Cryptocurrencies remain largely unregulated in France. So far, only two ordinances containing provisions on blockchain technology have been issued, but their applicability remains very narrow. However, the government has set up several fact-finding missions and is actively working to establish a regulatory framework. French regulatory authorities are generally wary of cryptocurrencies, due to their high volatility and unregulated nature, but appear enthusiastic about the underlying blockchain technology. Additionally, French authorities have issued some limited guidance with regard to the tax treatment of cryptocurrencies, instructing that any profits from their sale is taxable, and that their value is to be taken into account when calculating the wealth tax.
Cryptocurrencies remain largely unregulated in France, with two ordinances on blockchain technology being the only legislative action taken so far. However, the French government is actively studying the cryptocurrency phenomenon and moving towards establishing a regulatory regime. Statements from various quarters of the French government show that while many are wary of cryptocurrencies, there appears to be a real enthusiasm for the underlying blockchain technology.
II. Provisions Regarding Blockchain Technology
A 2016 ordinance included two provisions that allowed the use of blockchain technology for a specific type of zero-coupon bond called a “mini-bond” (minibon). The main impact of this ordinance was to provide the first definition of “blockchain” in French law, but otherwise these provisions only had a very narrow application. Another ordinance, from December 2017, went further and will make it possible to use blockchain technology for a broader range of financial instruments. This ordinance will come into force when the application decree is published, or on July 1, 2018, at the latest.
III. Positions of Financial Regulatory Authorities
A. Warnings about the Inherent Risks of Cryptocurrencies
The French Financial Market Authority (Autorité des marchés financiers, AMF) and Prudential Supervisory Authority (Autorité de contrôle prudentiel et de resolution, ACPR) recently issued a joint notice to investors, warning about the current unregulated nature of cryptocurrencies. This document notes that Bitcoin and other cryptocurrencies are not considered financial instruments under French law, and therefore do not fall under the regulatory framework of actual currencies or under the AMF’s supervision. The AMF and ACPR warn that cryptocurrencies are unregulated and particularly volatile investments. This document is reminiscent of a slightly longer report that the French Central Bank (Banque de France) published in December 2013. This report explained that Bitcoin cannot be considered a real currency or means of payment under current French laws, and criticized it as a vehicle for speculation as well as an instrument for money laundering and other illegal activities. The 2013 report also suggested that the conversion between Bitcoin and real currencies should be considered a payment service, which therefore could only be performed by payment service providers authorized and supervised by the ACPR. The ACPR acknowledged this position in a 2014 document in which it stated that entities that habitually engage in the activity of purchasing or selling cryptocurrencies in exchange for actual legal tender must be licensed as payment services providers by the ACPR. However, the AMF and ACPR’s 2017 joint notice recognizes that “the purchase/sale of and investments in Bitcoin currently operate outside of any regulated market.”
Robert Ophèle, the President of the AMF, reiterated his skepticism of the economic value of cryptocurrencies in a January 2018 interview. In this interview, he described as “catastrophic” the prospect of cryptocurrencies, in their current form, spreading to become an everyday instrument of the economic circuit: “due to the nontraceability of operations [and] their quasi-irrational valuation, those are not really appropriate foundations for investment.”
B. Warnings about the Risks of Acquiring Cryptoassets from Unregistered Sources
In March 2018, the AMF warned investors about the risks of purchasing cryptoassets from unregistered sources and published a list of websites of companies selling cryptoassets without having obtained prior authorization from the AMF. The AMF has also considered the status of cryptocurrency derivatives, and has concluded that “cash-settled cryptocurrency contracts may qualify as a derivative” and that, as a result, “online platforms which offer cryptocurrency derivatives fall within the scope of MiFID 2 [the European Union Markets in Financial Instruments Directive 2] and must therefore comply with the authorization, conduct of business rules, and the European Market Infrastructure Regulation (E.M.I.R.) trade reporting obligation to a trade repository.” Furthermore, such products are subject to the provisions of French law that ban the advertisement of certain financial contracts.
C. Enthusiasm for Blockchain Technology
While its main purpose was to warn investors about the volatility and unregulated nature of cryptocurrencies, the AMF and ACPR’s 2017 joint notice also included a brief passage recognizing the potential benefits of blockchain technologies for the corporate world. This view was repeated by the President of the AMF in his above-mentioned January 2018 interview. While he sees the development of cryptocurrencies as potentially “catastrophic,” he also highlighted the “extremely positive contribution of the underlying technology, i.e. blockchain, which could bring deep changes to the financial sector because it has the ability to reduce costs and intermediaries.”
IV. Legislative and Executive Branches Considering Regulatory Options
A. Parliamentary Fact-Finding Missions
In parallel to the independent regulatory institutions mentioned above, the French legislative and executive branches are actively investigating how best to regulate cryptocurrencies. To that purpose, the National Assembly (Assemblée nationale, one of the two houses of the French Parliament) recently initiated a fact-finding mission on cryptocurrencies, and a separate fact-finding mission on “blockchains and other technologies for the certification of ledgers.” The mission on cryptocurrencies held its first (and so far, only) hearings on March 12, 2018, while the mission on blockchains has not yet held any hearings. So far, neither mission has published any findings or opinions. Additionally, the Senate (the other house of the French Parliament) organized two hearings on February 7, 2018: one on blockchain technology, and one on the rise of cryptocurrencies. Many of the speakers stressed the importance of establishing a new legal framework for cryptocurrencies, as the existing legislation is deemed inadequate. All appeared to agree on the necessity to minimize the illegal uses of cryptocurrencies (such as money laundering) and to provide some protection and transparency for investors, while at the same time avoiding stifling innovation.
B. Ministry of the Economy Fact-Finding Mission
The Minister of the Economy has recently tasked Jean-Pierre Landau, a former deputy governor of the Banque de France, with researching how to best regulate cryptocurrencies to “better control their development and to prevent their use for tax evasion, money laundering, or the financing of criminal or terrorist activities.” Landau has the reputation of being a cryptocurrency skeptic after he wrote an op-ed in 2014 that criticized Bitcoin for being “unsuitable as a means of exchange” and primarily attractive for purposes of speculation, money laundering, and tax evasion.
C. Action Plan to be Unveiled Soon
On March 19, 2018, the Minister of the Economy and Finance published an op-ed in which he expressed the view that “France has every interest in becoming the first big financial center to offer an ad hoc legislative framework that would allow companies that launch an ICO to demonstrate their seriousness to potential investors.” He announced an upcoming “Action Plan for Growth and Transformation of Companies,” to be unveiled by the government “in a few weeks,” that will allow the AMF to grant a certification of trustworthiness to companies that issue tokens, provided that they fulfill certain criteria to ensure the protection of investors.
It is also worth noting that France and Germany have jointly requested that cryptocurrencies be discussed by the G-20, so that coordinated initiatives may be taken at the international level.
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.
Prepared by Nicolas Boring
Foreign Law Specialist
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Last Updated: 08/16/2019