Some years count more than others, and for European crypto players, 2024 will clearly count.
Between now and the end of the year (30 December to be precise), the MiCA (Markets in Crypto-Assets) regulation will come into force. This regulation, which has been the subject of much debate over the past 18 months in Europe, is intended to provide a regulatory framework for crypto-assets.
One of MiCA's main measures is to make a digital asset service provider (DASP) licence mandatory, which already exists on a national scale in some countries such as France.
Companies that already benefit from a DASP registration will have until 30 June 2026 to obtain their licence. After that, there will be no alternatives, and all players without authorisation will no longer be able to operate in the 27 member countries.
The rules of the game are therefore clear.
The problem is that many businesses are unlikely to survive until mid-2026. There are many reasons for these difficulties, but it is above all the weakness of the business model of many players that could come into play.
"Many entrepreneurs have tried their luck by offering crypto services, but sometimes without anticipating the regulatory constraints too well," points out Anne Maréchal, a partner lawyer at De Gaulle Fleurance.
Legal director of the Autorité des marchés financiers (AMF) from 2013 to 2022, Anne Maréchal was actively involved in setting up the regulation of digital assets in France, which then largely inspired the drafting of MiCA at European level.
To date, only Forge, the Société Générale subsidiary , has obtained the precious sesame in France. "Awarding the first licence to a traditional banking player is clearly a message from the AMF. It is a sign that regulation is a serious matter and that it comes at a price", confides a lawyer in the sector.
The cost of an authorisation application is estimated at several hundred thousand euros per year.
"Roughly speaking, obtaining authorisation alone costs around 100,000 euros, a sum that includes legal support and advice. Beyond that, there are additional costs of around €30,000 to €50,000 for the cybersecurity audit", according to Victor Charpiat, a lawyer at Kramer Levin.
"Next, the cost of maintaining compliance comes to around €500,000 a year. These costs include the outsourcing of internal control or the budget devoted to checks by the regulator, as well as the salaries of the teams in charge of compliance. For large players, this sum can rise to as much as €1 million annually," he tells The Big Whale.
In addition to these out-of-pocket costs, players will have to contend with a war for talent that has already begun. "Accreditation means having certain fairly rare profiles that are proficient in both traditional finance and crypto," adds Anne Maréchal. However, these profiles are not legion.
👉 A difficult financial situation "One way or another, all the small players are for sale," says an entrepreneur whose company is itself on the market. "The last 18 months marked by falling markets and repeated scandals such as FTX have turned retail investors away from this market and brought many discussions with the biggest players in traditional finance to a standstill", he continues.
In an attempt to seek a second wind, market maker Woorton sold out to UK-based B2C2 at the end of August.
Other PSANs, in order to adapt, are being forced to pivot their model. This is particularly the case with Klub , a French investment and financial services platform aimed at private investors launching in 2020. "We are going to raise the barrier to entry for new entrants by focusing from now on on on institutional investors," explains Reda Berrehili*, founder and CEO of Klub.
Even the biggest players are not escaping the rule. Broker Coinhouse is in the process of shedding 15% of its workforce, or around ten people, and has taken the decision to halt its Web3 and metavers business, which was part of its strategy to diversify beyond its historic crypto broker business. "We still have cash, we have visibility, but we don't know how much longer the bear market will last", confessed its CEO Nicolas Louvet to The Big Whale.
Given the context, few PSANs are therefore in a favourable position, particularly financially, to put up more than €500,000 for a licence. "There is still time, but we are sensing more and more nervousness among certain players in the ecosystem", explains the head of one fund.
This nervousness is unlikely to abate. According to our information, the French crypto ecosystem, which is nonetheless primarily affected by MiCA, has not been invited to the negotiating table that will be held with EBA (European Banking Authority) and ESMA (European Securities and Markets Authority), the two main European regulators. The aim of these 'negotiations' is to correctly translate and transcribe the regulation into national law.
👉 Representation limited to major players Currently, discussions are taking place within the Haut Comité Juridique de la Place Financière de Paris (HCJP) as part of the adaptation of French law to European law in the context of MiCA. Launched in 2015 by the AMF and the Banque de France, the official purpose of this committee is to produce legal reports. More concretely, it serves as a consultation base for lobbying aimed at defending French interests at European level, particularly with EBA and ESMA.
Although "informal consultations" are planned with PSANs in the coming months, very few entities representing the crypto ecosystem have been invited to participate in the working groups. Particularly surprising is the absence of the Association pour le Développement des Actifs Numériques (Adan) , the regulators' preferred point of contact for several years. Only a few hand-picked players are invited to the discussions, which, according to our information, also include several representatives of French banks.
"Crypto-native players are not part of the negotiations, which are clearly left in the hands of the large entities, essentially made up of traditional financial institutions," confides one of the participants. "At the same time, would a small PSAN whose future remains highly uncertain be credible and able to discuss regulation at European level? Frankly, no", he concludes.
While it is not present by name in the HCJP's working groups, Adan asserts that it has "historic participation" from its head of legal affairs, Hugo Bordet, who nevertheless left the association in December and is preparing to join the law firm Kramer Levin.
"Many members of Adan's legal committee, including its chairmen, play an active part in the work of the HCJP and we are obviously carrying out our own missions on the MiCA transition in conjunction with the public authorities," Mélodie Ambroise, its director of strategy and institutional relations, told The Big Whale.
But generally speaking, the native crypto ecosystem is "less and less well represented within the key bodies working on regulatory issues, that's a fact", laments a lawyer close to the sector.
👉 A D-system to avoid "killing innovation" In anticipation of the sorting out that will take place between now and 2026, lawyers in the sector are already working on solutions that would allow NSPs without the means to comply with MiCA to continue to operate under the supervision of an authorised entity.
"The aim is to allow certain players to work under the supervision of an authorised NSP. It's a way of preserving innovation while avoiding carnage," explains a lawyer who is already working on drafts of such an arrangement. "The candidates are therefore the banks, which today are the players in an ideal position to obtain PSAN approval," he adds.
Another alternative would be for some PSANs to seek authorisation elsewhere than in France to benefit from more attractive labour costs and taxation, particularly in Eastern Europe, as MiCA is passportable between the 27 member countries.
*Reda Berrehili is an individual minority shareholder in The Big Whale
