DDADUE bill: what are the results for crypto markets?

Pilot mode: an opportunity for financial markets that has yet to be confirmed

This has been in question since 2020, the pilot scheme for the DLT market infrastructure is now enshrined in French law and will be available to companies from 23 March 2023.

Target? Experiment for 3 renewable years on what market infrastructure can be thanks to blockchain technologies. Companies participating in these trials will receive exemptions from existing rules for services provided with digital securities. In this way, Europe hopes to bring the financial sector in line with innovation and find new and better solutions to finance the economy, especially to support small and medium-sized businesses. This is the first event in the world that, on paper, will help the European Union to be at the forefront of financial innovation.

Large companies or start-ups, many companies have expressed interest in participating in building the future of European finance through a pilot scheme.

However, it seems necessary to warn of two pitfalls that actually limit the ambition of the adopted system and may even run counter to the goals of this initiative:

– Settlement of payments will be authorized through traditional intermediaries or through the central bank, commercial or electronic currencies that rely on existing systems and whose digital equivalents will not appear within 3 years. Similarly, e-money tokens will have no legal effect until the MiCA comes into effect in mid-2024. Therefore, none of the solutions proposed in the text will take full advantage of the pilot scheme and exploit the potential offered by end-to-end on-chain solutions. Thus, the desire of France and Europe to explore all the possibilities offered by blockchain technologies in the financial world should be revised downwards.
– Companies operating in the status of a simplified joint stock company (UAC) do not have the right to participate in the experiment. Thus, in its current form, the pilot scheme excludes most of the SMEs it is intended to promote.

The coming months will provide an opportunity to remove these obstacles. In particular, by allowing the use of stablecoins as settlement assets, and simplified joint-stock companies are eligible to participate in the pilot scheme. The essence of Adan’s work will be to advance these reflections so that these three pilot years can be fully beneficial to all stakeholders.

Boosted registration: a mountain to climb for the new PSANs?

The vote in Parliament was also an important step for Digital Asset Service Providers (PSANs) to register in France.

After 3 months of heated debate, the possibility of forced approval for new members has been officially ruled out. The sector can only welcome this alternative solution as it is too high a step for start-ups, in particular due to practical obstacles such as the lack of professional liability insurance, which always prevent service providers from obtaining such approval.

If getting PSAN on the road to MiCA regulation is our common desire, especially in order to protect investors, Adan has always advocated the most effective approach for this purpose: fair and balanced regulation that allows innovation to flourish in our territory. and shine throughout the world for the benefit of all.

Here we must applaud the actions of MPs Eric Botorel and Daniel Labaronne, the bearers of the alternative proposals for mandatory approval, as well as the commitment of the government and, in particular, the Minister Delegate in charge of digital transition and telecommunications, Jean-Noel Barraud, who supported this option during the debate.

Thus, when the DDADUE bill is considered by the National Assembly, it will be fixed that:

– Already registered PANS enhanced mode is not affected.
– All new companies wishing to establish themselves in France must, in order to obtain permission from the Financial Markets Authority to start their activities, must have an adequate system of security and internal controls, as well as a system for managing conflicts of interest.
– In addition, digital asset custody service providers must also:
. Explain your responsibilities under the agreement their clients accept.
. Set a retention policy
. Promptly return your clients’ crypto assets in case of problems due to the fault of the custodian
. Separate your funds and those of your clients
. Do not use your clients’ assets without their prior permission

However, continued negotiations will further increase the registration of new PSANs wishing to settle in France by two steps.

The strengthening of the rules will come into force on July 1, 2023. Given the current timeline for registration procedures, companies planning to launch in the coming months, whether their case is filed or under investigation, should now be able to anticipate the possibility of being affected by the new regime.

PSANs will need to comply with cyber security requirements. It is highly desirable that providers be able to guarantee their users the security of their transactions and funds. However, it turned out that several hurdles needed to be overcome in order for start-ups to overcome cybersecurity requirements, in particular the vagueness associated with some obligations and the high cost of fulfilling them, although due to their size they pose more limited risks.

Given the fact that French players will have these various obligations to their European competitors, Adan will look to make this advantage an asset in the preparation of European rules in the coming months. The expected strengthening of the French structure should not be an obstacle to the development of companies in France.

To do this, it will be necessary to initiate an enhanced dialogue between regulators and the sector in order to:

– Clarify the processing conditions for PSAN log files submitted to the authorities from now until the entry into force of the enhanced regime.
– Distribute the funds of France’s ambitions, in particular by strengthening the resources of the authorities so as not to punish actors who face excessively long terms of office.
– Support service providers in cybersecurity compliance by clarifying expectations, upgrading the skills of stakeholders involved from the authorities, and by taking a pragmatic approach to analyzing their risks.
– Work on finalizing the MiCA texts to ease the transition of players from the French system to European rules.

Source: ADAN

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