The political fallout of FTX spreads to France

What happened?

2023 started on a strong note for the crypto industry in France.  

Senator Hervé Maurey, a centrist, caught the industry - and the government - by surprise in adding an amendment to an otherwise unrelated legislation. The change would have drastically strengthened the authorisation framework for digital asset services providers (DASPs, or so-called 'PSANs' in French) in an abruptly short timeline, well ahead of that set out by the Markets in Crypto-Assets Regulation (MiCA) for the EU. 

A compromise was adopted by the Assemblée Nationale yesterday that will see prospective DASPs applying for registration from 1 July 2023 go through a strengthened registration process and in particular demonstrate the robustness of their IT systems. The revised law will in practice apply from 1 January 2024, giving 6 months to the Autorité des Marchés Financiers (AMF) to assess an application.  

This compromise will be welcomed by firms. Many would not have been able to meet the stringent requirements associated with the license, or 'agrément' the Maurey amendment would have required. The episode nonetheless reveals a number of underlying themes that have implications for crypto, not only in France but in the EU, and for French politics more widely.

What's happening behind the scenes?

The episode is reflective of wider concerns about the opaque but growing crypto world, following the spectacular collapse of FTX (which we recently wrote about here). As the potential impact on consumers becomes apparent, those concerns made their way into the political debate - like they did in the UK or the US. 

In France, the concerns are intertwined with the wider EU framework. MiCA is coming in April 2024 (and only in 2026 for those already registered that can benefit from the grandfather clause) and will see crypto firms transition to the traditional 'regulated' realm with the requirements this entails but anxiety is growing about the risk of further failures before then. As the debates in the French Parliament have shown in the past few weeks, these concerns have increased since the FTX scandal. They are shared by lawmakers who are under pressure to act to protect consumers. Regulators like the AMF and the Banque de France are also looking at stricter enforcement. 

European countries have adopted different approaches, pre-MiCA. France in particular has shown relative leniency: 62 crypto firms have registered with the AMF so far – against 5 with Germany's Bafin, whose authorisation process already requires IT robustness checks. Many will be wondering whether the AMF is resourced to oversee those firms effectively. If the wind turns, and history repeats itself, France will want to be able to point to actions taken in light of FTX.  

Political and policy uncertainty

  • President Macron's position is significantly more precarious than in his first term. He lost his parliamentary majority in June 2022 and needs to strike alliances on almost every proposed legislation to govern effectively. This means less control over legislation as a whole - attention must be diverted between the multiple legislative issues ongoing at the same time, anticipating issues and mitigating damage. 
  • The government here was caught by surprise by Senator Maurey and the subsequent support of the senators that meant urgent attention now had to be paid to an amendment that would have far-reaching implications for the crypto industry, and France's aspirations in this area. 
  • While the government did catch up, they did nonetheless have to compromise on dates with the Senate. Firms will have also wondered about the lack of clarity the law provides on timelines for implementation. Remedying this confusion will now fall to the AMF. 

France as a destination for crypto

  • Though crypto firms will face higher hurdles to registration from July, the Government remains keen for France to be 'the' destination for crypto firms in Europe. This ambition is not confined to crypto: the AMF is also leading the way in implementing the EU's DLT Pilot Regime, which the law approved yesterday enables in France and will go live on 23rd March. 
  • More widely, President Macron has made it a personal commitment to reshape France's image as an attractive destination for start-ups, particularly in the tech and fintech sectors. Having recently celebrated France's 26th unicorn, he will be keen to build on the trends and portray his presidency as a success story for 'la French Tech'. 
  • Macron and his government will also be conscious that others, not least on the other side of the Channel, harbour similar ambitions. In the UK, Prime Minister Rishi Sunak while Chancellor last year, committed to making the UK a 'crypto hub'. Despite FTX, and turnover in government, Chancellor Jeremy Hunt has maintained that ambition. Proposals earlier this month from HM Treasury which set out plans to bring crypto into the Financial Conduct Authority's remit were clearly designed with flexibility and innovation in mind. While the urge to regulate crypto is spreading across jurisdictions, like with the rest of financial services, the quest for competitiveness continues. 
  • France remains an attractive destination for crypto companies. But the cumulative effect of the time lag for the EU regulations to come into force, the fallout from the FTX scandal and a lack of majority in parliament, means that the environment is more unstable than it was a year ago. Crypto companies need to be aware of these uncertainties and be prepared with carefully designed engagement with relevant public authorities and messaging. 

Flint has exceptional people in London, Paris and Brussels, but also across Europe and Asia-Pacific. We help clients navigate the increasingly complex global regulatory environment for crypto and DLT services, steer government policy, and achieve their commercial objectives.   

This blog was written by Etaine Lamy, a manager at Flint and former Associate Economist at the Financial Conduct Authority and Francois-Joseph Schichan, director at Flint and a former French diplomat.

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