Cryptocurrency License in France: An Overview

The policy of the French government towards the development of crypto-assets in France appears to be supportive, provided the businesses are regulated. The French regime introduced a specific regulation for Digital Asses Service Providers (DASPs) and Initial Coin Offerings (ICOs) in the French Monetary and Financial Code.

This DASP regime requires mandatory registration for four services on digital assets and obtaining an optional license for all the other digital asset services. There are more than 40 DASPs that have obtained their licenses from the AMF, and many others are in the process of obtaining their licenses.

The definition of crypto-assets was clarified by the French Central Bank in the French Monetary and Financial Code as “any instrument that contains in numerical form, non-monetary units of value that can be held or transferred for the purpose of acquiring a service or good, but not representing a claim on the issuer". The French Central Bank has also made it amply clear that crypto or digital assets cannot have the status of legal tender/currency in France and are not considered electronic money. Those entities that are acting on a usual basis as an intermediary or counterparty to sell or acquire such crypto assets have to comply with certain Anti-Money Laundering (AML) obligations.

Those businesses that are providing intermediary services in exchange for cryptocurrencies against the fiat currency in France are required to be approved as payment service providers.

Regulatory Framework for Cryptocurrency license in France   

Currently, there are more than 300 businesses that are offering crypto/digital asset services in France. In 2017, France enacted legislation that permitted the use of Distributed Ledger Technology (DLT), such as Blockchain technology, to transfer and record the unlisted transactions of unlisted securities. Subsequently, in 2018, France also enacted a regulatory network for the issuing of Initial Coin Offering (ICO) and other related services in relation to digital assets in France. 

There are a number of fintech companies in France that are offering digital assets and associated services such as cryptocurrencies and tokens and qualify as digital asset service providers (prestataires de services sur actifs numeriques) or PSAN providers. The following digital asset services are offered by these PSAN providers:

• Custody of private cryptographic keys and other digital assets on behalf of 3^rd parties;
• Holding, storing and transferring digital assets;
• Sale or purchase of digital assets against the fiat currency;
• Trading one type of digital asset for other types of digital assets;
• Operating a digital asset trading venue;
• Receptions and transmission of orders on digital assets on behalf of 3^rd parties;
• Managing a portfolio of digital assets for the 3^rd parties;
• Advising subscribers about digital assets;
• Underwriting of digital assets;
• Guaranteed placement of digital assets; and
• Non-guaranteed placement of digital assets

Regulation of cryptocurrencies in France is done with the following regulatory framework:

French law definition for digital assets is subdivided into the following two categories.

1. Cryptocurrencies or virtual currencies: According to the French Monetary and Financial Code, a token is a digital representation of a security which is not guaranteed by any French public authority or a central bank, which is not attached to any legal tender and which does not have a legal status of a currency. To put it simply, cryptocurrency in France is a crypto-asset that corresponds to a means of exchange without representing a right on the issuer. However, it is accepted as a means of exchange by legal and natural persons, and it can be transferred, stored or exchanged electronically. The French courts have declared cryptocurrencies as intangible movable assets. These assets may be subject to a proprietary right and related legal action as is the case with any other intangible movable asset.
2. Utility tokens: utility tokens in France are defined as any intangible asset that represents, in digital form, one or more than one rights which may be issued, recorded, stored or transferred by means of a shared electronic recording device allowing the owner of the asset to be identified either directly or indirectly. To put it simply, a utility token is a digital representation of a right to the issuer to access a service or technology.

Regulatory Authorities for Cryptocurrency license in France  

As mentioned earlier, there are two major regulatory authorities for issuing cryptocurrency licenses in France. These are:

1. French Financial Markets Authority (Autorite des Marches Financiers) or (AMF) is responsible for the enforcement of these regimes, publishing recommendations and guidelines.
2. French Banking and Insurance Authority (Autorite de Controle Prudentiel et de Resolution) (ACPR)

A cryptocurrency license in France, i.e. a PSAN license, is issued by the AMF after obtaining due assent from ACPR. 

If you intend to obtain your cryptocurrency license in France, speak to our Cryptocurrency and Fintech business Consultants at Enterslice.

Businesses that require PSAN License in France

In France, the regulation and registration of digital asset service providers are based on the following two regimes:

1. Mandatory Registration

It must be noted that for providing the abovementioned services, registration with the French regulators is mandatory only for the following digital assets services:

• Custody of private cryptographic keys and other digital assets on behalf of 3^rd parties and holding, storing and transferring of digital assets.
• Sale or purchase of digital assets against the fiat currency.
• The platforms that are trading digital assets and buying and selling of digital assets in exchange for other digital assets.

2. Optional License

The PSAN license is provided to any digital asset service provider that either request the authorities or the one who meets the underlying requirements. 

Thus, all the digital asset service providers can, but are not forced to, ask the authorities for the optional license. However, crypto-custodians and crypto-fiat exchanges are obligated to register with the Authority.

Mandatory Registration of Digital Asset Service Providers

All the Digital Asset Service Providers offering the services as crypto-custodians or crypto-fiat services are bound to get themselves registered with the AMF, and they are further prohibited from providing their services/ commencing their operations without getting registered with the AMF.

Additionally, all the Digital Asset Service Providers carrying out their activities within the territory of France are required to be registered with the AMF. These entities include the following types of entities:

• The ones who are established in France; and
• Others that are providing their services to clients who are either residents or established in France

Those Digital Asset Service Providers that are mandated to be registered with the AMF are not under an obligation to have an establishment in France. Such entities are free to establish themselves in any country belonging to the European Union or in a European Economic Area as long as they comply with the mandate of AMF. Following are the requirements with which the registered Digital Asset Service Providers are bound to adhere:

• Appointment of honourable and competent managers;
• Individuals in the management having supervisory functions are supposed to be careful, honourable, competent and sound, and;
• Integration of Anti-Money Laundering and Combating the Financing of Terrorism Measures (AML-CFT measures). Among the AML-CTF measures, the issuer is supposed to define a system ensuring compliance with the Know Your Customer (KYC) obligations regarding their clients, monitoring the risks associated with money laundering and terror financing and compliance with the asset freeze requirements.

Registration with the AMF provides Digital Asset Service Providers with some specific rights, such as unrestricted access to banking services. They are not refused access to the deposit account and payment account services by credit institutions. (However, in practice, financial institutions show reluctance to enter into relationships with digital asset activities even after the Digital Asset Service Providers get themselves registered with the AMF. This is where Enterslice offers your business bespoke solutions to help your business engage with financial institutions)

Registration with the AMF also increases the accountability of the credit institutions towards the Digital Asset Service Providers. For instance, if a credit institution does not answer or refuses any request for a duration of 2 months, the credit institutions have to furnish an explanation for such refusal. Furthermore, ACPR can offer the Digital Asset Service Provider the option of asking the French Central Bank to appoint a credit institution to provide the required banking services to the service provider.

Registration Procedure in case of Mandatory Registration

There are two distinct procedures for the registration of Digital Asset Service Providers:

1. For the registration of crypto-fiat service providers and crypto-custodians:

For the registration of such service providers, the first step involves the submission of a registration form by a prospective Digital Asset Service Provider to the AMF. The AMF then verifies the information and eligibility of the service provider. After doing the due verification and being satisfied with the eligibility of the service provider, AMF makes a request to the ACPR to obtain its opinion. This process takes an entire period of 5 days. The ACPR gives its opinion in response to the request made by the AMF, and this process may take a maximum period of 3 months. Thereafter, AMF, after receiving the opinion of the ACPR, provides a negative or positive opinion about the application to the applicant, i.e. service provider. This process may take a maximum duration of 6 months. 

If no response is sent from the end of AMF within a period of 6 months from the date of filing the registration form, the silence is deemed to signal acceptance and the Digital Asset Service Provider is authorised to commence its business operations from there onwards.

The entire process of obtaining the assent, in the case of mandatory registration takes a maximum duration of 6 months from the date of filing the application by the prospective Digital Asset Service Providers.

2. For registration of crypto-to-crypto service providers and digital assets trading facilities:

There is no specified provision for obtaining pre-approval from the AMF. Here, the registration process only involves the one-time filing of a completed file for registration purposes with the AMF. Once AMF grants registration, the name of such service provider is added to the white list of Digital Asset Service Providers held with the AMF.

Consequences for not obtaining mandatory registration by Service providers

If the activities performed by a Digital Asset Service Provider fall within the ambit of mandatory registration and the company fails to comply with such formalities, provide incorrect or incomplete information, or fails to implement KYC/AML obligations specified in the file, the following sanctions can be imposed:

Optional Registration of Digital Asset Service Providers

All the Digital Asset Service Providers, except the ones mentioned above, have the option of providing their services without obtaining a license with the AMF. These service providers can get the PSAN license, although it is not obligatory/ necessary to obtain one. 

The scope of Digital Asset Service Providers that are eligible to obtain the PSAN license is very broad compared to other regulatory mechanisms. For a Digital Asset Service Provider to obtain the PSAN license, it has to satisfy the two elements of eligibility:

1. It must be undertaking at least one of the activities mentioned above relating to digital asset services
2. It should be established as a company in France, either as a subsidiary or as a branch office.

For a Digital Asset Service Provider to obtain the PSAN license, it has to furnish the following information:

• General information to be provided include the name, contact point, address, all the services that will be offered with or without the licenses, the identity of the shareholders (both natural and legal) and those persons that exercise a significant influence over the management of that company, incorporation necessary papers of the company of the service provider;
• Financial information is also supposed to be furnished, which includes the current financial position of the applicant, the financial statements of the existing companies, forecast date etc.;
• A professional liability insurance to be in place or according to the specific capital requirements;
• A secure and resilient IT and Cybersecurity system;
• A safe internal control system;
• Management of the conflict of interest in the management system;
• Providing fair, unambiguous and non-misleading information to the clients and also the risks and concerns related to the crypto-assets
• An efficient claim management policy
• Publication of their pricing policy

Depending on the kind of activities undertaken, a Digital Asset Service Provider has to satisfy the following conditions in order to obtain the PSAN license. Some of the common conditions that must be satisfied by all the service providers, irrespective of the kind of services offered, are as follows:

• Appointment of honourable and competent managers;
• Individuals in the management having supervisory functions are supposed to be careful, honourable, competent and sound, and;
• A business plan for each service and the ways to put them in place
• Periodic information to the clients and terms of use and privacy notice

Registration Procedure in case of Optional Registration

Following is the procedure for obtaining an Optional Registration by those Digital Asset Service Providers who are offering services not covered by mandatory registration:

For the registration of such service providers, the first step involves the submission of a registration form by a prospective Digital Asset Service Provider to the AMF. The AMF then verifies the information and the eligibility of the service provider. After fulfilling the due verification and being satisfied with the eligibility of the service provider, AMF makes a request to the National Cybersecurity Agency of France (ANSSI) to obtain its opinion. This process is entirely optional at the end of the AMF. The ANSSI gives its opinion in response to the request made by the AMF, and this process may take a maximum period of 2 months. Thereafter, AMF, after receiving the opinion of the ANSSI, provides a negative or positive opinion about the application to the applicant, i.e. service provider. This process may take a maximum duration of 6 months. 

If no response is sent from the end of the AMF within a period of 6 months from the date of filing the registration form, the silence is deemed to signal the acceptance and the Digital Asset Service Providers is authorised to commence its business operations from then onwards.

The entire process of obtaining the assent in the case of optional registration takes a maximum duration of 6 months from the date of filing the application by the prospective Digital Asset Service Providers.