France's financial regulator, the AMF, warns it may block crypto firms licensed in other EU states from operating domestically due to concerns over MiCA enforcement gaps and regulatory arbitrage, introducing market uncertainty.

Executive Summary

France's financial regulator, the Autorité des Marchés Financiers (AMF), has issued a significant warning, indicating its potential to block cryptocurrency firms licensed in other European Union member states from operating within France. This stance stems from concerns regarding potential enforcement gaps within the Markets in Crypto-Assets Regulation (MiCA) framework and the risk of regulatory arbitrage. The announcement introduces uncertainty into the market regarding the future of cross-border crypto operations within the EU.

The Event in Detail

Marie-Anne Barbat-Layani, Chairman of the AMF, publicly stated that France does not exclude the possibility of refusing the EU passport for crypto firms. The primary concern articulated by the AMF is that crypto firms may be "regulatory shopping" across Europe, seeking out "weak link" jurisdictions that offer more lenient licensing standards under MiCA. This landmark regulation, which came into effect for crypto-asset service providers in December 2024, enables companies authorized in one member state to utilize a "passport" for operations across the entire 27-nation bloc. Barbat-Layani described such a refusal as an "atomic weapon" for the market, highlighting the legal complexities and potential implications for the single market. The French position is part of a coordinated effort, with Austria's Financial Market Authority (FMA) and Italy's Commissione Nazionale per le Società e le Borse (Consob), to advocate for enhanced regulatory oversight. These three nations have collectively called for the European Securities and Markets Authority (ESMA) to assume supervision of major crypto firms and for revisions to MiCA to address identified inconsistencies.

Market Implications

This development introduces immediate operational considerations for cryptocurrency firms relying on the MiCA passporting mechanism. In the short term, firms could face increased scrutiny and potential hurdles when attempting to operate across EU borders, particularly in France. The long-term implications point towards a potentially more stringent and harmonized regulatory environment across the EU, possibly leading to a centralization of power with ESMA. This could influence the attractiveness of certain EU jurisdictions for crypto businesses, as the incentive to seek out "lenient" regulators diminishes. The intent behind these actions is to prevent regulatory arbitrage and ensure consistent application of investor protection standards across the bloc. Examples of firms licensed under the current system include Coinbase (Luxembourg) and Gemini (Malta), whose operations highlight the current reliance on national licensing that this French initiative seeks to scrutinize.

Expert Commentary

AMF Chairman Marie-Anne Barbat-Layani emphasized the issue of firms "doing their regulatory shopping all over Europe, trying to find a weak link that will give them a license with fewer requirements than the others." The joint position paper from France, Italy, and Austria asserted that "The first few months of the application of the Regulation have revealed major differences in how crypto-markets are being supervised by national authorities." While ESMA head Verena Ross has expressed openness to increased powers, the proposal faces resistance from some EU member states, indicating ongoing internal debates within the regulatory framework.

Broader Context

France's warning underscores early implementation challenges of MiCA. Discrepancies in how national authorities are enforcing the regulation have become apparent, raising questions about the speed of license issuance and the adequacy of supervision for cross-border firms. For instance, an ESMA review previously found that the Maltese financial regulator had not adequately assessed risks when granting a license to an unnamed crypto company. This push by France, Italy, and Austria reflects a broader EU concern about crypto market stability and investor protection. Their proposals include stricter rules for crypto companies operating outside the EU, enhanced cybersecurity supervision, and a review of how authorities manage new crypto token offerings, all aimed at creating a more unified and robust regulatory landscape to protect investors and maintain market integrity.