France takes another step forward in normalizing cryptocurrency transactions with strict licensing requirements for Digital Asset Service Providers. The regulator is reacting to the EU’s renewed anti-money laundering requirements.
The French financial markets regulator, the Autorité des Marchés Financiers (AMF), has released new rules for the licensing of digital asset service providers (DASPs), effective January 1, 2020. The new rules are in-line with the new European anti-money laundering directive, the AMLD-5, that the EU member states must integrate into national law.
DASP Classification Standards
The AMF classifies firms as a DASP that offer at least one of these services:
- Digital assets custody services
- Buying or selling of digital assets in exchange for fiat currency
- Trading digital assets in exchange for other digital assets
- Managing digital asset portfolios
- Providing advice to investors interested in digital assets.
Registration with the AMF becomes mandatory in cases where a firm provides services of digital asset custody or buying or selling digital assets for legal tender in France.
AMF places strict regulatory requirements on DASPs
The AMF’s rules for DASPs are strict compared to those placed on other financial service providers. The regulator justifies the difference by pointing to the increased cybersecurity risks of crypto-businesses. To get a license, DASPs must show:
- a cybersecurity program demonstrating measures that help mitigate risks, compliant with European data privacy laws,
- a two-year business plan,
- a list of the digital assets the firm intends to offer,
- a plan of its internal control systems,
- a procedure displaying how it handles insurance claims,
- an IT systems plan,
- details of its measures against money laundering and terrorist financing,
- the firm’s geographical location,
- at least one senior manager.
Once licensed, DASPs must undergo regular technical audits to ensure that their cybersecurity remains consistently up to speed.
The application process for getting licensed as a DASP involves submitting the documents above as well as submitting proof that the authorized DASP has professional indemnity insurance or a minimum amount of reserve funds.
The AMF has made it clear that it will keep a close eye on the compliance of DASPs. According to Emilien Bernard-Alzias, a partner at the Simmons & Simmons Law Firm in Paris, “The AMF is trying to take crypto firms by the hand to help them comply. For other financial service providers, there are requirements for a strong IT system, but the AMF guidance does not have many details for them as they do for crypto firms […] For this, the AMF is having crypto firms explain at the beginning what they are going to do, and this is new for us in France.”
A pan-European regulatory approach is still missing
European countries across the board have been working on crypto regulations. France has been making significant progress regarding the acceptance of cryptocurrency; just last December, the AMF granted its first “ICO visa” to a cryptocurrency fundraising platform.
Also in December, Germany passed legislation allowing banks with a license from the Federal Financial Supervisory Authority (BaFin) to sell and store cryptocurrencies in a similar fashion to stocks and bonds.
The regulation of crypto firms is a necessity for the development of the asset class, as regulations provide legal certainty for businesses and investors. National regulators in Europe increasingly realize the urgency. What’s still missing, however, is a pan-European regulatory approach.