France has been at the forefront of the blockchain revolution in Europe. As early as 2016, the first definition of “blockchain” made its way into French law, thanks to an ordinance that included two provisions that allowed the use of blockchain technology for a specific type of zero-coupon bond called a “mini-bond” (minibon). Another ordinance, a year later, made the use of blockchain technology legal for a broader range of financial instruments. While France is pioneering a blockchain legal framework, there are no examples to date of public sector applications or use cases of the technology. This is likely to change in the coming months as the country moves into the second stage of its blockchain policy. As French finance minister Bruno Le Maire explained at an interview with the French business magazine Capital: “We will begin a second phase of this strategy, aimed at facilitating the implementation of blockchain technology in all sectors of the economy. The work carried out in recent months, with the entire ecosystem, has identified several new areas: deploy blockchain in French industrial sectors; fund innovative blockchain projects; assist projects that may have any questions, in particular in the legal and regulatory aspect. All planned actions will be put in place by the end of the year to be at the forefront of technological, security and sovereignty issues.”
PACTE Bill On 11 April 2019, the French National Assembly adopted the PACTE draft Bill (Action Plan for Business Growth and Transformation) at its final reading. The new law establishes a framework for fundraising via the issuance of initial coin offerings (ICOs) and digital assets services providers (DASPs). Once enacted, the law will provide:
• An optional visa regime for ICOs;
• An optional license for DASPs;
• Mandatory registration for two activities (providing digital assets custody services to third parties or purchasing/selling digital assets in exchange for legal tender);
• Possibility for certain funds to invest in digital assets;
• Investor protection requirements.
Optional visa regime for ICOs
The law will enable project initiators who so wish to submit their information document to the Autorité des Marchés Financiers (AMF) for an optional visa that will be issued on condition that they meet certain requirements. These requirements are designed to provide investors with better information and protection and are as follows:
● the obligation for the issuer of the tokens to be incorporated as a legal entity established or registered in France;
● the provision of an information document that will provide all relevant information on the token offer, the project to be financed and the company;
● the setting up of a system for monitoring and safeguarding the assets raised during the offer;
● compliance with the anti-money laundering and terrorist financing rules. The visa remains optional and the raising of funds without AMF visa will continue to be legal in France. However, issuers who have not received the AMF visa will not be able to use general solicitation.
Optional license for DASPs
If they wish, DASPs may be licensed and placed under the supervision of the AMF. Licensed service providers will be subject to a set of core rules common to all services (insurance or equity, internal control procedures, resilient IT system, transparent pricing policy, etc.) as well as a certain number of rules specific to the service offered.
Mandatory Registration for two activities
Whether or not they choose to obtain the optional license, service providers who wish to provide digital assets custody services to third parties or to purchase/sell digital assets in exchange for legal tender are subject to mandatory registration with the AMF. For these entities, the AMF will verify the following (this portion of the set of rules is mandatory) and will give its decision after consulting with the French Prudential Supervisory and Resolution Authority (Autorité de contrôle prudentiel et de résolution):
● the reputation and competency of their corporate officers and shareholders; and
● the existence and implementation of Anti money Laundering and terrorist financing procedures.
Possibility for certain funds to invest in digital assets
The draft bill provides that two types of funds may henceforth invest in digital assets:
• professional specialised investment funds provided that they comply with the liquidity and valuation rules applicable to them; and
• professional private equity investment funds subject to a limit of 20% of their assets.
Investor protection requirements
The PACTE Bill also reinforces the AMF’s powers to provide better protection to investors. The AMF will have the powers to oversee the ICOs that have received its visa and to supervise licensed service providers. In the event of non-compliance with the rules, the AMF may hand down sanctions against ICO issuers and licensed service providers. ICOs that do not have visa and unlicensed service providers will be prohibited from solicitation, patronage and sponsorship activities. Advertising will remain authorised. Consequently, the AMF may publish a “blacklist” of ICOs and digital assets services providers who do not comply with the regulations. Finally, it may block access to fraudulent websites offering services in digital assets.
According to guidelines from the Direction Générale des Finances Publiques (DGFP, General Directorate for Public Finance), capital gains from the sale of cryptocurrency are subject to taxation. These gains will be taxed differently depending on whether the taxpayer’s acquisition and sale of cryptocurrency is an occasional activity (in which case it will be taxed as “non-commercial profit”) or a habitual activity (in which case it will be taxed as “industrial and commercial profit”). Additionally, cryptocurrencies are taken into account when calculating the basis for the French wealth tax, and the free transfer of cryptocurrencies from one person to another may be subject to the gift tax. Beyond these guidelines, however, tax experts have commented that there still are a number of ambiguities that will need to be clarified by the government.