After weeks of French officials calling for stricter crypto regulation in France, a new regulatory regime on crypto firms will go to a vote in the country's National Assembly on Tuesday evening.
French legislators are debating whether to impose mandatory licensing for digital asset service providers before European Union-wide regulations come into effect towards the end of 2024.
Social-liberal Senator Hervé Maurey originally proposed that digital asset companies should obtain a mandatory license by October this year. This received a chilly reception from the crypto industry, as not a single company has obtained the hard-to-get accreditation, which is currently optional.
“The recent bankruptcy of FTX has highlighted the risks inherent in any investment in crypto assets, especially when the company operates outside of any regulation,” Maurey wrote in the text accompanying an amendment he introduced to a broader bill transposing EU law. In addition to Maurey's amendment, the National Assembly will weigh two others: one that would push the licensing deadline back, giving companies more time, another that would replace the mandatory license with a simpler registration.
At present, companies offering crypto services in France opt to register with the financial regulator, the Financial Markets Authority (AMF), instead of obtaining a license. 60 companies are currently on the list, meaning the French government sees them as professionally competent and compliant with anti-money laundering laws. The list includes Binance France, the global crypto behemoth's local subsidiary, and Société Générale, one of the country's leading banking groups.
To get a full license from the AMF, however, firms need to secure liability insurance or minimum equity, nail down internal controls and follow cybersecurity protocols along with other organizational requirements. No firms have yet achieved this.
With an industry push, liberal-centrist Senator Daniel Labaronne proposed an alternative amendment last Friday, suggesting that the more common registration process could beef up with more measures on consumer protection and corporate controls for crypto firms to abide by under supervision of the AMF. These measures would be more achievable compared to the high-tier license.
Earlier last week, Labaronne also proposed to move the licensing deadline to January 2024 instead of October 2023, to buy the industry more time. This leaves three possibilities for new national laws on crypto firms that policymakers will determine during Tuesday’s vote.
A bridge to MiCA
The last amendment by Labaronne is the mildest option for the French crypto sector. It also builds the competence of firms towards provisions suggested under the EU’s Markets in Crypto-Assets regulation, which will become a requirement in the coming years, Faustine Fleuret, head of French crypto advocacy group ADAN, told The Block.
The upgraded registration option covers requirements on governance, reporting to regulators and segregation of funds — all of which are already covered by MiCA, which is expected to pass a final vote in April.
"These proposals are a step in the right direction, both to effectively protect the investor and to preserve the dynamics of innovation and business creation in France," Fleuret said.
Fleuret is also worried that the AMF lacks sufficient resources to take on the influx of crypto supervision, especially if the more stringent amendments accelerating mandatory licensing pass in the National Assembly. The French regulator is still building up capacity to supervise the crypto sector.
“The resources allocated by the AMF to the process of these files are constantly increasing and the AMF will continue to mobilize the resources necessary to carry out this mission,” an AMF spokesperson said, referring to the possibility of accelerated licensing.
Whichever amendment passes, companies which are already registered will be able to continue to operate until the end of the transition period which MiCA offers, likely in early 2026.
The push for stricter regulation on for crypto firms is a common call-to-action from policymakers post-FTX debacle. In the European Parliament, MEPs urged regulators to speed up the implementation of MiCA. Regulators quickly dispelled this would be a feasible possibility.
The AMF joined the chorus of French policymakers and central bankers supporting the acceleration of crypto licensing in response to November's meltdown of the crypto exchange giant.
“The crypto universe must now make a clear choice to embrace regulation and investor protection. This is in its own interest because one black sheep can easily bring an entire industry into disrepute,” said AMF Chair Marie-Anne Barbat-Layani earlier this month. “The AMF, like the French Parliament, is calling for an acceleration of the transition to mandatory registration for service providers that are currently not registered.”
Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.
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