France is on the brink of crypto-industry revolution thanks to the Loi Pacte

Following discussion of the draft Pacte Law before the Senat, the following amendments have been made to the draft: ICO related white papers can be drafted in English together with a French summary, removal of the obligation for the Caisse des Dépôts et Consignations to open a bank account to crypto-asset institutions, registration becomes mandatory for crypto-to-crypto dealers, licensed PSANs providing portfolio management or advice on crypto-assets must know their clients and perform suitability tests, direct marketing and certain aggressive online advertising are prohibited for non-approved ICOs and non-licensed PSANs, crypto-assets become eligible to investment by French professional private equity funds (FPCI), until 20% of their assets. However, additional changes can be made to the draft during the final step of the Pacte Law approval ending in March 2019.

The French Parliament is currently reviewing the draft Pacte Law (Loi Pacte)1 which introduces a number of welcome measures for the French crypto-asset industry, including:

• An optional authorisation regime for Initial Coin Offering (ICOs)2
• Permitting crypto-assets as eligible assets for French specialised professional investment funds
• Granting crypto-related projects the right to a bank account
• A fast-track registration process for crypto-custodian and crypto-to-fiat3 dealers
• An optional licence for crypto-asset service providers

The optional authorisation regime for ICOs

Although still subject to French Senate approval, article 26 of the Pacte Law will allow ICO projects to be submitted to the French Financial Market Authority (AMF). The AMF would approve all projects that met the criteria identified in the General Regulations of the AMF.

This optional regime aims to improve investor disclosures whilst also giving investors the comfort of a visa stamp by a major European regulator. ICOs would then be split into two camps: AMF visa stamped ICOs and non-visa stamped ICOs (which would have to convince investors of their reliability and trustworthiness). It is the French government’s assumption that investors will prefer the former…

Crypto-assets Eligible for FPS

French specialised professional investment funds (fonds professionel spécialisé - “FPS”) are one of the most flexible alternative investment funds which can be registered with the AMF and benefit from a European passport. This passport allows the fund manager to market the FPS in every EU/EEA Member State.

Upon the adoption of the Pacte Law, crypto-assets registered in distributed ledger technology (DLT) could represent up to 100% of the assets held by a FPS and such FPS could be sold to professional investors across Europe.

The Right to a Bank Account

One of the most challenging hurdles to be faced by ICO project holders and crypto-service providers is opening a bank account with a commercial bank. The Pacte Law creates the right to a bank account for (i) any ICO project that has obtained the AMF visa referenced above; (ii) crypto-services providers registered with the AMF (see below); and (iii) crypto-asset services providers who have obtained an optional licence from the AMF (see below).

To reject the opening of a bank account for crypto-asset institutions, French commercial banks would have to provide non-discretionary reasons to French regulators. If crypto-asset institutions still have difficulties opening a bank account in France then they will be able to open a bank account with (and receive payment services from) the Caisse des Dépôts et Consignations, a French public institution.

Crypto-custodian and Crypto-to-fiat Dealer Registration

Article 26 bis of the Pacte Law creates the status of digital asset service provider (Prestataire de services sur actifs numériques - “PSAN”). PSANs which offer crypto-custody and/or crypto-to-fiat dealing will have to carry out a fast-track registration with the AMF.  To complete the registration, the AMF will only check (with the assistance of the ACPR (the French Prudential Control and Resolution Authority)) the reputation and experience of the representatives and ultimate beneficiaries of the PSANs applying for registration.

These registered PSANs can then benefit from the right to a bank account mentioned above and can also reference their registration in client facing documentation – allowing them to stand out from other crypto-asset service providers. PSANs operating prior to the coming into force of the Pacte Law will have 12 months to obtain the above-mentioned registration.

Optional Licence for Crypto-asset Service Providers

In addition to the registration process for PSANs providing crypto-custody and crypto-to-fiat dealing services, any other crypto-asset service provider would be able to seek an optional licence from the AMF. Relevant PSANs are those providing the following services on crypto-assets: crypto-to-crypto dealing, running a crypto-exchange, the reception and transmission of orders (RTO), crypto-asset portfolio management, the provision of investment advice, placing and underwriting services.

Once again, the goal for this optional licence is to improve standards and attract "virtuous" crypto-asset service providers to France. Crypto-asset service providers would then be split into two camps: French licensed PSANs and non-licenced PSANs - which would have to convince investors of their reliability and trustworthiness. Investors may once again prefer one camp over the other…

What’s next?

The Pacte Law needs to be fully adopted by the French National Assembly and then submitted to the French Senate. During discussions in front of the Senate, further amendments (hopefully simplifications) may be made.  However, final approval is expected before the end of 2018.

At the same time, the discussions regarding the French tax law for 2019 are about to begin in the French National Assembly. The entire crypto-asset industry is expecting favourable tax measures which would further boost France’s attractiveness in this field.

1_  Projet de loi relatif à la croissance et la transformation des entreprises_, n° 1088.

2  Initial coin offering.

3   ie dealers who exchange crypto currencies for legal currencies.