France to Require Licensing for Digital Asset Service Providers in January 2024

On 20 April 2023, the European Parliament passed the Markets in Crypto Assets (MiCA) regulation.1 However, one of its member states (France) has been getting a head start in tightening the regulation of digital assets since the first quarter of this year.

Currently, Digital Asset Service Providers (DASPs) must register with the French financial authorities (Autorité des Marchés Financiers or AMF) if they wish to provide any of thefollowing services in France:

digital asset custody
buying or selling digital assets in a currency that is legal tender
trading of digital assets against other digital assets
operation of a trading platform for digital assets.2

Licensing is optional, and, to date, no DASP has been licensed by the AMF. However, that is all set to change.

On 9 February 2023, France’s Parliament introduced legislation that would require DASPs to obtain licenses from January 2024.3 Approved on 28 February 2023, it now awaits the approval of the President to be signed into law.

Insight 1: Registration Is No Longer an Option for New DASPs

With just ten months until licensing becomes mandatory, the timeline to submit DASP registration applications to the AMF is exceptionally tight. Therefore, DASPs that wishtocommence operations in France from 2024 onwards should prepare license applications instead of registration applications.

Insight 2: Registered DASPs Should Be Preparing for MiCA Compliance

Whether existing registered DASPs will be required to convert to licenses from January 2024 remains unclear (there are currently over 60 registered with the AMF). This makes the timeline to ensure compliance with licensing requirements exceptionally tight.

DASP licensing requirements are markedly more onerous than registration requirements. Registration focuses on governance and AML/CFT (Anti-Money Laundering/Combatting Terrorism Financing) processes. Licensing includes requirements regarding financial viability, staffing, internal controls, IT systems, and client safeguards.

Whilst the starting point for French DASPs is to be compliant with French regulatory requirements, compliance does not have to stay that way. As MiCA expands its potential market share to the whole of the European Union, ensuring MiCA compliance should be viewed as a strategy for expanding into Europe and beyond.

With the legislation taking effect in late 2024 (the exact start date remains to be confirmed), French DASPs should therefore assess and remediate their operations to be MiCA-compliant.

Timeline of French DASP Regulatory Compliance

Insight 3: Position Compliance as Good Business Practice (Versus Merely Adhering to Regulatory Requirements)

Given the fallout of the current crypto winter, customers have grown increasingly skeptical of the sustainability of DASPs – will their service providers be here today and gone tomorrow? Can DASPs be trusted with one’s digital assets?

DASPs that signal their intention and plans for regulatory compliance as a good business practice provide a reassuring indicator that they are in it for the long run.

For more information on these developments or their implications for your business, please contact [email protected]

Authored By:

Michael Brevetta

Head of Compliance, Conduct, and Regulatory Risk

[email protected]

Jessie Chew

Consultant

[email protected]

Footnotes

Date: May 02, 2023