France has regulated Initial Coin Offerings (ICOs) and intermediaries providing crypto-asset services by virtue of its PACTE law n° 2019-486 of 22 May 2019. Its aim was twofold: France wanted to attract meritorious projects to its territory while also bringing this ecosystem within the ambit of regulation. Thus, while France transposed the EU Fifth Anti-Money Laundering-Directive (AML-Directive), it went a step further by imposing additional regulatory duties on intermediaries. In this respect, it has provided a degree of regulation for such intermediaries inspired by the MiFID II obligations for financial services.

An optional "visa" for ICOs

ICO issuers have the ability, but not the obligation to apply for a "visa" from the French Financial Markets Regulator (AMF) in return for filing an information document, providing clear, transparent and not misleading communications to the public, and by complying with anti-money laundering (AML) duties. Such a visa gives an issuer access to a bank account and allows them to solicit investment. This is important in practice as many banks refuse to open bank accounts for actors in the crypto environment or actually close existing accounts. Potential investors are protected because without a visa, an ICO cannot target or solicit investments in any way.

Two-legged regulation of intermediaries

Intermediaries of the crypto ecosystem have also been regulated in this novel way. Intermediaries such as custodian wallet providers and crypto/fiat exchange service providers are subject to a mandatory AML registration, while all intermediaries including platforms and investment advisers may apply for an optional license. In other words, registration is mandatory but licensing is voluntary. The advantage of applying for a license is gaining access to a bank account and the ability to solicit investments.

Mandatory registration

As referred to already, custodian wallet providers and crypto-fiat exchange service providers must register with the AMF. France has simply transposed the AML-Directive, and as a result, they obtain a "monopoly" of the market that is protected from non-registered businesses by criminal sanctions. They also need to comply with a set of rules, which among others, include provisions in respect of anti-money laundering.

Voluntary registration

All intermediaries (custodian wallet providers, crypto-fiat exchange service providers, crypto-crypto exchange service providers, trading platform operators, service providers engaging in the reception and transmission of orders, investment advice, underwriting and guaranteed or unsecured investment) can voluntarily apply for a licence to the AMF. As result, they will need to comply with AML duties and other regulatory requirements, depending on the activity carried on. It should not be forgotten that the Financial Action Task Force (FATF) revised its guidelines in October 2018 to recommend the registration and licensing of all intermediaries in the crypto ecosystem in order to combat money laundering and terrorist financing.

While the French regulatory framework has potential, its success depends on a cost-benefit analysis. Given that the blockchain ecosystem is mainly composed of start-up businesses, it is not certain that the benefits outweigh the regulatory costs. As these market participants are very mobile, and laws have a territorial scope, enforcement may become an issue. For more details, please consult this extended article by the author.

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