France passes new crypto registration rules for firms

The French National Assembly passed a set of licensing rules for crypto firms operating in the country as part of a broader bill aimed at harmonizing French law with European Union standards.

The final National Assembly vote tally was 109 in favor to 71 against. The French Senate already passed the bill, so it will travel next to French President Emmanuel Macron, who has 15 days to either approve it or send it back to the legislature, though the bill is expected to become law. 

Following an industry push, the provisions will take a milder form than French policymakers originally proposed amid a regulatory push after the collapse of FTX — taking a step toward broader anticipated EU rules.

The rules on crypto firms mean that French companies offering crypto services must attain a registration more robust than currently offered from the Financial Markets Authority (AMF). France's action is meant to complement the EU-wide Markets in Crypto-Assets legislaton, expected to pass a final European Parliament vote in April, essentially bringing French registered firms into compliance with the anticipated law ahead of schedule. 

The beefed-up registration process will apply to companies registering from July 2023 onward. Companies that are already registered with the AMF, following existing anti-money laundering provisions, will be able to continue to operate as they are until the end of the transition period which MiCA offers, likely in 2026.

Potential barrier to innovation

“While this is a good step forward, it is not a huge leap, rather a bridge towards MiCA,” says Anne-Sophie Cissey, head of legal and compliance at Paris-based crypto service company Flowdesk. "For crypto companies, the message is prepare, get ready for MiCA."

The new registration proposal would lock down higher regulatory standards for crypto service providers. It would ensure their compliance in areas like governance, rules on the segregation of funds, and guidelines for reporting to regulators. Firms would also be required to provide clear disclosures on risk and implement policy for conflict of interests. Many of these provisions overlap with those outlined under the EU's regulatory framework expected to soon be passed by the European Parliament. France's new regulations would take effect well before MiCA is expected to though, as the Europe-wide framework would take effect over a year after its final vote. 

Faustine Fleuret, head of French crypto lobbying group ADAN, told The Block that while it is desirable for crypto companies to comply with measures to bolster consumer protection, she is afraid the requirements will set too high a bar for smaller companies. This may cause a competitive disadvantage compared to those in other jurisdictions.

“The risk is that they will simply not be able to launch their activities and that France will be deprived of this innovation," Fleuret said.

“While the French regulation is a blueprint for MiCA, complying with that will surely be more difficult for smaller projects — to the point that we see the fears that it would drive fresh start-ups from Europe not entirely unjustified,” Cissey added.

A compromise for industry

However, the current provisions are a far milder version of the former implications of the bill, formed as a compromise between policymakers and industry.

Social-liberal Senator Hervé Maurey originally proposed a December amendment which would oblige French crypto firms to acquire a never-before-attained license with the AMF, following a spur to regulate crypto following the collapse of crypto exchange giant FTX in November.

“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. The high-tier license, which is currently optional for crypto firms, would have been mandatory by October 1, 2023.

Following a push from the crypto industry, liberal-centrist Senator Daniel Labaronne proposed to instead offer a more attainable registration and push the deadline to 2024. 

Fleuret told The Block at the time that "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." 

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.