Is the crypto market really unregulated? It never was actually. There were loopholes, there were inconsistencies, but regulation was hovering one way or another. Like Binance which is under SEC’s investigation, many companies were in a grey zone believing if they were trading on crypto assets they would be unsupervised and free to do as they wanted. However, regulators know better.
First ofall, if you’re trading on security tokens, you are actually buying, selling, negotiating financial instruments. In short, if your token ensures you a right to vote in general meetings, gives you a right to a dividend, the regulator shall characterize your token as a financial instrument: “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck”. Then, it will have to comply with every regulation governing shares.
It’s with the same mindset that the AMF (French authority on financial markets) assessed negotiating cryptocurrency derivatives requires a specific authorization and enters in the scope of MIFID2. That’s why, to trade cryptocurrency derivatives, companies must “comply with the authorization, conduct of business rules, and the EMIR trade reporting obligation to a trade repository.” Crypto.com was recently added to the AMF’s blacklist for failure to comply to this rule among other things. It forbids the company to pursue its business under threat of legal proceedings.
Crypto.com was also sanctioned because of their lack of registration. Actually, in France, if you want to sell some services on crypto assets and advertise French audience for those services you have to be approved as a Digital Asset ServiceProvider. This registration is mandatory if you want to provide the following services on behalf to a French third party :
- Crypto-assets’ custody
- Buying and selling crypto assets (fiat money to crypto or crypto to fiat money)
- Trading crypto assets (crypto to crypto)
- Operating a platform where we can trade crypto assets
For any other services on crypto assets it’s possible to be registered but it’s optional. Yet the method is the same: You have to prove that the executive board has a good reputation and the competencies to manage such an activity and to demonstrate that the company has a good AML policy.
When a company is registered as a DASP, it wins two rights. The first one is the right to advice and the second one is an enforced right to basic banking services.However, Bitcoin Avenue the last exchange which got the DASP approval has seen its bank account closed less than 10 days after their registration.
So even if crypto companies are able to prove their respect of the regulation, their relation ships with traditional finance and with banks in particular are still quite strained. Crypto businesses seem to be too risky, not sufficiently compliant to be fully integrated in the financial system at this time.
Lastly, there are some risks for crypto actors to be defined as an “intermediary in miscellaneous assets”. What does it mean?
There are two cases:
- If the company offers communication actions with one client or more (I), to buy aright or a movable asset (II) for a client who doesn’t manage its investment(III)
- If the company offers to one client or more to acquire rights on movable assets(I) by putting a return forward (II)
If the company’s activity falls into one of those ambits, it has to be registered as an intermediary in miscellaneous assets. It means that it will have to communicate clearly and truthfully about its offer. Investors should know and understand the strength and the risks of the investment before subscribing.That’s why a great attention is paid to the communication.
As we can see, the French legal regime for crypto assets is still under construction. It should evolve with the European regulation and with the jurisprudence of theAMF.