In June 2021, France enacted new crypto regulations that impact not only French companies, but also international crypto firms seeking to operate in France. The new rules signal the biggest shift in crypto rules since France began regulating the sector in 2019. In particular, crypto-to-crypto firms are now subject to mandatory registration, while KYC requirements have become stricter as a whole.
These changes have been ushered in by Ordinance № 2020-1544, which was issued on December 9, 2020 to compliment France’s cryptocurrency regulations. As the ordinance comes into effect this month, sanctions for non-compliance can be considerable. So let’s dive deeper into the new rules to see how you can avoid any penalties.
- Legal landscape for crypto business in France
- What’s changed
- Who is affected
- How to comply
- Optional licensing
Legal landscape for crypto business in France
As opposed to countries like Singapore, where crypto firms must be licensed, French regulations mandate that crypto firms be registered. In addition to mandatory registration, crypto firms operating in France can receive optional licenses for additional benefits—such as the possibility to apply for a French bank account.
The French PACTE law was introduced in 2019, regulating the crypto sector by four basic principles. Prior to June 2021, these only affected crypto-to-fiat services and crypto custodian providers. As the latest regulations now come into effect, these apply to all crypto firms operating in France, including crypto-to-crypto exchanges and trading platforms.
- Legal status. Crypto firms are legally defined as digital asset service providers, or DASPs (PSAN in French).
- AML/CFT obligations. The AML/CFT obligations mandated by French regulators are based on the principles of the EU’s Fifth AML Directive, which France implemented in January 2020.
- Mandatory registration. Any crypto firm operating in France or working with French clients must register with the Financial Markets Authority (AMF), a French financial regulator.
- Optional licenses. For additional administrative and marketing opportunities, French crypto firms can apply for non-mandatory licenses from the AMF.
The new regulations take crypto-to-crypto services and trading platforms operating in France out of a legal grey area. From now on, they are subject to the same AML/KYC obligations and mandatory registration as other crypto firms.
In addition, KYC regulations have tightened in the French crypto sector in general. However, the latest rules now permit the use of third parties for fulfilling KYC obligations.
- Ban on anonymous transactions. The new crypto transaction limit for KYC checks is set as €0, instead of the previous €1000 limit. This has effectively banned anonymity on the French crypto market, as even small crypto transactions must be accompanied by KYC.
- Expanded KYC obligations. All crypto firms operating on the French market are now subject to KYC obligations. Notably, this includes crypto-to-crypto exchanges and trading platforms.
- Expanded registration requirements. From now on, French crypto-to-crypto services and trading platforms are obliged to register with the Financial Markets Authority (AMF), just like all other types of crypto service providers. However, the compliance procedure for these firms will be simplified, as the AMF will only be verifying managers and beneficial owners.
- Expanded AML/CFT obligations. Along with other crypto firms, crypto-to-crypto exchanges and trading platforms must now enact AML/CFT policies and procedures. This should include proper CDD processes that include the following components:
- Identification and verification of customers and beneficial owners;
- Authentication of documents;
- Identification of the purpose and intended nature of business relations;
- Ongoing monitoring;
- Screening (sanctions, watch lists);
- Enhanced due diligence for higher-risk business relationships.
- Third-party CDD/KYC. For the first time ever, French crypto regulations now permit the use of third-parties for implementing CDD/KYC policies and procedures.
Who is affected
The new regulations affect crypto firms that operate in France and/or provide services to French clients. These include firms providing the following services:
- crypto transfer services;
- crypto exchanges;
- crypto wallets/custodians;
- crypto trading platforms.
To provide crypto firms with a clear guide on compliance with the new rules, we’ve closely studied the relevant documents and have contacted the AMF for more details. Now let’s get into complying with the changes.
How to comply
To avoid sanctions and fines, French crypto firms must revise their operational activity and AML/KYC policies.
More specifically, French crypto firms must register with the AMF and, from now on, disable any anonymous crypto transactions or accounts. Therefore, each client must go through a reliable KYC check with two forms of ID verification, regardless of the transaction amount.
Registering as a French crypto firm. Registration with the AMF is now mandatory for all types of crypto firms operating in France including crypto-to-crypto services. The pre-registration procedure is not burdensome and requires that the following be submitted:
- A detailed description of business activities;
- A list of cryptocurrencies covered;
- The geographical distribution of activities with the number of clients per geographical area;
- A detailed organisation chart, including the CVs of persons in charge of certain activities;
- A diagram of the cryptocurrency flows.
In addition, crypto firms registering with the AMF must provide the following AML/CFT-related documents:
- An AML/CFT risk classification that accounts for targeted clients, geographical coverage, distribution channels, and products;
- The name and CV of the compliance manager in charge of AML/CFT;
- A description of the current CDD procedures;
- A description of how atypical or suspicious transactions are detected;
- A description of how assets are frozen.
The AMF’s objective is to obtain proof of a firm’s good reputation. That’s why the regulator verifies CVs, professional certificates, and criminal record certificates of company managers.
AMF registrations are issued for an indefinite period of time. However, registrations must be extended if a firm starts providing additional crypto services.
A more detailed list of the items required for registration can be found in the AMF’s instructions. In case of any difficulty, the AMF offers to help firms with preparing the necessary documents.
Registering as a foreign provider. When it comes to AMF registration, crypto providers from outside the EU/European Economic Area are now faced with the following rules:
- If they do not register, they will be prohibited from communicating with French clients or conducting any promotional activities that target French clients.
- In order to register, they must set up a branch in France (or in a Member State of the EU/European Economic Area), which includes getting a local address and hiring a representative.
A crypto firm is considered local under one of these two conditions:
- the firm is established in France;
- the firm is established in a Member State of the EU or the European Economic Area and targets French clients.
Ordinance № 2020-1544 was issued on December 9, 2020 and came into effect on June 9, 2021. Therefore, crypto firms operating in France must be registered with the AMF before this date. Firms that are not yet active in France must obtain this registration before beginning to offer their services.
If a crypto firm fails to register or provides false information during the registration procedure, it may be punished by a one-year imprisonment and a fine of €15,000.
If a firm fails to register with the AMF and lies about this to clients, it may be punished by a two-year imprisonment and a fine of €30,000.
The AMF also provides optional licenses to crypto firms. These licenses can allow crypto firms to apply for French bank accounts.
A license from the AMF can also expand marketing possibilities, as holding one can have distinct reputational advantages. It is also expected these licenses will provide crypto firms certain privileges under the pan-European crypto regulation once it comes into force.
To obtain an optional license, a firm should provide the AMF with the following:
- A business plan that includes the expected number and types of clients as well as the expected volume of transactions for the three upcoming financial years;
- Financial statements (for firms already conducting operations);
- A professional liability insurance policy or confirmation of minimum required equity;
- A description of AML-CFT compliance and security measures;
- A description of IT infrastructure.
There are also document requirements that are specific to certain crypto services. More detailed information can be found in the AMF’s instructions.
Firms holding an optional license from the AMF must also publish their pricing policies on their website and inform clients about the risks associated with cryptocurrencies.
All in all, getting an optional AMF license involves some extra effort and costs. Still, for some crypto companies, the reputational boost that comes with it could ultimately pay off.