France: Blockchain

Although the volume of French ICOs remains limited (see section 15) numerous initiatives to implement the blockchain technology are being developed in France in a wide range of business sectors (banking, insurance, energy, healthcare, logistics, agri-food, advertising, culture, retail etc.). Such developments are strongly supported by the French Government, which has passed recent laws and innovative regulations (such as the “loi PACTE” – see section 3) to implement Bruno le Maire’s (the French Minister of Economy and Finance) stated determination to promote Paris as “the capital of ICOs”.

Due to the large diversity and rapid expansion of use cases, it is difficult to present an overview of the market and to determine precisely its state of development; it is clear however that this technology is developing extensively.

Major projects launched in France include Tezos, “the future French cryptocurrency champion” according to the French Minister of Economy and Finance, which has the ambition to challenge Ethereum and which is rated among the 20 first cryptocurrencies worldwide by market capitalization.

Another landmark project is the SACEM project, launched by the “Society of Authors, Composers and Publishers of Music”, to create and co-manage a global copyright management platform for online music.

In the legal sector, key applications are being implemented, notably around the timestamping of “non-registered” IP rights – although the “blockchain proof of such rights” has yet to be recognised by the Courts.

Following Ordinance n° 2016-520, of 28 April 2016, relating to cash vouchers, designated as “minibons” (a particular type of promissory note), Ordinance n° 2017-1674 of 8 December 2017 (subsequently completed by Decree n° 2018-1226 of 24 December 2018) extended to any and all unlisted securities (“titres financiers”), including in particular shares and bonds, their aptitude to be legally represented for any purposes (including for issuance and transfer purposes) by a “dispositif d’enregistrement électronique partagé” (“DEEP”, a shared electronic registration system – such as the blockchain), provided that such system “presents guarantees, in particular in terms of authentication, at least equivalent to those offered by a [(traditional)] registration in a securities account “.

More recently Law n° 2019-486 of 22 May 2019 (known as the “loi PACTE”) has created a special regulated status for certain “prestataires de services sur actifs numériques” ( “PSAN”, digital assets service providers). Any such service providers providing custody services in respect of digital assets (i.e assets other than financial instruments, which may in particular be issued, registered and transferred within a DEEP) must be licensed with the Autorité des Marchés Financiers (AMF – French Financial Markets Authority). Other service providers in this field generally benefit from an optional registration or license.

The French government is strongly supportive of this innovation and, in particular with the “loi PACTE”, is endeavouring to establish a favourable legal and regulatory framework, which is designed to attract innovative entrepreneurs, notably through an “optional visa” approach for ICOs.

Please refer to section 3 above. Various working groups, notably created on the initiative of Paris Europlace (an association of market participants and regulators for the development of the city of Paris as a financial hub), are currently considering ways and means, including the regulatory “sandbox”, to facilitate the development of “digital asset services” and FinTechs generally.

Support for innovation also involves the development of public financial aid, for instance through tax credits designed to encourage technical research.

On the taxation front, initiatives are also being developed to create a favourable tax environment (notably in respect of the taxation of capital gains for token trading).

Numerous parliamentary, governmental and regulatory reviews and consultations have been carried out over the last three years, and are being pursued. One of the most recent contributions consists in a Report from French Senators (members of the Sénat – the French upper House of Parliament), dated as of 1st October 2019 and relating to “digital sovereignty”. Such Report concludes notably (citing the interview of an AMF representative) that “blockchain provides perspectives for all sectors of the economy”.

The CNIL (French data protection authority) has published in November 2018 guidelines in respect of the conformity of blockchain technology with the prescriptions of the European General Data Protection Regulation (GDPR). Further to the loi PACTE, the French regulators (AMF and the Banking regulator, the ACPR) are developing the regulatory framework for the licensing applications of providers of crypto-services or “digital assets service providers” (PSAN).

Cryptocurrencies are not characterised in France as “currencies” (fiat money) but as “virtual (or digital) assets”.

Cryptocurrencies are the subject of a close and on-going examination by the French governmental and regulatory authorities (including the AMF, ACPR and ANSSI – the national agency for cybersecurity); such scrutiny has recently been strongly reinforced upon the announcement of the Libra project.

The system set up by the loi PACTE reflects a general effort to regulate (whilst not slowing down) the use of crypto-assets and the ecosystem (of service providers) which is developing around such assets (investment advice, custody, exchange or trading platforms etc.), with a specific focus on key issues such as IT security, fraud and AML/CFT.

There are no prohibitions on the use or trading of cryptocurrencies in France; however certain constraints exist, concerning in particular :

– the regulatory capacity of banks and other financial institutions (including regulated funds) to invest in cryptocurrencies; and

– the compulsory licensing, under the loi PACTE, and as PSAN, of trading platforms which exchange cryptocurrencies for fiat money.

Please refer to section 15.

It should also be noted that, pursuant to the loi PACTE, an “optional visa” from the AMF is now available in respect of ICOs. (see section 11).

The loi PACTE has introduced a specific regime for ICOs, consisting in an “optional visa” from the AMF. Such visa, optional for ICO sponsors, is subject to specific regulatory requirements which are being developed by the regulators, and which include in particular the following :

– the token issuer must be incorporated as a legal entity in France;
– a “white paper” must be prepared in accordance with applicable regulatory guidance;
– the issuer must implement appropriate procedures and systems for the monitoring and protection of the funds raised by the ICO; and
– the issuer must develop appropriate procedures and systems to ensure compliance with its obligations relating to AML/CFT.

A number of platforms are active in France for cryptocurrency trading; however such platforms (and traders) must now, under the loi PACTE, be licensed by the AMF if they trade cryptocurrencies for fiat money.

Mainstream financial institutions are constrained in their involvement or investments in cryptocurrencies, as the Bank of France strongly recommends a strictly prudent approach – whilst acknowledging that a global and international regulatory framework must (urgently) be developed in this respect.

Tokens which constitute “securities” (“titres financiers” – “financial instruments”), and related “investment services”, are subject to the existing legal and regulatory framework, both at the national (French) and at the EU levels. The definition of “securities” under French law (section L. 211-1 of the French Monetary and Financial Code) is largely copy pasted from MIFID II (Directive 2014/65/EU).

Other tokens and virtual assets (other than cryptocurrencies) are now (after the “loi PACTE”) generally designated as “digital assets”, and defined under section 552-2 of the French Monetary and Financial Code as (in substance) any intangible asset representing, in digital form, any right registered within a DEEP.

No general regulatory restrictions apply to such “digital assets”.

No specific legal or regulatory restrictions apply with respect generally to the transfer of title or to the granting of security over tokens and virtual assets. However it should be noted that whilst French law now specifically legislates for the pledge of “minibons” and unlisted securities (“titres financiers”) (see section 3 above) registered within a DEEP, such provisions have not, at this stage, been extended to cover tokens which do not qualify as (unlisted) securities.

Following the launch of the UNICORN project (designed to encourage the development of ICOs in France), the AMF initiated in 2018 a public consultation on ICOs to gather the views of market participants and stakeholders, notably in view of the preparation of an appropriate regulatory framework. The findings of such consultation, published in November 2018, revealed that 15 ICOs were launched in France, for a total amount of €89M – in a range of sectors (including : technology, health care, energy and retail). 89% of such ICOs were related to utility tokens.

Smart contracts are not specifically defined or referred to under French law. It is generally accepted that smart contracts do not strictly constitute “contracts”, but an algorithm or protocol, based on the blockchain technology, which manages (or executes) a contractual arrangement entered into by the parties : electronic instructions are thus automatically triggered and executed as and when pre-determined conditions agreed by the parties are satisfied.

Smart contracts are being actively developed in a range of sectors. AXA, an insurer, thus launched an insurance policy (known as Fizzy and based on the Ethereum blockchain platform) for air flights, under which indemnification is automatically triggered by reference to external data (air traffic official statistics).

No, as far as we are aware.

No, as far as we are aware.

Yes, in particular the GDPR (General Data Protection Regulation) and the French Data Protection Act, as well as cyber-security and AML/CFT regulations.

We believe that most of the current key issues are addressed or mentioned above.