrument, including equity securities, debt securities, units in collective investment funds, and financial contracts. The lack of a legal entity (such as a decentralized autonomous organization or informal group) does not prevent a security token from being classified as such in the presence of a de facto company. The AMF has published several analyses on the compatibility of security tokens and security token offerings (STOs) with financial laws, but most primary market financial regulations apply to security tokens. However, the concepts of “settlement” and “delivery” seem incompatible with security tokens, especially if they are listed, and the requirement for the identification of a “blockchain manager” and intermediation by a credit institution is not appropriate for security tokens and the underlying blockchain. To date, there has never been a regulated STO in France due to regulatory obstacles.

Cryptocurrency regulation in France

France has established a regulatory framework for cryptocurrency that primarily relies on two regimes: the token sale or ICO (Initial Coin Offering) visa and the Digital Assets Service Providers (“DASPs”) registration and license. Token issuers can apply for an optional visa to be included on the French Financial Markets Authority (AMF)‘s white list, while the DASP regime only applies to intermediaries acting on behalf of their clients and companies targeting the French market.

ICO Visa

In France, the public offering of tokens or ICOs is regulated, and token issuers may apply for an optional visa to be included on the AMF’s white list to have access to communication methods that are otherwise prohibited. The visa is subject to certain conditions, including transparency, security, and anti-money laundering and countering the financing of terrorism (AML/CFT) measures. However, only three ICOs have been approved by the AMF so far.

DASP Registration and License

The DASP regime applies to providers of ten digital assets services defined by the French Monetary and Financial Code (“MFC”), and it is divided into two levels: mandatory registration for four digital assets services (see below) and an optional license for other services. The mandatory registration procedure focuses on the applicant’s business model, fit-and-proper requirements, and compliance with French AML/CFT laws and regulations, while the license procedure aims to implement a comprehensive framework to protect savers.

If one want to offer one of the following services, a registration is compulsory :

• Custody of digital assets ;
• Buying or selling digital assets in legal tender ;
• Exchanging digital assets for other digital assets ;
• Operation of a digital assets trading platform.

Foreign DASPs

Foreign DASPs wishing to actively address the French market must register with the AMF before offering the four digital assets services subject to mandatory registration. The registration procedure requires the applicant to be established in a Member State of the European Union or the European Economic Area, and the regulator requires a minimal presence in France for foreign DASPs.

Personal Data and Collective Investment Scheme

In September 2018, the French National Commission for Information Technology and Liberties published its analysis on blockchain, stating that there is no major obstacle to applying the data protection obligations set by the GDPR for blockchain projects. The provision of a collective investment scheme on digital assets falls under the regulation applicable to Alternative Investment Funds, and regulatory difficulties seem to hinder the creation of crypto funds in France.

Sale of digital assets in France

French law regulates the sale of digital assets, including promotional communication, to protect investors. This regulation applies to both unlicensed DASPs and token issuers without an AMF visa.

DASPs without optional licenses are prohibited from direct solicitation to obtain an agreement on digital assets services. Additionally, they cannot engage in any direct or indirect electronic advertising inviting people to request or provide additional information or to establish a relationship with the advertiser. They also cannot engage in any sponsorship or patronage operation advertising digital asset services without authorization from the AMF.

The AMF and the French Professional Advertising Regulatory Authority (ARPP) have extended their partnership agreement on communication in the financial services sector to include crypto-assets. They have created a joint work program for 2022-2023 that presents the best practices and rules for this area in an educational manner. The focus is on clear, accurate, and non-misleading communication, including indication of the paid nature of the publication or any possible conflicts of interest.

The work program includes a section dedicated to social network influencers in the investment field. To promote better practices, the ARPP has introduced a certificate of responsible influence. It is designed for influencers who want to protect their audiences, differentiate themselves from brands, and maintain ethical and responsible marketing values.

French government policy regarding crypto

French government policy seems to be supportive of crypto-assets, as long as they are properly regulated. The regulation of Digital Assets Service Providers (DASPs) and Initial Coin Offerings (ICOs) was implemented in May 2019 by the Pacte law, with the French Financial Markets Authority (AMF) responsible for enforcing these regimes and publishing recommendations and guidelines. The AMF and the banking authority (ACPR) have Fintech departments to welcome and assist innovative projects.

The DASP regime requires mandatory registration for four digital assets services and an optional license for all digital assets services, with over 40 DASPs currently registered with the AMF. Applying for a license is particularly attractive for European actors, as the requirements are already in line with the upcoming Market in Crypto-Assets (MiCA) regulation.

France has introduced a tax regime for digital assets and is one of the few jurisdictions to neutralize the tax effects of exchanges between digital assets that no longer constitute a taxable event. In 2021, the National Assembly’s Finance Committee chairman expressed interest in working with the government on tax incentives for digital asset holders to reinvest their capital gains in different sectors of the economy.

The Association for the Development of Digital Assets (ADAN) represents digital asset actors and holds conferences and meetings regarding the industry. The ADAN collaborates closely with regulators to support the regulation of the sector.

Derivative crypto assets in France

French law treats the definition of derivatives separately from the underlying asset. In order for marketed products to be considered financial contracts, they must have the structure of one of the three types of contracts listed in the legislation (future, option or swap).

The AMF has stated that a cash-settled derivative with a cryptocurrency as the underlying asset can be regarded as a financial contract. Therefore, the regulations that apply to the sale of financial instruments in France also apply to cryptocurrency derivatives.

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Published on: March 10, 2023

Editor : Elias BOURRAN, Attorney at Law (Paris Bar, France) and PhD in Law.

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