Following an Ordinance dated December 9, 2020, completed by two decrees to be published by the end of 2020, the following adjustments to the “PSAN” (digital asset service providers) regime are implemented, some of them pending the decrees.
The following table summarizes the measures:
|Activities where registration is mandatory||Custodians, service provision of purchase or sale of digital assets against fiat currency||Same + operation of a trading venue and service provision of purchase or sale of digital assets against other digital assets (6 month delay to register; i.e. end date 06/2021)|
|Registration procedure||Pre-approval procedure with French regulators (AMF and ACPR), on honorability and AML-CFT procedures||Lightened pre-approval procedure for custodians, purchase or sale of digital assets against fiat currency No pre-approval procedure for MTFs and purchase or sale of digital assets against other digital assets (immediate registration)|
|Territoriality||All the actors that provide their services to clients resident or established in France. Enforceability of those rules was unclear.||All the actors that provide their services to clients resident or established in France (see below detailed criteria).|
|AML-CFT / KYC rules – applicable to all the service providers in the scope of the mandatory registration||No mandatory KYC for occasional clients if < 1 000 € volume Full KYC for continued client relationships||Full KYC for all kind of transactions (crypto-fiat and crypto-crypto by regulated entities), all amounts (from the 1st euro), all type of clients (continued and occasional)|
Changes in the mandatory registration procedure
There are 2 components to the French regulation: a mandatory registration and an optional license (see details in our note). The mandatory registration entails honourability checks and AML-CFT procedures. The registration procedure was only mandatory for custodians and exchanges between euros and digital assets and entailed a complete (and somewhat lengthy) pre-validation procedure with the French regulators (AMF and ACPR).
Following the Ordinance, companies that provide exchanges between digital assets and trading venues in digital assets fall into the mandatory registration regime.
The change is accompanied by:
- Six-month delay for registration for the two newly targeted categories of actors (expiring on June 10, 2021).
- A change in the pre-validation scope, as follows:
- Service 1 and 2 registration includes a pre-validation procedure with the French regulators, but with simplified scope to accelerate the processing time.
- Service 3 and 4 registration does not include a pre-validation procedure with the French regulators, the registration is therefore effective immediately. This does not mean that the obligations are less stringent. Moreover post-validation checks by regulators can occur at any time.
Clarification of the PSAN regime’s territoriality
The current AMF doctrine states that all the actors that provide their services to clients resident or established in France need to register in France with an extensive list of criteria defined (§3.2). It was unclear whether the AMF could enforce those guidelines as the law does not provide clear territoriality rules.
The Ordinance clarifies the territoriality rules in line with the AMF doctrine. All the companies that are providing their services to clients resident or established in France are in the scope of the mandatory regulation, as defined by the AMF:
“The service is provided to customers resident or established in France when one of the following criteria is met:
- the service provider have a commercial premises or a place intended for the marketing of a service on digital assets in France;
- the service provider has installed one or more machines offering digital asset services in France; li>
- the service provider sends a communication of a promotional nature, whatever the medium, to customers residing or established in France. By way of example, this covers communication via the press, radio, television, posters, a display banner, a banner, a website, social networks, mobile applications, road shows, participation to trade shows, any invitation to an event, affiliate campaigns, retargeting, the use of a response form or the invitation to download an application or take training, etc .; li>
- the service provider organizes the distribution of its products and services via one or more distribution networks intended for customers residing or established in France;
- the service provider has a postal address or telephone number in France;
- the service provider has a .fr domain name.
The writing of one or more pages of the site and / or any communication related to a service on digital assets in French must lead to checking whether one or the other of the above criteria is met to establish whether said digital asset service is provided in France.
The list of criteria above for determining whether the digital asset service is provided in France is not exhaustive. “
Hardening of AML-CFT / KYC rules
The Ordinance will be backed by two decrees to be published by the end of 2020 aiming at reinforcing the anti-money laundering and counter-financing of terrorism (AML-CFT) framework applicable to digital asset service providers (“PSAN”). The French Government legitimated such strengthening following the terrorist attacks that happened in France recently and the news that money was transmitted to Syria with the help of bitcoin.
Through the coming decrees, the Government will reduce the minimum level before application of mandatory AML-CFT / KYC procedures to 0 EUR. This change excludes effective use of the “occasional” transactions regime previously allowed – where no KYC was mandatory for transactions up to 1 000 EUR when the client was “occasional”.
In practice, every entity that needs to be registered in France (following criteria defined above) would be required to apply in full force the French AML-CFT / KYC dispositions, notably regarding identification of clients irrespective of the amounts deposited / exchanged by the client.
KYC procedures defined by the French Monetary and Financial Code are limitative. The identification of the client, when performed remotely, must be performed:
- using an identification process that has been certified by the French certification authority (ANSSI) – only 1 today ; or
- by performing 2 of the 6 procedures defined by Article R. 561-5-2 of the Code.
Incoming KYC service providers
The Government was informed by Adan that those means for conducting full KYC procedures remotely were not adapted to crypto-native actors, as the limitative list of procedures are not easy to comply with, notably for crypto-to-crypto transactions or custodians. There’s currently no certified actor that can implement all the obligations. The extension of AML-CFT / KYC obligations makes this particularly problematic for crypto-to-crypto service providers.
In response, we have been informed by the Ministry of Economy and Finance that the French certification authority (ANSSI) should finish the certification of new KYC services in a short timeframe.
It should also be noted that French KYC service providers and Adan members, informed of those difficulties, are implementing new solutions that would be adapted to crypto-to-crypto and custody activities and compliant with two of the six limitative procedures defined by the French Monetary Code.
More information on those initiatives will be relayed by the Adan when available.