France the first major economy to regulate cryptocurrencies
An international leader in tech oversight, France became the world's first major economy to regulate cryptocurrencies – attempting to stabilize a potentially disruptive new industry.
France's financial watchdog is poised to approve a first tranche of cryptocurrency-related companies under new rules on digital coins, some of the first such regulations to be launched by a major economy.
Under the rules, set to come into force late this month, crypto-related firms will voluntarily abide by standards on capital requirements and consumer protection, and pay tax in France, in exchange for approval from the regulator.
"France is a precursor. We will have a legal, tax, and regulatory framework," said Anne Marechal, executive director for legal affairs at the Financial Markets Authority.
"We are in talks with three or four candidates for initial coin offerings (ICOs)," she said, referring to companies that raise funds by issuing digital tokens. The watchdog is also in talks with several other cryptocurrency exchange platforms, custodians, and fund managers, she added.
Cryptocurrencies are subject to patchy rules across the world, with the technology remaining mostly unregulated. While some smaller countries from Belarus to Malta have brought in specific laws, major economies have tended to apply existing financial rules.
Global scrutiny of cryptocurrencies has grown since Facebook unveiled plans last month for its Libra digital coin. The entry of the social media giant to cryptocurrencies has raised concerns among politicians and financial watchdogs in the United States and elsewhere over privacy, consumer protection and the potential for systemic risks.
Some crypto-related companies and industry associations have called for regulation of the sector, in part because of a desire for legal clarity and because of the perception of respectability that accompanies such rules.
"When you are an entrepreneur, the worst that can happen to you is to set up your business where there is no regulation, to see an adverse regulatory framework later imposed that jeopardizes your whole business," said Frederic Montagnon, the co-founder of LGO, a New York-based cryptocurrency platform that chose to launch an ICO in France.
France is using its presidency of the Group of 7 economic powers to launch a task force to look at how central banks can ensure digital currencies like Libra are regulated.
European Central Bank policymaker Benoit Coeure is due to deliver a preliminary report on the matter this week at a meeting of G7 finance ministers in Chantilly, north of Paris.
Paris first proposed rules to attract cryptocurrency issuers to France last year amid a boom for ICOs. Then, hundreds of new cryptocurrencies were issued every month raising billions of euros.
But ICOs have since dropped sharply, as issuers of cryptocurrencies turn to other forms of fundraising such as initial exchange offerings, where issuers raise money over crypto trading platforms and exchanges.
This story was reported by Reuters. Tom Wilson in London contributed additional reporting.