The Virtual Currency Regulation Review: France

Introduction to the legal and regulatory framework

As in many countries, the first contact between cryptocurrencies and French law was through the lens of financial crime. In its 2011 annual report, Tracfin (the French financial intelligence unit tasked with fighting financial fraud, money laundering and terrorism financing) was the first French authority to mention Bitcoin.2

Cryptocurrencies then came under scrutiny from other regulators during the Bitcoin bubble of November and December 2013. The French Central Bank published a short report on 'the dangers linked to the development of virtual currencies'.3 In January 2014, the Prudential Supervision and Resolution Authority (ACPR), the French banking and insurance regulatory authority, stated that entities receiving legal currency on behalf of clients in relation to the purchase or sale of cryptocurrencies were required to obtain a licence to provide payment services.4

In December 2016, cryptocurrency trading platforms and brokers were included in the list of entities subject to the anti-money laundering legislation.5

In 2016, a distinction arose between the concept of blockchain and the universe of cryptocurrencies. Experimentations using blockchain technology to simplify various technological processes were initiated. Several French banks joined the R3 consortium (which developed a private blockchain platform named Corda). The Deposits and Consignments Fund (a state-owned financial institution) launched LaBChain, a blockchain innovation lab that started working in July 2016 on a business case dedicated to the use of blockchain to manage digital identity and know-your-customer procedures.6

Simultaneously, the French government started working on a legal framework allowing the use of blockchain for the registration of securities. Registration on a blockchain was first limited to short-term bonds dedicated to small and medium-sized enterprises (SMEs),7 but was soon extended to all unlisted securities pursuant to Ordinance No. 2017-1674 of 8 December 2017.

In 2017, the renewed cryptocurrencies and initial coin offerings (ICOs) bubble led the French regulators and the government to start working on the creation of a dedicated legal framework. The French government tasked Jean-Pierre Landau, a former top executive of the Central Bank, with preparing a report on cryptocurrencies, which was published in July 2018. Three working groups were created among the French Parliament to prepare reports on ICOs, blockchains and cryptocurrencies. In addition, both the French Financial Markets Authority (AMF) and the ACPR created internal fintech teams acting as 'innovation hubs' in 2016.

In October 2017, the AMF published a discussion paper on ICOs.8 Following an extended consultation of experts and actors of the French cryptocurrency and ICO economy, it was finally decided to create a dedicated framework for ICOs, rather than try to include them in the scope of the existing regulation of securities offerings. This legal framework was included in Act No. 2019-486 of 22 May 2019 on the growth and transformation of enterprises (the PACTE Act), which contains many measures aimed at facilitating the growth of SMEs and giving employees and stakeholders more control over corporations. Before its adoption, the PACTE Act was amended by the National Assembly and the Senate, and an ad hoc legal framework for intermediaries dealing with cryptocurrencies was added.

In the meantime, widespread lobbying was conducted by the French cryptocurrency community (with the notable help of several legislators interested in cryptocurrencies) to adapt the French tax regime. The capital gains related to cryptocurrencies were taxed at very high rates and this became a significant problem during the 2017 bull market, as many individual investors threatened to leave France and cash out in tax-friendly jurisdictions. Consequently, Act No. 2018-1317 of 28 December 2018 (the 2019 Budget Act) created a specific tax regime that taxes capital gains of individuals at a flat rate of 30 per cent.

Now that the PACTE Act has entered into effect, we do not expect that any significant additional blockchain-related legislation will be adopted. However, on 24 September 2020 the European Commission published a digital finance proposal package, including a digital finance strategy and legislative proposals on cryptoassets (with proposals for a regulation on markets in cryptoassets (MiCA) and for a regulation on a pilot regime for market infrastructures based on blockchain (the pilot regime)) and digital resilience. The MiCA proposal is inspired by the French ICO and digital asset service providers (PSANs) regime, and would include a European passport for issuers and service providers. The French regime will disappear when the MiCA regulation enters into force. It is expected that French PSANs will get facilities to convert their French status to the EU regime status.

Securities and investment laws

i Tokenisation of securities and issuance of security tokens

More than a year before the bubble of late 2017, the French government started studying the emerging concept of blockchain technology (or distributed ledger technology).

The first appearance of the concept of blockchain in French law was in Ordinance No. 2016-520 of 28 April 2016, which created a dedicated framework for the financing of SMEs through crowd-lending platforms. The Ordinance allows for the issuance of promissory notes (known as minibons) through a crowd-lending platform. The registration and transfer of minibons can either be done in the traditional way (i.e., the issuer maintains and updates a register of all minibons holders) or by a shared electronic recording system (i.e., a distributed ledger).9

Ordinance No. 2017-1674 of 8 December 2017 took a much bigger step by extending to unlisted securities10 the possibility to use a distributed ledger for their issuance, registration and transfer. These securities tend to be presented as security tokens, although it would be more accurate to call them 'tokenised securities'; in any case, the PACTE Act makes it clear that tokens issued pursuant to ICOs cannot be securities.11

Both Ordinances provided that the technical requirements (i.e., the level of security and authentication) of the shared electronic recording system would have to be specified by a decree to be passed by the government. Instead of rushing this, the government chose to consult the European Commission, which then validated the government's definition of the distributed ledger.12 The much-awaited decree was published on 24 December 2018 (the Decree).13

The Decree provides that the distributed ledgers used for the registration of securities should comply with four technical conditions:14

  1. they must be 'conceived and implemented' in a manner that preserves the integrity of the information recorded;
  2. they must 'directly or indirectly' allow the identification of the owners of securities and the nature and number of securities held;
  3. they must include a business continuity plan, which includes an external data recording system; and
  4. the owners of the securities registered on them must be able to access their statements of transactions.

The Decree does not specify which of the issuer or its technology provider will be responsible for complying with these technical requirements. In addition, it does not address the distinction between private and public blockchains. Although the Decree does not exclude the possibility to issue and register securities through a public blockchain (such as Ethereum), complying with some of these technical conditions could be more complicated if a public blockchain is used.

The Decree also modifies the rules applicable to the pledging of securities to allow securities registered on a distributed ledger to be effectively pledged.15

French start-ups and large corporations have already started using the Decree to tokenise their securities. Carthagea16 and DomRaider17 announced that they planned to raise funds through the issuance of shares registered on a distributed ledger. In April 2019, Societe Generale issued €100 million worth of covered bonds registered on the Ethereum blockchain, as part of a pilot project in which it was also the sole subscriber of the bonds.18 In June 2019, the share capital of a company owning a €6.5 million building located near Paris was tokenised by start-up Equisafe.19 Finally, in April 2021, Societé Générale issued the first structured product in a security token format, which was directly registered on the Tezos blockchain. Similarly, Société Générale was involved in the €100 million bond issuance by the European Investment Bank (EIB) on the Ethereum network.20

However, registering securities on a blockchain is only useful insofar as various burdensome or costly processes, such as the vote at general meetings or the secondary market of unlisted securities, are made easier. While the registration of unlisted securities was greatly modernised pursuant to the Ordinance of 8 December 2017 and the Decree, the other obligations to which an issuer is subject with respect to its shareholders have remained the same, thus creating many practical problems.

In March 2020, the AMF published an analysis on the application of financial regulations to security tokens,21 in which it identified the legal obstacles to the development of security tokens. The AMF notably suggested to the European Commission that a European 'Digital Lab' be created, which would enable national authorities to waive certain regulatory requirements to facilitate the clearing and settlement of transactions involving security tokens. In this respect, as mentioned above, the European Commission has published a digital finance package that includes a proposal for a blockchain pilot regime for market infrastructures with a view to creating a new regime of exemptions to support the development of financial securities registered on blockchains (see Section XI).

ii Asset managers and investment funds

In the past two years, alternative fund managers have started to create cryptocurrency investment funds. Tobam Bitcoin Fund, launched in November 2017 by French alternative asset manager Tobam, claimed to be the very first European cryptocurrency fund.22 However, Tobam's fund was not licensed by the AMF, as cryptocurrencies, as an asset class, did not fit in any category of the regulatory framework applicable to asset managers.

Napoleon X, which raised around €10 million following an ICO in 2018, became the first French crypto start-up to obtain an asset manager licence from the AMF.23

In addition, the PACTE Act now allows professional specialised investment funds (FPSs), which are dedicated to professional investors, to purchase assets registered in a shared electronic recording system (i.e., a blockchain), which includes cryptocurrencies.24 The PACTE Act also allows professional private equity funds (FPCIs) to invest up to 20 per cent of their assets in digital assets.25 FPSs and FPCIs are alternative investment funds and, therefore, may only be managed by a licensed asset manager; however, they are required to appoint a depositary (which is notably in charge of the custody of the assets owned by the fund). Licensed cryptocurrency asset managers will still need to find depositaries willing to take custody of cryptocurrencies.

Napoleon AM (the licensed asset manager of the Napoleon Group mentioned above) launched a FPS invested in digital assets in November 2019.26 To deal with the issue of the depositary, Napoleon AM decided to purchase cash-settled derivatives on Bitcoin listed on the Chicago Mercantile Exchange, which qualify as financial instruments, instead of purchasing Bitcoins directly.

Regarding cryptocurrency derivatives, the AMF took actions to increase the protection of retail investors against websites offering to bet on cryptocurrencies through derivatives (such as contracts for difference or binary options). In February 2018, the AMF issued an analysis stating that cash-settled contracts on cryptocurrencies qualified as derivatives under French law.27 Consequently, platforms that offer cryptocurrency derivatives trading must now obtain an administrative authorisation and may not target French residents in their online marketing.

Finally, the management of individual cryptocurrency portfolios on behalf of clients is now included in the list of digital asset services.28 Obtaining a licence will be optional for entities providing this service and, as a general rule, they will not be subject to any regulation.

Banking and money transmission

Over the past few years, French banking regulators have frequently reminded the general public that cryptocurrencies are not real money. The Central Bank and the ACPR, for example, consider the term 'cryptocurrency' to be misleading and prefer to use the term 'cryptoassets'.29

Their position clearly matters because the French regulation of payment services revolves around the use of legal currency (i.e., a legal tender issued by a sovereign country). All the payment services defined by Article L. 314-1 of the MFC involve the use of funds. Pursuant to the Payment Services Directive 2 (PSD 2),30 funds means 'banknotes and coins, scriptural money or electronic money as defined in point (2) of Article 2 of Directive 2009/110/EC'.31 Therefore, as a general rule, receiving and sending cryptocurrencies on behalf of third parties does not qualify as a regulated service under PSD 2.

However, the recent development of stablecoins (and in particular fiat-backed stablecoins) blurs the line between legal currencies and cryptocurrencies. As the European Banking Authority (EBA) stated in its advice on cryptoassets of 9 January 2019, redeemable fiat-backed stablecoins may qualify as electronic money when the token (1) is electronically stored, (2) has monetary value, (3) represents a claim on the issuer, (4) is issued on receipt of funds, (5) is issued for the purpose of making payment transactions, and (6) is accepted by persons other than the issuer.32 Consequently, some fiat-backed stablecoin issuers may be required to obtain electronic money licences to be allowed to operate in France. However, the consequences of this qualification would be highly unclear, since the regulation of electronic money issuers and distributors is not designed to apply to entities issuing, receiving or transferring stablecoins.

This is why the draft MiCA regulation also aims to regulate the issuance of stablecoins. For the moment, the draft regulation distinguishes between 'asset-referenced tokens', which are defined as 'a type of crypto-asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets' and 'e-money tokens', which are defined as 'a type of crypto-asset the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender'. Issuers of e-money tokens will have to be licensed as a credit institution or electronic money institution and comply with the Electronic Money Directive,33 while issuers of asset-referenced tokens will have to obtain a specific licence, and publish a 'white paper' with mandatory disclosure requirements and notify the competent national authority of this.

This European regulation should not be extended to 'algorithmic' stablecoins that use a formula to maintain their peg (since there would be no deposit of fiat currency) or, more notably, to decentralised stablecoins such as Dai.

Finally, the announcement of Facebook's plan to launch a cryptocurrency called Libra has been met with scepticism by the French government and the Central Bank. Bruno Le Maire, the Minister of Economy and Finance, stated that Facebook may create its own payment system, but under no circumstance should it be allowed to create a sovereign currency.34 François Villeroy de Galhau, the governor of the Central Bank, stated that Libra would in any case need the relevant licences if payment or banking services are to be provided.35 In this way, the proposed MiCA regulation aims to protect sovereignty and monetary stability by regulating the issuance of global stablecoins such as Libra. France also announced that a taskforce dedicated to stablecoins would be created within the G7.36

In addition, the Central Bank started working with external consultants to develop a central bank digital currency (CBDC).37 The Central Bank CBDC projects focus on wholesale transactions (i.e., large interbank transactions) and the clearing and settlement of transactions involving tokenised financial assets. The Central Bank is now collaborating with private sector innovators (such as Accenture, Euroclear and HSBC) to conduct a programme of eight experiments on a wholesale CBDC. In May 2020, the Central Bank successfully tested the use of a blockchain developed by its team to experiment with the use of a wholesale CBDC for the settlement of a digital financial securities issued by Société Générale Forge. On 27 April 2021, the EIB, in collaboration with Goldman Sachs, Santander and Société Générale, launched a digital bond issue, with the aim of using distributed ledger technology for the registration and settlement of digital bond securities. In a partnership with the Central Bank, the issuance was settled with a CBDC issued on the blockchain.

At the European level, on 14 April 2021, the European Central Bank (ECB) unveiled the results of its public consultation on a digital euro.38 This consultation reveals that privacy is the main concern of the public and professionals (43 per cent), followed by security (18 per cent), the option to pay throughout the eurozone (11 per cent), without additional costs (9 per cent) and offline (8 per cent). Christine Lagarde, President of the ECB, believes that 'the digital euro should become a reality within five years'.

Anti-money laundering

French authorities started monitoring the use of cryptocurrencies in illegal transactions as early as 2011. The 2011 annual report of Tracfin briefly described how Bitcoin could be used in money laundering schemes.39 In June 2014, a working group led by Tracfin published a report on cryptocurrencies and issued various recommendations aimed at limiting the use of cryptocurrencies in money laundering or terrorism financing schemes.40

Tracfin now closely monitors cryptocurrencies. Its 2017–2018 annual report described how untraceable and privacy-oriented cryptocurrencies (such as Monero or Zcash) and anonymous prepaid payment cards linked to cryptocurrency wallets are increasingly used by fraudsters and money launderers.41

Cryptocurrencies were left out of the scope of the French regulation of anti-money laundering and combating the financing of terrorism (AML/CFT) until Order No. 2016-1635 of 1 December 2016, which added cryptocurrency trading platforms and brokers to the list of persons subject to AML/CFT requirements.

The European Union addressed cryptocurrency-related AML/CFT issues through Directive (EU) 2018/843 of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the Fifth Anti-Money Laundering Directive), which states that the 'Member States shall ensure that providers of exchange services between virtual currencies and fiat currencies, and custodian wallet providers, are registered.' The Fifth Anti-Money Laundering Directive defines virtual currencies as 'a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically'.

To implement the Fifth Anti-Money Laundering Directive, the PACTE Act extends the list of entities subject to AML/CFT requirements to include the following categories: (1) ICO issuers that obtained the optional approval of the AMF; (2) digital asset custodians; (3) entities allowing the purchase or sale of digital assets against legal currency; (4) entities allowing the purchase or sale of digital assets against other digital assets; (5) entities operating a digital asset trading platform; and (6) licensed digital asset service providers.42 The PACTE Act includes the definition of virtual currencies under the Fifth Anti-Money Laundering Directive in the definition of digital assets.43 (The definition of digital assets also includes tokens issued pursuant to ICOs.) As French banks are reluctant to open accounts for cryptocurrency-related companies because the AML/CFT regulation applicable to them is still unclear, the above-mentioned categories of entities also benefit from preferential access to banking services (see Section X).

Finally, in March 2018, the G20 finance ministers asked the Financial Action Task Force (FATF) to clarify how its standards apply to cryptoassets. In October 2018, the FATF stated that 'jurisdictions should ensure that virtual asset service providers are subject to AML/CFT regulations, for example conducting customer due diligence including ongoing monitoring, record-keeping and reporting of suspicious transactions. They should be licensed or registered and subject to monitoring to ensure compliance.'44 In June 2021, the FATF will also update its guidance for a risk-based approach on virtual assets and virtual asset service providers. This update will notably focus on the regulation of decentralised finance actors: to identify the person responsible for a decentralised application, the FATF proposes that national regulators arm themselves with blockchain or distributed ledger analytics tools, as well as methods for large-scale analysis of website content (web-scraping). The Fifth Anti-Money Laundering Directive will probably need to be further amended to comply with these recommendations.

Cryptocurrency-related companies that are not currently included in the list of persons subject to AML/CFT requirements must still report any suspicious transaction to the public prosecutor, which will then notify Tracfin.

Regulation of exchanges

Before the creation by the PACTE Act of a comprehensive legal framework for digital asset service providers (DASPs), certain actors of the cryptocurrency industry were already subject to a specific regulatory status. Since January 2014, the ACPR has required that any intermediary receiving funds in relation to a purchase or sale of cryptocurrencies (e.g., a trading platform or a broker) must obtain a licence to provide payment services.45 The ACPR has not yet clarified what effect the adoption of the PACTE Act has on this requirement.

DASPs are entities that provide services related to digital assets. Digital assets, as defined by the PACTE Act, include: (1) tokens, as this term is defined in the ICO legal framework (i.e., intangible digital assets incorporating rights that can be issued, registered, held and transferred on a shared electronic recording system), as long as they do not qualify as financial instruments; and (2) any digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and that can be transferred, stored and traded electronically.46 This definition of digital assets is slightly more precise than the definition of virtual assets in the FATF Recommendations.47 In any case, all cryptoassets and cryptocurrencies would be covered by the definition of digital assets, but certain tokens that may not be based on cryptography may also qualify as digital assets.

To establish the list of services related to digital assets, the promoters of the PACTE Act looked to traditional investment services for inspiration. Therefore, digital asset services include the following services, as soon as they are performed in relation to digital assets:

  1. custody of digital assets or cryptographic private keys;
  2. purchase or sale of digital assets against legal currency;
  3. purchase or sale of digital assets against other digital assets;
  4. operation of a digital assets trading platform; and
  5. various other services related to digital assets, including receipt and transmission of orders on behalf of third parties, portfolio management, investment advice, underwriting, and placing with or without a firm commitment.48

The PACTE Act chose to establish a regulatory approach based on optional licences as an incentive-based system. Any entity providing one of the above-mentioned services can apply for a DASP licence, but obtaining this licence is not mandatory. This system emphasises non-mandatory provisions to foster professionalism and promote sound market practices while avoiding restrictive frameworks that might deter innovation and diminish France's attractiveness. Licensed actors will be regarded as being whitelisted and may use their licence as a marketing tool.

However, owing to anti-money laundering concerns (arising notably from the Fifth Anti-Money Laundering Directive), obtaining a registration with the AMF will be mandatory for custodians of digital assets, providers of the service of purchase or sale of digital assets against legal currency and, since Order No. 2020-1544 of 9 December 2020, entities allowing the purchase or sale of digital assets against other digital assets and those operating a digital asset trading platform. The requirements to obtain this registration are not overly burdensome: registered providers must give the AMF information regarding the reputation and professional qualifications of their managers and beneficial owners, as well as implementing the internal procedures required to comply with the anti-money laundering legislation. The registration will be granted by the AMF, although the prior approval of the ACPR is also required.

On the other hand, licensed entities are subject to obligations equivalent to those of regulated investment service providers: they have to subscribe to professional liability insurance (or comply with capital requirements), possess secure and resilient IT systems and establish adequate policies to manage conflicts of interests. In addition, depending on the regulated services they intend to provide, licensed DASPs will have to comply with additional requirements. For example, licensed custodians will be required to establish a custody policy, ensure that they are always able to return the cryptoassets or the keys to their clients (or both) and implement segregated accounts.49

Anti-money laundering requirements will also apply to digital asset service providers that obtained the optional licence. Although obtaining a DASP licence will mostly serve as a marketing tool, licensed entities will also be granted the following benefits:

  1. they will not be arbitrarily forbidden from opening a bank account and accessing basic banking services (see Section X); and
  2. they will be allowed to contact potential individual clients on a massive scale (through emails or cold calls) to market their services, in accordance with the 'financial or banking solicitation' regime.50 Licensed DASPs will also be able to broadly advertise their services to the general public and use sponsorship as a marketing tool. In contrast, registered DASPs may not use sponsorship and are subject to certain restrictions on advertising.

The licence or registration granted by the AMF has no extraterritorial effect. As this regulatory framework is unique to France, there is no passporting regime applicable to DASPs. As at June 2021, there are 17 registered DASPs, including most of the major French digital asset startups (Coinhouse, LGO, SheeldMarket, Paymium, Just Mining) and several foreign actors (Bitpanda, Litebit).

Regulation of miners

Miners of cryptocurrencies are not subject to any specific regulatory regime. The French mining industry is almost non-existent, as electricity prices have been too high to make mining profitable in the past few years.51 However, many individuals mine cryptocurrencies as a hobby or a side job.

A parliamentary report of 30 January 2019 on virtual currencies52 suggested that French miners be legally included in the list of 'electro-intensive industries', and thus exempted from the domestic tax on final electricity consumption (TICFE). This exemption could lower electricity costs by a third, thus making France more attractive for miners. However, the environmental impact of cryptocurrency mining has been widely criticised recently and it seems unlikely that the government will take the risk of granting these benefits to cryptocurrency miners.

Regulation of issuers and sponsors

While France has struggled to attract prominent ICOs in the past few years,53 the government and the AMF have taken multiple steps to turn France into an ICO-friendly jurisdiction. Following a public consultation conducted by the AMF,54 the government and the AMF chose to create an ad hoc framework for ICOs rather than promote a best practice guide or include ICOs in the scope of the existing regulation of securities offerings.

The AMF can now grant its approval (or 'visa') to public offerings of tokens that comply with the requirements set out by the PACTE Act. Obtaining the AMF's approval is optional for all ICO issuers; no ICO will be forbidden in France for lack of approval, although unapproved ICOs are subject to marketing restrictions. The AMF expects that ICO promoters will apply for the approval, as the global reputation of the AMF would serve as proof of their trustworthiness and help them market their ICO in foreign jurisdictions, as well as allow them to freely sell their token to French investors.

Under the PACTE Act, ICOs are explicitly separated from securities offerings. No security offering is allowed to be carried out under the form of an ICO. Issuing a token whose characteristics would make it similar to a security (i.e., a security token) would trigger the application of corporate law and securities law.

To obtain the AMF's approval, ICO issuers have to file an information document containing various details of the offer and the issuer.55 This document shall contain financial and legal information, but also certain technical information about the tokens and the method used to secure the cryptoassets raised during the offering (e.g., multi-signature wallets, smart contracts). The information document must be accurate, not misleading, and written in plain language, and it must describe the risks associated with the offer. In a way, the information document is similar to a white paper. In addition, the issuer is required to be located in France – if necessary through a subsidiary or a branch.56

The marketing materials used by the issuer will also be reviewed by the AMF.57 This requirement was criticised by the French community as, in theory, it would prevent the issuer from communicating its contemplated offering before the end of the approval process (which may take a few months).

In June 2019, a section dedicated to ICOs was added to the General Regulation of the AMF (i.e., the code containing detailed provisions on securities offerings, capital markets, investment funds, licensed service providers, etc.).58 The AMF also published on 6 June 2019 an instruction that further details the approval process and the content of the information document.59 So far, only three visas have been granted by the AMF.

The legal consequences of obtaining the AMF's approval are very similar to those of obtaining the DASP licence (see Section V). The approved ICO issuers:

  1. will not be arbitrarily forbidden from opening a bank account and accessing basic banking services (see Section X); and
  2. are allowed to broadly advertise their services to the general public, through financial or banking solicitation, online advertising or sponsorship (or all three). Similarly, the use of these marketing methods is forbidden for unapproved ICO issuers.

In addition, as explained in Section IV, approved ICO issuers will be subject to AML/CFT requirements, but only in relation to transactions received from investors during the token offering.

Finally, as for the DASP licence, the approval granted by the AMF has no extraterritorial effect and cannot be passported within the European Union.

Criminal and civil fraud and enforcement

To our knowledge, there have been no major criminal or civil enforcement decisions related to cryptocurrencies.

Cryptocurrency-related criminal activities may be mentioned in the annual reports of Tracfin. These reports contain various descriptions of financial crime schemes involving cryptocurrencies, but do not, as a general rule, contain any information on the litigation of the case before criminal courts.60


The tax regime of cryptocurrencies and utility tokens was largely clarified following the adoption in 2018 of an ad hoc rule applicable to individual investors and the publication by the French Accounting Standards Authority (ANC) of a regulation on the accounting rules applicable to ICO issuers and investors (the ANC Regulation).61 However, some uncertainties remain.

i Income tax treatment of individual investors

Until the adoption of the 2019 Budget Act, France was arguably one of the worst European jurisdictions for individual investors in cryptocurrencies, with a tax rate of up to 60 per cent. Cryptocurrency capital gains of individual investors are now taxed at a flat rate of 30 per cent,62 which is still higher than in some neighbouring countries. Crypto-to-crypto transactions fall outside the scope of the capital gains tax.63 In practice, the taxation will be deferred until the cryptocurrencies are either sold against legal currency or used to purchase a good or service. This measure simplifies tax accounting and reporting, although individual investors still need to accurately track their transactions to be able to justify their gains.

In addition, individual taxpayers are not subject to income tax if the gains do not exceed €305 per year.

The 30 per cent tax rate will only apply to occasional sales of digital assets. Professional traders and miners will still be subject to the general income tax regime (i.e., a variable rate depending on their taxable income).

ii Corporate income tax – entities purchasing cryptocurrencies and ICO subscribers

Pursuant to the ANC Regulation, the accounting rules applicable to tokens issued following an ICO are also applicable to cryptocurrencies. In accordance with the Regulation, if the cryptocurrencies or tokens are held for an investment purpose, they will be recorded in a newly created account under the short-term financial instruments category and their market value will be reassessed each year. Normally, these unrealised profits or losses should be neutralised from a tax perspective.

Utility tokens (tokens that are meant to be held until the services associated with them are provided or until the goods are delivered) purchased by a company will be recorded as intangible assets and amortised or depreciated as such.

iii Corporate income tax – ICO issuers

On the issuer's side, the accounting treatment of the tokens will depend on the rights and obligations associated with the token, as follows:

  1. if the tokens can be assimilated (even temporarily) to a reimbursable debt, they will be recorded as 'loans and similar debts';
  2. if the tokens represent services to be provided or goods to be delivered in the future, they will be recorded as prepaid income; or
  3. otherwise, if the issuer has no implicit or explicit obligation towards the token holders, the funds collected by the issuer will be recorded as income.

In most cases, the funds collected by the issuer will eventually be recorded as income. Then, although there has been no specific regulation on this matter yet, value added tax (VAT) and income tax will have to be paid by the issuer.

iv VAT regime

In 2015, a decision of the Court of Justice of the European Union confirmed that the purchase or sale of cryptocurrencies against legal currency is exempted from VAT.64

With regard to utility tokens, in theory, VAT rules should be applicable, as soon as services are provided or goods are delivered in exchange for tokens. However, various technical issues have yet to be clarified (e.g., the actual value of the service provided by the token issuer is generally unknown at the time of the ICO).

Other issues

i Access to banking services

Access to banking services has long been one of the major struggles of French crypto-related companies. For many years, regulatory authorities only mentioned cryptocurrencies in relation to financial crime, money laundering or terrorism financing, and thus bank employees are understandably wary. In addition, the ability of bank employees to open bank accounts to these companies is often limited by the bank's internal anti-money laundering policy. Many French banks prefer avoiding any exposure to activities related to cryptocurrencies to simplify their own AML/CFT reporting with their supervisory authorities.

Many start-ups report that they had their bank account frozen or closed when their bank learned that it might be used to receive funds related to cryptocurrencies. Various individuals suffered the same problem, with many retail investors reporting that their bank blocked wire transfers to bank accounts associated with cryptocurrency trading platforms such as Kraken or Coinbase.65 As a result, many French crypto-related companies had to open bank accounts with banks located in other European countries, where the scrutiny of crypto-related activity is less strict.

In 2011, a French company that received wire transfers from European clients of MtGox (the cryptocurrency trading platform that went bankrupt in 2014) successfully argued before the Central Bank that it should benefit from the right to a bank account set out in Article L. 312-1 of the MFC, a provision initially meant for the benefit of individuals.66 However, the bank later managed to close the bank account by claiming that the company was operating as an unlicensed payment service provider.67

One of the most important provisions of the PACTE Act is the preferential access to banking services granted to three categories of entities: (1) ICO issuers that obtained the optional approval of the AMF; (2) registered digital asset custodians and entities allowing the purchase or sale of digital assets against legal currency; and (3) licensed digital asset service providers. Banks have to set up objective, non-discriminatory and proportionate rules to determine whether these entities should be able to open an account in their books. Once the account is open, the entity's access to basic banking services shall not be hindered by the bank. These provisions create a strong incentive for ICO issuers and crypto-related companies to obtain an optional visa, an optional licence or a registration instead of remaining unregulated, as the right to access bank accounts is tied to this approval or licence.

In addition, if a bank denies one of these entities the right to open an account, it shall communicate the reason for its decision to the AMF or the ACPR. Entities denied a bank account may also appeal the bank's decision.

However, as at June 2021, registered DASPs are still unable to open bank accounts with French banks. The banks claim that the AML risk posed by DASPs is too high, even when they are registered and subject themselves to AML regulation. The organisation representing the French actors of the cryptoasset industry, the Association for the Development of Digital Assets, has repeatedly denounced the difficulties DASPs face in accessing basic banking services.68

ii General Data Protection Regulation compliance

Public blockchains seem to be at odds with certain rights guaranteed by the General Data Protection Regulation (GDPR),69 such as the right to erasure, the right to rectification and the right to object to processing.

In September 2018, the National Commission on Informatics and Liberty (CNIL), France's data protection authority, issued an analysis on the compatibility of public and permissioned blockchains with the GDPR.70 (With regard to private blockchains, the CNIL noted that they do not raise specific issues with respect to the GDPR, as their immutability is usually not guaranteed by design.)

The CNIL stated that whenever a blockchain contains personal data, the GDPR applies. The CNIL focuses on personal data that may be uploaded to a blockchain as a way to ensure traceability of real-world documents (e.g., a diploma), but seems to acknowledge the conflict between some GDPR requirements, such as the right to erasure, and the very nature of public blockchains. In any case, the CNIL recommends not storing unencrypted personal data in a blockchain. The CNIL also announced that the challenges raised by blockchains regarding data protection would have to be addressed at EU level.

Looking ahead

The PACTE Act gave France a complete legal framework for ICO issuers and cryptoasset intermediaries. In a few years, that framework will be replaced by the European status to be created by the MiCA regulation, and will become obsolete. However, the French regime has partly inspired the MiCA project and we expect that registered or licensed DASPs will automatically benefit from a grandfathering clause.

For France to become a true hub for cryptoasset start-ups, many reforms still need to be made, including the following.

  1. With regard to tax, the tax reporting applicable to individual investors could be simplified. The tax and accounting regime applicable to companies owning cryptocurrencies should also be clarified. In addition, allowing individuals to benefit from a tax deferral when financing a company with cryptocurrencies would encourage holders of cryptocurrencies to reinvest their gains in the real economy.
  2. The mining industry should be supported by allowing miners to be exempted from the TICFE.
  3. Since decentralised finance is increasingly popular among retail and institutional investors, including these activities in the DASP framework would provide legal certainty to their users. In addition, since decentralised finance, as well as most trading platforms, relies heavily on stablecoins, clarifying their status and allowing their circulation without creating too many legal obstacles would help position France and Europe as leading jurisdictions for the cryptoasset economy.


1 Hubert de Vauplane is a partner and Victor Charpiat is an associate at Kramer Levin Naftalis & Frankel LLP.

2 Tracfin, Rapport d'activité 2011.

3 Banque de France, Les dangers liés au développement des monnaies virtuelles: l'exemple du bitcoin, 5 December 2013.

5 Article 2 of Ordinance No. 2016-1635 of 1 December 2016, modifying Article L. 561-2 of the Monetary and Financial Code (MFC).

6 Caisse des dépôts, LaBChain, launched by Caisse des Dépôts, reveals its first business case, 18 July 2016:

7 Ordinance No. 2016-520 of 28 April 2016.

8 AMF, 'The AMF publishes a discussion paper on Initial Coin Offerings and initiates its UNICORN programme', 26 October 2017:

9 Article L. 223-12 and L. 223-13 of the MFC.

10 More precisely all securities that are not recorded in a central depositary system (Article L. 211-7 of the MFC). Units in collective investment undertakings and negotiable debt securities may also be registered on a distributed ledger (Article R. 211-5 of the MFC).

11 Article L. 552-1 of the MFC.

12 European Commission, Notification Detail, 'Decree on the use of shared electronic recording devices for the representation and transmission of financial securities', 17 July 2018:

13 Decree No. 2018-1226 of 24 December 2018.

14 Article R. 211-9-7 of the MFC.

15 Article R. 211-14-1 of the MFC.

16 Chaineum, 'Chaineum Acts as STO Advisor for Carthagea', 14 March 2019:

17 DomRaider, 'DomRaider to launch an Equity Token Offering and sell shares registered on blockchain', 27 May 2019:

18 Societe Generale, 'Societe Generale issued the first covered bond as a security token on a public blockchain', 23 April 2019:

19 Equisafe, 'Equisafe réalise la première vente d'immeuble via la technologie blockchain en Europe pour un montant de 6,5 millions d'euros', 25 June 2019:

20 European Investment Bank, 'EIB issues its first ever digital bond on a public blockchain', 28 April 2021:

21 AMF, Review and analysis of the application of financial regulations to security tokens,

22 Tobam, 'TOBAM launches first Bitcoin mutual fund in Europe', 22 November 2017:

23 Napoleon Group, 'France authorizes Napoleon AM as first regulated Asset Manager expert on crypto solutions', 8 December 2018:

24 Article L. 214-154 of the MFC.

25 Article L. 214-160, II of the MFC.

28 Article L. 54-10-2, 5°, b) of the MFC.

29 Banque de France, L'émergence du bitcoin et autres crypto-actifs: enjeux, risques et perspectives, 5 March 2018.

30 Directive (EU) 2015/2366 of 25 November 2015 on payment services in the internal market (PSD 2).

31 Article 4(25) PSD 2.

32 EBA, Report with advice for the European Commission on cryptoassets¸ 9 January 2019, pp. 12–13.

33 Directive 2009/110/EC of 16 September 2009.

34 Bloomberg, 'Facebook Token Runs Into Instant Political Opposition in Europe', 18 June 2019:

35 Cointelegraph, 'French Central Bank: Facebook's Libra May Need Banking License', 25 June 2019:

36 The Block, 'France to create G7 stablecoin taskforce following Libra's announcement', 21 June 2019:

37 For example: Banque de France, Call for applications – central bank digital currency experimentations,

38 European Central Bank, 'Report on the public consultation on a digital euro':

39 Tracfin, Rapport d'activité 2011, pp. 21–23.

40 Ministry of Economy and Finance, Regulating virtual currencies – Recommendations to prevent virtual currencies from being used for fraudulent purposes and money laundering, June 2014:

41 Tracfin, 2017–2018 – Money Laundering and Terrorist Financing Risk – Trends and Analysis, June 2019.

42 Article L. 561-2, 7° bis to 7° quater of the MFC.

43 Article L. 54-10-1 of the MFC.

44 FATF, Regulation of virtual assets, 19 October 2018.

45 ACPR, Position 2014-P-01, 29 January 2014.

46 Article L. 54-10-1 of the MFC.

47 The FATF Recommendations, p. 124: 'A virtual asset is a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets do not include digital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations.'

48 Article L. 54-10-2 of the MFC.

49 Article L. 54-10-5 of the MFC.

50 Article L. 341-1 et seq. of the MFC.

51 Les Echos, 'Blockchain : le français Bigblock Datacenter délocalise ses fermes de minage au Kazakhstan', 11 March 2019:

52 National Assembly, Rapport d'information en conclusion des travaux d'une mission d'information relative aux monnaies virtuelles, 30 January 2019.

53 According to the AMF, French ICOs only raised €89 million, while the global amount raised by ICOs reached US$22 billion. (AMF, French ICOs – A New Method of Financing, 14 November 2018:

54 AMF, 'The AMF publishes a discussion paper on Initial Coin Offerings and initiates its UNICORN programme', 26 October 2017:

55 Article L. 552-4 of the MFC.

56 Article L. 552-5 of the MFC.

57 Article L. 552-5 of the MFC.

58 Article 711-1 et seq. of the Règlement général de l'AMF.

59 AMF, Instruction DOC-2019-06, Procedure for examination of the application and establishment of an information document for approval by the AMF on an initial coin offering, 6 June 2019.

60 See, for example, Tracfin, 2017–2018 – Money Laundering and Terrorist Financing Risk – Trends and Analysis, June 2019, p. 62.

61 ANC Regulation No. 2018-07 of 10 December 2018 modifying ANC Regulation No. 2014-03 of 5 June 2014 on the national accounting code.

62 Article 150, VH bis of the Tax Code.

63 Article 150, VH bis, II, A of the Tax Code.

64 Court of Justice of the European Union, 22 October 2015, C-264/14, Skatteverket/David Hedqvist.

65 Les Echos, 'Quand une banque interdit à son client d'investir en crypto-monnaies', 24 May 2019:

66 Court of Appeal of Paris, 26 August 2011, No. 11/15269.

67 Court of Appeal of Paris, 26 September 2013, No. 12/00161.

68 The Association for the Development of Digital Assets (ADAN), Adan welcomes the authorities' recognition of problems faced by crypto companies in obtaining access to bank accounts, 1 April 2021:

69 Regulation (EU) 2016/679.

70 CNIL, Blockchain and the GDPR: Solutions for a responsible use of the blockchain in the context of personal data, 6 November 2018.

The Law Reviews content