France has just enacted two new regulatory regimes for the crypto sector, under its Action Plan for Business Growth and Transformation law (a.k.a. the Pacte Law). These regimes aim to foster innovation by providing legal certainty, support and greater access to private capital for utility token issuers and digital asset service providers.
Regime 1 – for utility token issuers
A regulatory vacuum to fill
In most EU jurisdictions, there is generally no regulated path available for a company seeking to raise funds through a public offering of utility tokens (i.e. digital assets that represent rights against the issuer but which do not amount to “financial instruments”). This regulatory vacuum has often stifled investment, as it means sound innovative investment opportunities are lumped into the same category as total shams.
A differentiator for utility token offerings
France has now introduced an optional visa regime to enable issuers of utility tokens that meet certain requirements to differentiate their offering, with a stamp of approval from the French financial regulator – the Autorité des marchés financiers (AMF). Issuers of approved token offerings will also benefit from certain rights and privileges, such as a right to actively solicit prospective investors and to open a bank/payment account (which can sometimes be a challenge for those in the crypto space).
A utility token offering will be eligible for the AMF’s visa if its issuer:
- is a legal person incorporated or established in France;
- provides an information document (i.e. whitepaper) with all relevant information on the issuer, the project to be financed, the offering, the rights attached to the tokens and the associated risks;
- implements a satisfactory arrangement for monitoring and safeguarding the funds/ digital assets raised during the offering; and
- complies with French anti-money laundering, counter terrorist financing and asset freezing regulations.
Regime 2 – for digital asset service providers
Another regulatory vacuum to fill
The market infrastructure for holding and transacting in digital assets (including utility tokens and cryptocurrencies) has also suffered from a lack of regulation across the EU. Many custodians, broker/dealers, trading platforms operators and other digital asset service providers are operating free from any prudential, governance or conduct standards – and this has posed an additional layer of risk for investors.
Mandatory minimum standards for digital asset custodians and digital asset-to-fiat exchange platforms
The Pacte Law makes it compulsory for those offering digital asset custody services or platforms for buying/selling digital assets in exchange for fiat currencies to register with the AMF. The AMF will only grant such registration if the following requirements are met:
- the senior managers and beneficial owners of the service providers are “fit and proper”;
- the beneficial owners guarantee that their service providers are soundly and prudently managed; and
- the service providers comply with French anti-money laundering, counter terrorist financing and asset freezing regulations.
A differentiator for digital asset service providers
These, and a broad range of other, digital asset service providers may also apply for an optional licence administered by the AMF. Licensed service providers must adhere to a common set of core rules (e.g. capital, internal control and cyber security requirements) as well as rules specific to the services offered. Again, it is anticipated that this licence will serve as a quality differentiator for the market.
Greater access to institutional investment
The Pacte Law also enables professional specialised investment funds and professional private equity investment funds to invest in digital assets, subject to certain restrictions. This is expected to broaden the pool of private capital available for the sector.
A model for Europe
Within the EU, France joins Malta and Gibraltar as jurisdictions that have proactively sought to regulate the crypto sector. Meanwhile, the European Commission has been considering whether the EU needs a common set of rules for these purposes. It will no doubt be looking at these new French regimes as a potential model for that framework.
The implementation of these new regimes is subject to the enactment of implementing regulations. These implementing regulations are expected to be published shortly.
Should you have any queries about these new regimes, please don’t hesitate to get in touch.