Crypto regulation: how do you choose the right regime in Europe?

The question of regulation is essential whatever the activity, but it is perhaps even more so in crypto. The choice to move to another European country will define the long-term regulatory strategy. In this context, should we favour the French regulatory framework or explore opportunities abroad? Should we dispense with regulation and operate through an already-registered NSP?

Let's analyse the possible scenarios and the implications of each choice in detail.

Scenario no. 1 - I regulate in France: reputation first

I am a French company that wants to regulate in France and target the French market, this is the choice that at first glance seems the most logical.

The advantages are well known:

1- A clear and established legal framework: a forerunner, since the PACTE law, France has anticipated the MiCA regulation.

2- High-quality regulators who know their subject very well.

This is a choice that appears reassuring for investors, particularly in a sector as new and technical as cryptoactives.

However, let's be honest, in practice, such a choice also has its share of drawbacks:

1- A high cost: Beyond the administrative red tape, a PSAN registration is expensive and a MiCA approval even more expensive. Some people are talking about minima €500,000 for compliance and an equivalent budget for subsequent years. "He who can do more, can do less", this phrase which advocates security can be an insurmountable step for many project owners if in the end the cost of regulation goes from simple to triple... This is not just about the costs of obtaining registration (compliance, legal...), but also about all the other costs (annual!) of maintaining registration (cybersecurity, global costs, social contributions...). Costs that can be prohibitive for a startup and a competitive disadvantage for a large company.

2- A long and complex process: Obtaining registration is a long process that is often inaccessible for small structures or those without a banking connection.

Let's face it, such a choice is aimed primarily at well-established companies and/or those already operating in the banking and financial sector.

2 - I regulate myself abroad: flexibility at a lower cost

I am a French company that wants to regulate itself more quickly and at a lower cost.

As a reminder, the MiCA regulation will allow any crypto company registered in an EU country to operate throughout the territory (this is the European passport).

The advantages:

1- Speed and lower costs: some EU countries make it possible to obtain a VASP in just a few weeks and for up to three times less than in France, which is a major advantage for startups and companies.

2- Tax and social benefits: some EU countries offer significant tax benefits and lower social charges, particularly if you set up your operational centre of activity there.

But beware, in practice, such a choice also has its drawbacks:

1- Limitations on the French market: until the MiCA regulation comes into force, the VASP could be assimilated to a circumvention of French regulations and present significant risks. For example, it will not be possible to target the French market from abroad, let alone advertise. Such a choice can therefore prove complicated and limit your initial scope, as reverse solicitation is very strictly regulated.

2- Reputation and trust challenges: Regulation in certain countries can sometimes raise questions of credibility with potential investors and customers in France. Faced with a competitor regulated in France, competition could be tough, pending the European passport.

3. I regulate myself via a PSAN: a temporary in-between?

Two scenarios:

1- I am a French company that does not have the means to regulate itself in France.

2- I am a French company that wants to start operating as soon as possible, while pursuing a compliance initiative elsewhere.

Who hasn't heard the story of such and such a company that had no go-to-market for 12, 18, sometimes 24 months while desperately waiting for their PSAN sesame? This situation is economically untenable.

"PSAN as a Service" (hopefully awaiting a CASP MiCA as a service) refers to a protean model where a company uses the regulatory and technological infrastructure of a registered PSAN (and therefore compliant with current regulations) to offer cryptoasset-related services, without possessing the necessary registration itself.

This model can take various forms, from business referral (which is not a true PSAN as a Service given that the referrer does not maintain a relationship with the customer), to grey labeling for which digital asset services are provided on the PSAN's site or platform but via the unregulated Company's interface.

This is the whole paradox of this industry: modelling itself on financial regulation without actually borrowing one of its most relevant statuses: that of the "agent".

Imagine tomorrow if all payment service agents were to become payment service providers (PSPs) or all linked investment service agents, investment service providers (ISPs)? This would make no sense....

Advantages:

1- Rapid and economically viable implementation: This model enables rapid market entry with smoothed initial costs. Above all, it allows you to test a value proposition quickly and pivot more easily if necessary.

It's ideal for testing a project, or while waiting for a compliant (but lengthy) registration.

2- Operational simplicity: using an existing PSAN eliminates the complexity of managing your own regulatory structure.

3- Alignment of interests: the unregulated company gets up and running quickly, the crypto company expands its range of services and the regulator limits the review of applications from companies that don't have the time/means to match their ambitions.

But here too, there are disadvantages:

1- Dependence and risks:

You are economically dependent (setup fees and/or commissions are often required)

You are technologically dependent (it's not your platform but PSAN's, a minima backend).

You are commercially dependent (your customers become PSAN's customers).

This dependence can lead to operational and financial risks, particularly in the event of a divergence of interests or problems at the host PSAN.

2- Lack of autonomy: This model limits your ability to develop an independent brand and build your own reputation.

3- Legal model to be confirmed: a mission was initiated within Adan this year to discuss with the regulator with a view to securing players who wish to use this model. This is not yet the case!

Whichever you decide, your regulatory strategy will shape your company's future in the crypto ecosystem.