Crypto Regulations in France

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In France, digital assets are regulated under several frameworks, particularly focusing on cryptocurrencies and blockchain technologies. The French government has been proactive in creating legal frameworks to ensure transparency, protect investors, and prevent money laundering. Key regulations and aspects are as follows:

1. Pacte Law (Loi PACTE) – 2019

Digital Asset Service Providers (DASPs): This law created a licensing framework for Digital Asset Service Providers (DASPs) offering services such as custody, exchange, and trading of digital assets. Registration with the AMF is mandatory for DASPs, especially to ensure compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations.

Definition of Digital Assets: The Pacte Law provides a clear legal definition of digital assets, including cryptocurrencies. It distinguishes between two categories:

Tokens: Any intangible asset representing rights that can be issued, registered, transferred, or stored using a distributed ledger technology (DLT).

Cryptocurrencies: Virtual currencies that are not issued by a central bank.

ICO Regulation: The Pacte Law introduced a voluntary licensing regime for Initial Coin Offerings (ICOs) under the supervision of the Autorité des Marchés Financiers (AMF). ICO issuers can apply for AMF approval if they meet specific transparency and investor protection requirements.

In France, the taxation of digital assets, particularly cryptocurrencies, is well-defined and applies to both individuals and businesses. Here’s an overview of how digital assets are taxed:

1. Capital Gains Tax on Cryptocurrencies

• Flat Tax Rate: For individuals, capital gains from the sale or exchange of cryptocurrencies are taxed at a flat rate of 30%. This includes both income tax (12.8%) and social security contributions (17.2%). This flat rate is applied to gains from the occasional sale of digital assets.
• Occasional Sales: If an individual occasionally sells or trades cryptocurrencies, they are subject to this flat tax rate. Occasional sales are those where trading is not the person’s main professional activity.
• Professional Traders: If trading cryptocurrencies is considered a professional activity (i.e., the person regularly engages in large-scale trading), they may be taxed under a different regime. Professional traders could be subject to the Progressive Income Tax rate, depending on their total income, which can go up to 45%, plus social security contributions.

2. Tax Reporting

• Individuals must report gains from cryptocurrency sales during their annual tax declaration. Failure to declare these assets can lead to fines or penalties.
• French residents must also declare any foreign digital assets (such as accounts held on foreign exchanges) to tax authorities.

3. Businesses and Digital Assets

• Corporate Tax: Businesses engaging in cryptocurrency activities (such as trading, mining, or providing services related to digital assets) are subject to corporate tax. The general corporate tax rate in France is 25% as of 2022, though it may vary depending on the company’s size and profits.
• VAT on Goods and Services: If a business uses cryptocurrencies to pay for goods or services, the transaction may be subject to Value Added Tax (VAT), just as with any traditional currency.

4. Mining of Cryptocurrencies

• Cryptocurrency mining is considered a professional activity and is taxed under either the self-employed regimeor as part of corporate taxation if conducted by a company.
• Income from mining is considered taxable income, and professional miners must pay income tax or corporate tax depending on their structure.

5. Inheritance and Gift Tax

• Digital assets, including cryptocurrencies, are also subject to inheritance and gift taxes. The valuation of these assets at the time of transfer will determine the applicable tax rates, which are the same as those applied to other forms of property.

6. Non-Resident Taxation

• Non-residents who sell digital assets in France may be subject to French taxation depending on their country of residence and any applicable tax treaties between France and their home country.

France’s clear framework for taxing digital assets aims to balance encouraging innovation while ensuring appropriate tax compliance from individuals and businesses.

In France, the regulation of digital asset exchanges is robust, aiming to foster a secure environment for investors while ensuring compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) rules. The framework falls under the broader regulation of Digital Asset Service Providers (DASPs), which includes cryptocurrency exchanges. Below is a detailed overview of the regulations governing digital asset exchanges in France:

1. Pacte Law (Loi PACTE) – 2019

The Pacte Law introduced a legal framework for Digital Asset Service Providers (DASPs), including exchanges that offer buying, selling, and trading of cryptocurrencies and other digital assets.

Key requirements for exchanges under the Pacte Law include:

• Mandatory Registration: All digital asset exchanges must register with the Autorité des Marchés Financiers (AMF) if they provide services in France, even if they are based abroad.
  
• AML/CFT Compliance: Registered exchanges must comply with strict anti-money laundering and counter-terrorism financing regulations. This includes conducting Know Your Customer (KYC) checks and monitoring transactions for suspicious activity.
• Service Categories: The law defines several categories of digital asset services that require regulation, including:
  • Custody of digital assets
  • Exchange of digital assets for other digital assets (crypto-to-crypto)
  • Exchange of digital assets for legal tender (crypto-to-fiat)
  • Operation of a trading platform for digital assets
    

2. Registration and Licensing of Exchanges

The process for exchanges involves two main steps:

• Mandatory Registration: This is required for all DASPs, specifically for AML/CFT purposes. Exchanges must provide proof of KYC measures, internal controls, and transaction monitoring systems.
• Optional Licensing: While registration is mandatory, exchanges can choose to apply for an optional license from the AMF. Licensed exchanges must meet higher standards of transparency, security, and investor protection, which enhances their credibility. This licensing system is designed to protect investors by ensuring that service providers follow best practices.
  

3. Key Regulatory Obligations for Exchanges

4. Tax Reporting for Exchanges

• Customer Protection: Exchanges are required to implement measures to ensure the security of client assets, including holding sufficient reserves and maintaining secure custody solutions.
• Transparency: Exchanges must be transparent about their operations, fees, and risks associated with trading digital assets.
• Segregation of Client Assets: Exchanges must keep client funds separate from their own, ensuring that customer assets are protected in case of insolvency.

• Exchanges that facilitate trades for French residents are required to report certain transaction details to the French tax authorities. This includes reporting on capital gains from the sale of digital assets for tax purposes.
  

5. Supervisory Bodies

• Autorité des Marchés Financiers (AMF): The AMF oversees the regulation of exchanges and ensures that they comply with French financial regulations.
• Autorité de Contrôle Prudentiel et de Résolution (ACPR): The ACPR is responsible for monitoring AML/CFT compliance, particularly in coordination with the AMF.
  

6. Consumer Protection Measures

• Exchanges are required to provide adequate warnings about the risks associated with digital assets, such as volatility, fraud, and potential loss of assets.
• In case of disputes, exchanges must offer customer service support and be transparent about the process for resolving issues.
  

7. Penalties for Non-Compliance

• Failure to register with the AMF or comply with AML/CFT regulations can result in severe penalties, including fines, suspension of operations, or criminal charges.

8. MiCA Regulation (EU-Wide)

• With the upcoming Markets in Crypto-Assets (MiCA) regulation, the regulatory environment for digital asset exchanges in France is expected to harmonize with EU-wide standards. MiCA will introduce additional requirements for exchanges, including stricter capital requirements and investor protection rules. Once implemented, MiCA will replace certain national regulations but will work in tandem with existing frameworks like the Pacte Law.
  

9. Stablecoin and Derivatives Exchanges

• Special regulations apply to exchanges dealing with stablecoins and derivatives based on digital assets. These exchanges are subject to additional oversight to ensure the stability and proper backing of the stablecoins, as well as compliance with derivative market rules.
  

10. Non-EU Exchanges Operating in France

• Foreign exchanges that offer services to French customers must comply with French regulations, including registration with the AMF. They must adhere to the same standards as domestic exchanges, particularly regarding KYC, AML/CFT, and customer protection.
  

Summary

France has established a well-structured regulatory framework for digital asset exchanges. The emphasis is on safeguarding investors, ensuring transparency, and preventing illegal activities such as money laundering and terrorism financing. With the impending MiCA regulation, these rules will likely evolve further to align with EU-wide standards, but France remains one of the leading countries in Europe for clear and proactive digital asset regulation.

Recent Developments in Digital Assets Regulations in France

France has been actively updating its regulatory framework for digital assets, particularly in response to recent market challenges and the upcoming European regulations. Here are the key developments:

1. Enhanced Registration Requirements

• New Legislation: On March 9, 2023, the French Parliament passed the DDADUE Law, which introduces enhanced registration requirements for Digital Asset Service Providers (DASPs) [2].
• Implementation Date: These new requirements will come into effect on January 1, 2024 [2].
• Key Changes: DASPs will need to implement robust security and internal control systems, including measures for managing conflicts of interest and ensuring the segregation of customer assets from their own [2].
  

2. Regulatory Response to Market Crises

• The regulatory changes were partly prompted by the failures of major platforms like FTX and the Terra Luna crisis, which highlighted the need for stricter oversight [2].
• The Autorité des Marchés Financiers (AMF) will have increased powers to monitor DASPs and can take precautionary measures if a provider’s solvency or liquidity is at risk [3].
  

3. Transition to MiCA Regulation

• Upcoming European Regulation: The Markets in Crypto-Assets (MiCA) Regulation, which aims to harmonize crypto regulations across the EU, is set to come into force on December 30, 2024 [2].
• Impact on DASPs: From this date, all DASPs will need to comply with MiCA’s licensing requirements. Those registered under the current French framework will have an 18-month transition period to adapt [2][3].
  

4. Current Registration Framework

• As of now, there are two pathways for DASPs in France:
  • Registration: Basic registration with the AMF, which requires passing a “fit and proper” test for executive managers and demonstrating compliance with anti-money laundering (AML) obligations.
  • Licensing: A more rigorous licensing process that allows for soliciting investors, which only one company has pursued in 2023 [2][3].
    

5. AMF’s Updated Policies

• The AMF has revised its General Regulation to incorporate the new enhanced registration requirements and align them with the forthcoming MiCA standards [2].
• The AMF will also monitor the security of registered DASPs’ information systems and can limit or prohibit certain activities if necessary [2].
  

Key Takeaways

• The French regulatory landscape for digital assets is evolving to enhance security and compliance, particularly in light of recent market disruptions.
• The transition to MiCA will significantly impact how DASPs operate, necessitating compliance with stricter EU-wide regulations.
• Current registered DASPs will have a grace period to adapt to the new requirements, but they must prepare for the upcoming changes to maintain their operations.

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Learn more:

1. France Imposes New Regulatory Regime on Digital Asset …
2. New Rules for French Digital Asset Registration | Jones Day
3. Blockchain & Cryptocurrency Laws & Regulations | France

Recent developments

Notable Hacks, Frauds, and Scams on Digital Currency in France

France has witnessed several significant hacks, frauds, and scams in the digital currency space, affecting numerous investors and highlighting the vulnerabilities in the crypto ecosystem. Here are some notable incidents:

1. CryptosLabs Scam Ring

• Overview: A scam ring known as CryptosLabs has reportedly defrauded French-speaking investors in France, Belgium, and Luxembourg, amassing approximately €480 million since April 2018.
• Modus Operandi: The group impersonated well-known banks and financial institutions, creating over 350 fraudulent domains. They lured victims through social media ads and fake investment platforms, promising high returns on investments.
• Victim Experience: Victims were shown fictitious performance charts to encourage further investments, only to find they could not withdraw their funds even after paying various fees [2].

2. International Bitcoin Fraud Network

• Details: In a coordinated effort by French and Belgian authorities, a criminal network was dismantled that had defrauded around 85 victims of €6 million through fake bitcoin investments.
• Approach: The group contacted victims via phone, offering unrealistic profits of up to 35% on bitcoin investments. Initially, victims saw small gains, which encouraged them to invest more, leading to significant losses when they could not withdraw their funds [3].

3. Coobe.im Fraudulent Trading Platform

• Incident: A California resident reported losing over $14,000 to a fraudulent trading site called Coobe.im, which promised high returns through a WhatsApp group led by a supposed crypto expert known as “the Professor.”
• Scam Mechanics: Victims were told they needed to pay additional fees to withdraw their funds, which led to further losses. The site is no longer operational [1].

4. Genie Pro Xchange

• Fraudulent Activity: Another victim reported being defrauded of over $100,000 by a site called genieproxchange.com, which was recommended by a hacked Facebook account. The victim was unable to withdraw any funds after making deposits [1].

5. Tnegcoin.com Scam

• Victim Losses: A victim lost nearly $200,000 after being lured into a WhatsApp group where they received trading signals from a supposed expert. After initially seeing gains, they were asked to pay a commission to withdraw their funds, which led to further losses when the platform became unresponsive [1].

6. Impersonation of Crypto.com

• Scam Description: Two residents reported being scammed by a website impersonating Crypto.com, where they were convinced to invest significant amounts of money. Both victims ended up losing substantial sums, with one reporting a loss of $190,000 after being misled about withdrawal fees and taxes [1].

Conclusion

These incidents illustrate the risks associated with digital currencies and the importance of vigilance when engaging in crypto investments. The scams often involve sophisticated tactics, including impersonation and the creation of fake platforms, making it crucial for investors to conduct thorough research and exercise caution.

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Learn more:

Action taken against bitcoin fraud in France and Belgium | Eurojust | European Union Agency for Criminal Justice Cooperation

Crypto Scam Tracker | The Department of Financial Protection and Innovation

CryptosLabs Scam Ring Targets French-Speaking Investors, Rakes in €480 Million

Notable Law Enforcement Actions in Digital Assets in France

France has been proactive in addressing issues related to digital assets, particularly in the context of crime and regulatory compliance. Here are some notable law enforcement actions and developments:

1. Seizures of Crypto Assets

• Increased Seizures: French judges have been increasingly seizing crypto assets in criminal cases. In 2022 alone, the French agency responsible for managing seized assets, AGRASC, managed approximately €60 million worth of crypto assets from over 500 seizures, a significant increase from just eight seizures in 2018 [1].
• Legal Framework: The French legal system recognizes crypto assets as seizable property, allowing for their confiscation in cases related to criminal offenses. However, the process remains complex due to the decentralized nature of cryptocurrencies, which complicates the identification and seizure of assets [1].

2. Regulatory Enforcement Against Non-Compliant DASPs

• PACTE Act Compliance: Under the PACTE Act, Digital Asset Service Providers (DASPs) must register with the Autorité des Marchés Financiers (AMF). Non-compliance can lead to significant penalties, including imprisonment and fines [3].
• Ongoing Monitoring: The AMF has ramped up its monitoring of DASPs to ensure compliance with anti-money laundering (AML) regulations and other legal requirements. This includes the ability to impose sanctions on entities that fail to adhere to the established guidelines [3].

3. Crackdown on Fraudulent Activities

• Operation Against Scams: French authorities have conducted operations targeting fraudulent schemes that exploit digital assets. For example, a recent crackdown dismantled a network that defrauded investors through fake investment platforms, leading to significant financial losses for victims [2].
• International Cooperation: France has collaborated with other countries to combat cross-border fraud in the digital asset space, enhancing its ability to address scams that affect French citizens but originate from abroad [2].

4. Legal Actions Against Fraudulent Platforms

• Investigations and Prosecutions: Law enforcement agencies in France have initiated investigations into various fraudulent platforms that have misled investors. These actions often involve freezing assets and pursuing legal action against the operators of these platforms [2].
• Public Awareness Campaigns: In addition to enforcement actions, French authorities have launched campaigns to educate the public about the risks associated with investing in digital assets and how to identify potential scams [2].

Conclusion

France’s law enforcement actions in the realm of digital assets reflect a commitment to protecting investors and maintaining the integrity of the financial system. Through increased seizures, regulatory enforcement, and targeted operations against fraud, the country is actively working to address the challenges posed by the rapidly evolving digital asset landscape.

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Learn more:

1. Seizing and selling crypto assets in civil and commercial disputes: still not an easy route in France – A&O Shearman
2. Beware: Increasingly Aggressive Enforcement Actions in the Crypto Asset Industry Puts Companies on Notice | Wilson Sonsini
3. France – Cryptoassets – Law Over Borders – The Global Legal Post

Regulatory Sandbox for Crypto and Blockchain Projects in France

Yes, France has established a regulatory sandbox aimed at fostering innovation in the crypto and blockchain sectors. This initiative is part of a broader effort to create a supportive environment for emerging technologies while ensuring regulatory compliance and consumer protection.

Key Features of the Regulatory Sandbox

1. Objective:
   • The primary goal of the regulatory sandbox is to allow startups and companies to test their blockchain and crypto-related projects in a controlled environment. This helps them understand regulatory requirements while developing their technologies.
2. Collaboration with Regulators:
   • Participants in the sandbox have the opportunity to engage directly with regulatory authorities, including the Autorité des Marchés Financiers (AMF) and the Banque de France. This collaboration aims to align innovative projects with existing regulations and identify potential regulatory adjustments needed for new technologies [1].
3. Eligibility:
   • The sandbox is open to a wide range of projects, including those focused on digital assets, decentralized finance (DeFi), and other blockchain applications. Companies must demonstrate the innovative nature of their projects and their potential benefits to the financial ecosystem [1].
4. Support and Guidance:
   • Participants receive guidance on regulatory compliance, risk management, and best practices. This support is crucial for startups that may lack experience navigating the complex regulatory landscape [1].
5. Feedback Mechanism:
   • The sandbox provides a feedback loop where regulators can gather insights from the testing of new technologies. This information can inform future regulatory frameworks and help adapt existing laws to better accommodate innovation [1].

Recent Developments

• European Blockchain Sandbox: In addition to France’s national sandbox, there is also a European Blockchain Sandbox initiative that aims to facilitate cross-border projects and regulatory cooperation among EU member states. This broader framework complements France’s efforts and enhances the collaborative environment for blockchain innovation across Europe [2].

Conclusion

France’s regulatory sandbox for crypto and blockchain projects represents a significant step towards fostering innovation while ensuring that new technologies comply with regulatory standards. By providing a structured environment for testing and collaboration with regulators, France aims to position itself as a leading hub for blockchain and digital asset development in Europe.

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Learn more:

Regulation in France: the AMF supports security tokens

Blockchain & Cryptocurrency Laws & Regulations | France

European Blockchain Sandbox announces the selected projects for the first cohort – EBSI SANDBOXCollab –