France is coming under pressure to close a loophole in incoming crypto rules that would grant it a longer grace period to entice digital asset companies to set up in the country with minimal regulatory oversight.
Hervé Maurey, a member of the Senate’s influential finance commission, has proposed an amendment to legislation to eliminate a clause that would enable registered crypto companies to operate domestically without a full regulatory licence until 2026.
His move raises the pressure on the government and its regulators over France’s crypto-friendly stance. Tougher EU rules will come into effect in 2024 but France is planning to retain its current regime for a further 18 months.
Critics’ concerns have risen this year during a market shakeout in which prices of popular tokens have nosedived, exacerbated by the collapse of Sam Bankman-Fried’s FTX crypto empire last month. US prosecutors filed criminal charges against Bankman-Fried on Tuesday.
France has sought to make itself one of the most attractive countries for crypto companies to base themselves, luring companies such as exchange operator Binance to Paris.
The current regime allows crypto companies to register in France without going on to gain a fully fledged license, meaning they can operate with minimal checks.
“The FTX collapse was a detonation [that] contributed to a moment of reckoning and awareness,” Maurey told the Financial Times. “This led a number of players within the French system to consider that things needed to be supervised more tightly.”
His proposal would force companies to secure a licence from the Autorité des Marchés Financiers (AMF), the French regulator, from October next year. Unlike registration, a licence provides consumer protection and requires companies to disclose more information pertaining to their financial health and systems of control. About 50 crypto companies are registered but none have yet been granted a licence.
Critics say France’s current system means consumers may mistake crypto companies as being actively supervised by regulators. “In reality, the protection provided by this registration is very light if not non-existent,” said Thierry Philipponnat, who resigned from the AMF board in October.
“Players like Binance evidently use the [AMF regime] as a marketing tool.”
Binance did not comment on the amendment. In a statement at the end of November, it said: “We do not hold ourselves out as having anything more than this, as this is the most any crypto asset service providers can currently obtain.”
The amendment, which was adopted by the Senate on Tuesday, will be examined by France’s parliament in January next year. The French government has so far opposed the text, arguing that speeding up the implementation of regulatory requirements risks scaring off investors.
France’s Adan, a crypto lobbying group, said the proposed amendments were a sign that the country was “renouncing its ambition” to become a crypto hub, and accused the country of “abandoning an industry of the future” because of FTX’s collapse.
“We have always been clear that registered players are very lightly regulated and we have called on investors to be highly vigilant,” said the AMF.
Following the failure of FTX, French MEP Aurore Lalucq warned finance minister Bruno Le Maire in a letter that under the current system “platforms are able to play on this [regulatory] ambivalence”.
The ministry of finance told the FT that it was “following with great attention” the causes and consequences of the bankruptcy of FTX.