BUIDL in France

On December 9th, Adan held the “BUIDL in France” conference, an event with an international scope aimed at presenting the regulatory framework for crypto-assets in France. The French crypto-blockchain ecosystem now counts more than a hundred companies, and this success is largely due to a clear and favourable regulatory environment.

La conférence a accueilli de nombreux invités distingués, Valéria Faure-Muntian (Députée de la Loire), Laurent Camus (Fintech-Innovation Officer, ACPR), Timothée Huré (Adjoint au Chef du Bureau Épargne et Marché financier, DGT), Pierre Person (Député de Paris – Rapporteur de la mission sur les monnaies virtuelles), Florian Glatz (Président, Bundesblock) et Marina Markezic (Fondatrice, Blockchain Think Tank Slovenia).

The French Crypto Framework: At the forefront of the European regime

The French “crypto-nation” is mainly known for its unique and audacious regulatory framework. Faustine Fleuret (Adan) gives an overview.

Passed in 2019, the PACTE law, a precursor to European regulations, provides a framework for players in digital assets, from their issuance to the secondary market. Its first specificity lies in its hybrid nature, combining mandatory and optional aspects. It is thus divided into three main components:

  • an optional visa for token issuers (ICOs);
  • mandatory registration for custodians and crypto-fiat exchange platforms, and;
  • an optional license for digital asset service providers (DASPs).

Its second quality is that it is an ad hoc regime: it defines tokens and digital assets as new asset classes with dedicated and therefore adapted applicable rules. An Adan article, in English, usefully details the regime applicable to token issuers and DASPs.

While PACTE only concerns so-called “non-financial” crypto-assets, France has also looked into security tokens, within limits established by the harmonisation of financial regulations at the European level. Thus, since 2017, the issuance and transfer of ownership of certain non-listed financial securities may be recorded in blockchains (minibons and so-called “Blockchain ordinances” orders). The AMF has also conducted multiple reviews to identify regulatory obstacles for security token project holders, concluding on the need to create a European Digital Laboratory. The idea has made its way to the European Commission.

France has also embarked on a vast tax project aimed at clarifying the rules applicable to transactions involving digital assets. In 2019, a new sui generis regime developed a genuine tax regime for the digital assets of individuals. For professionals, the accounting treatment of digital assets – resulting from their characteristics and uses – and thus, their taxation methods have been clarified. But this work is not yet complete.

“The first objective of [PACTE law] was to allow the use of the technology when it was not possible. In many existing texts, it was not possible to use blockchain [technology] simply because we didn’t imagine that blockchains would one day arise.”

Timothée Huré

The French Government supports crypto-asset innovation

During her introduction, Valéria Faure-Muntian carried a positive and encouraging message regarding the French crypto-asset space. She referred to the PACTE law as the first step in a plan to “transform our country and enable it to adapt to current and future challenges”. According to Mrs Faure-Muntian, this project requires a transformation of our economic infrastructure and the PACTE law allows us to frame this evolution, rather than to prohibit it.

Mrs Faure-Muntian stresses that the French regulatory framework makes it possible to attract quality projects and talent while reassuring investors. She also recalls the advantages offered by blockchain technologies in terms of security and transparency, an advantage for the banking and financial sector. “We have made a big step forward, but we still have a long way to go.”

In this respect, she qualifies the statements of the Minister of Economy, Finance and Recovery Bruno Le Maire by stressing that it is “it is wrong to [confuse] cryptocurrencies and terrorism”. The work of the public authorities on the AML-CFT, in which Adan is an active stakeholder, will help to reduce doubts and improve security with regard to identification of crypto users.

« Crypto and blockchain have a bright future. »

Valéria Faure-Muntian

An increasingly positive approach by public authorities

In the last few years, the perception of institutions towards cryptocurrencies and crypto-assets has evolved, as shown by the comments made during the round-table discussion on the French environment.

Laurent Camus underlines that innovation in the crypto-asset sector aims to improve the infrastructure of the financial sector while recalling that the role of regulators is to mitigate risks for existing players.

Timothée Huré reminds us that we are lucky in France to have MPs who are interested in the subject and a Minister of Economy who believes in the potential of these technologies. The advantages in terms of efficiency, security and cost explain France’s willingness to adopt a regime to encourage the development of crypto-assets.

Pierre Person tempers this by specifying that crypto-assets remain relatively unknown by the political class, which fuels some of the concerns we have observed (money laundering, financing of terrorism, energy footprint). However, the government recognises opportunities and encourages the development of the French sector.

Promote innovation and encourage entrepreneurship

In recent years, and particularly since President Macron took office in 2017, France has been undergoing a process of modernisation to the benefit of entrepreneurs. The term “startup nation” is often used by the President and members of the government to evoke this evolution and the entrepreneurial mindset. This is what Simon Polrot (Adan) points out in evoking these positive signals that help support the environment.

The French government supports companies in a variety of ways. It invests either through direct financing or in the form of loans, and a great deal of aid is available at all levels of government to support entrepreneurship. This investment extends to the fiscal aspect. In 2022, corporate income tax will be reduced to 25% and many tax credits for research and development activities are available to companies based in France.

The entrepreneurial ecosystem has been developing at a fast pace in recent years. Many private organisations such as La FrenchTech and France FinTech are a great source of support to startups and promote the French ecosystem. These bodies are themselves supported by the State. This abundant ecosystem has also made it possible to attract more and more private investors. Once known for their risk aversion, venture capitalists are increasingly active in seed phase deals and very open to crypto-assets.

It is also important to note the modernisation of the infrastructure, particularly concerning administrative procedures. It is now possible to create a company entirely online, and the costs for doing so have been drastically reduced. Generally speaking, the regulations for companies are well defined. Businesses have obligations to the government and consumers, but these are clear and unambiguous.

France at the heart of the European crypto ecosystem

If France appears to be a welcoming land for crypto innovation, how does it stand within the European Union?

France has played a decisive role in constructing European regulation of the crypto-asset sector. On September 24th, the European Commission revealed its two draft regulations on non-financial crypto-assets on the one hand and security tokens on the other. The former is largely inspired by the PACTE law, while the latter proposes the creation of a pilot regime, which is, in fact, another name for the European Digital Laboratory imagined by the French Financial Markets Authority (AMF). While this French influence is in itself very positive and reinforces France’s position at the forefront of crypto innovation, it above all enables it to smoothly prepare for the transition to the future European regime thanks to a framework already in place and informed regulators.

Marina Markezic and Florian Glatz allowed us to put into perspective the development of the French crypto, from a Slovenian and German perspective. From a regulatory point of view, France stands out where neither Slovenia nor Germany has erected their equivalent of the PACTE law. Nevertheless, Slovenia has carried out important work and regulators have been in close dialogue with the industry for several years: tax clarifications have been particularly favoured, even though the country has many early Bitcoin holders (5% of the population today). It should be noted that Slovenia will take the presidency of the EU Council at the beginning of 2021, at the time during which negotiations on the MiCA proposal and the European pilot scheme project will be happening. On the German side, regulatory efforts have focused more on “tokenised” financial instruments: a draft law – the Electronic Securities Act – authorises the issuance of bearer securities on the blockchain, specifies the requirements for this type of issuance (the legal status of issuers and custodians, information requirements, etc.) and provide for the necessary amendments to the Civil Code (similar approach in Liechtenstein with its Blockchain Act). In September 2019, Germany also adopted a national blockchain strategy with strong concrete implications, including the launch of a digital identity program, which Chancellor Angela Merkel recently raised as one of the priorities for the country.

France: A “Crypto-Nation” without innovation?

In 2019, French Minister of Economy Bruno Le Maire presented his vision of “crypto-nation” at the Paris Blockchain Week, emphasising that he preferred France be “one step ahead” on this breakthrough technology. Since then, France has developed a clear regulatory framework that has enabled many companies in the sector to emerge. This is the point of view supported by Member of Parliament Person at the conference: “We have chosen to take a positive approach by encouraging the companies to adopt the regulatory framework without making it a requirement. The objective of the AMF’s ICO Visa is to allow companies to legitimise their activities with consumers and financial institutions.”

But while France got off on the right foot in laying the groundwork for innovation, it is in danger of losing ground. While times are difficult for the French and global economy, many structural problems need to be resolved. Negative views on crypto are still widely held, as illustrated by Mrs Faure-Muntian. This results in difficult relations with institutional finance, and lack of access to the GAFA’s advertising channels. And while the advent of a European framework for crypto-asset markets will require several more years of negotiation, recent regulatory changes are threatening the attractiveness and competitiveness of the French crypto industry. Last week’s publication of an ordinance tightening the anti-money laundering and anti-terrorist financing measures applicable to DASPs has led many players to question the ambiguity of the discourse of French decision-makers: crypto-nation or anti-innovation?