The PACTE Bill and new french regulatory regime for crypto-asset service providers


The French Parliament has recently enacted the PACTE bill that will set a new regulatory regime applicable to Initial Coin Offerings (for utility tokens only) and to several categories of “crypto-asset service providers”, where crypto-assets do not qualify as financial instruments pursuant to MiFID II.

This regime is being adopted at a turning point in the history of the European regulation of the crypto-asset market: a few months after the publication of the ESMA and the EBA’s advice to the European Commission1, and at a time when Vice-President Dombrovskis has confirmed the need to rethink the EU regulatory response given to financial innovation and, more specifically, to crypto-assets2.

An innovative approach

Under French law, crypto-asset service providers established in France will have the possibility of opting in to an “optional regime”. If they decide to opt in, they will have to comply with all the requirements applicable under the optional regime and will be put under the authority of the AMF as “licensed crypto-asset service providers”. However, if they decide not to opt in to the optional regime, crypto­asset service providers established in France will be able to run their activities without being suspected of unlawful conduct in France. In other words, as soon as a crypto-asset service provider established in France decides to opt in, all the applicable requirements pursuant to the optional regime stop being optional.

The related crypto-asset services3 that will be covered by the optional regime include

  • the provision of a custodian wallet;
  • the provision of a crypto/fiat currency exchange;
  • the provision of a crypto/crypto exchange;
  • the management of a crypto trading platform;
  • the execution of orders on crypto-assets on behalf of clients;
  • crypto­asset portfolio management;
  • investment advice on crypto-assets;
  • underwriting of crypto-assets on a firm commitment basis;
  • placing of crypto-assets on a firm commitment basis; and
  • placing of crypto-assets without a firm commitment basis.

To seek a license from the AMF, crypto-asset service providers established in France will have to permanently fulfil diverse requirements concerning, for example:

  • the risks of fraud;
  • safety risks as well as operational risks;
  • internal control mechanisms
  • resilience of IT systems; and
  • potential conflicts of interest.

The PACTE bill defines additional requirements to be fulfilled on an ongoing basis by licensed crypto-asset service providers, such as the obligation to communicate to their clients in a clear and accurate manner and not provide misleading information (including in the context of marketing communication), the obligation to disclose their fee policy; the obligation to put in place an effective policy for handling complaints, etc. The draft PACTE bill also lays down specific requirements for each of the services listed above. The details of the applicable requirements will be listed in the decree.

Some specificities resulting from higher AML/CFT requirement

One specific exception to the optional nature of the regime relates to AML/CFT4 requirements. Pursuant to the current version of the PACTE bill, certain crypto-asset service providers (when providing the services from i. to ii.) will have to mandatory “register” with the AMF and comply with AML/CFT requirements laid down in French law. This registration5 requirement is mandatory. On this basis, the AMF will regularly publish a list of “registered crypto-asset service providers”. The provision of services from (i) to (ii) will be prohibited if the providers of those services are not registered with the AMF. This new regime will place France at the forefront of regulatory innovation, not only in Europe but also on a global level. Various initiatives have recently been conducted around the world to cope with financial innovation, mainly in Asia (in particular in Singapore and in Hong Kong, where tailored rules have been developed). Across the Atlantic, some recent statements from SEC Chairman6 Jay Clayton also tend to prove that there is a growing consensus among the regulatory community regarding the need to innovate by and with the rules.

France has fired the first shot with the aim of attracting businesses willing to scale up in Europe thanks to a credible regulatory label.

It is now up to EU institutions to leverage on national examples to build-up a consistent EU-wide regime.

The benefits of an existing legal framework

The new framework dedicated to “crypto” players in the PACTE law is a real breakthrough, firstly from a legislative standpoint and secondly in the way in which a new economic and technological environment is considered. By drawing on existing rules that have been shown to work in particular in other fields of finance, and by adapting them to a new paradigm, all the while innovating with an optional regime, France is showing its ability to step up to the challenge in relation to other, more conservative, jurisdictions.

The “crypto” environment does indeed need innovative regulators capable of understanding the specifics and operation of new business models and providing “crypto” players with the legal protection they need to further develop their activities.

Pulling on the rule until it can no longer demonstrate its efficiency is therefore not the solution. Ignoring regulatory practices that have shown their efficiency would also be a mistake. It is therefore not always necessary to provide for everything under the sun in financial regulation, but rather to adapt it to a decentralised environment that relies on new information technology protocols and that must now be taken into consideration when drafting legal concepts and definitions. To say that “code is law” would be inappropriate. Quite the contrary. The law must understand the code and integrate it within its logic and wording. It is now a question of working on the way the law, in particular European law, is written so that it can follow blockchain-related technological changes quickly enough without being an obstacle to the development of EU players. Europe’s ambition and responsiveness, its grasp of “on-chain” business models, its experience of previous rules and their subsequent adjustments provide the necessary foundation for the success of the law applied to blockchain, and more specifically of the law applied to the “crypto” industry, currently looking for legal certainty.

(1)  ESMA (European Securities Markets Authority), “Advice on Initial Coin Offerings and Crypto-Assets”, 9 January 2019. EBA (European Banking Authority), “Report with advice for the European Commission”, 9 January 2019.
(2)  VP Dombrovskis speech opening the 3rd annual Afore Fintech Conference, February 2019.
(3) A decree will detail the definition of each of these services. This decree is likely to be published by spring 2019.
(4) anti money laundering­combatting the financing of terrorism.
(5) In this context, registration means “declaration” and is different from licensing (which refers to the license that will be given by the AMF to the providers that will opt in). Registration will essentially require a fit and proper test for the management staff of the registered entities.