Analysis of Amendment No. CE48 to the Bill and Alternatives

 

Background and Objectives 

The Association for the Development of Digital Assets (Adan) advocates for clear regulations that are tailored to the risks when such risks are identified. In this regard, the bill proposed by Representatives Arthur DELAPORTE and Stéphane VOJETTA is a positive step; it aims to make social media platforms more responsible and to protect consumers from the risks associated with the promotion of misleading or illegal products and services. 

On this issue, digital assets have unfortunately been thrust into the spotlight by news stories such as the case of Marc and Nadé Blata, which have cast doubt on a technological innovation that has nothing to do with the fraudulent schemes of a minority. The digital asset sector must be able to continue to grow for the benefit of our economy and our jobs, while providing clarity and confidence to users.

In this regard, it seems necessary to ensure that the regulatory framework for influencers—who play a major role in the development of the Web 3 economy—can meet the following four objectives: 

• Enable consumers to easily distinguish between good and bad practices, or between companies that comply with regulations and those that do not; 
• Ensure that we retain influencers in France so that we can manage them in accordance with established guidelines to support the goals we have set;
• Ensure that applicable regulations are enforced effectively and efficiently;
• Enforce penalties for deceptive business practices.

In light of these objectives, the following presents, on the one hand, ADAN’s comments on Amendment No.CE48 to the proposed law aimed at combating scams and abuses by influencers on social media, as well as a proposal for an alternative framework that could be considered for influencers disseminating content related to digital assets. 

 

I. Proposal put forward by members of Parliament in Amendment No. CE48: issues that remain to be resolved

Amendment No. CE48 to the so-called “influencer” bill sponsored by Representatives Arthur DELAPORTE and Stéphane VOJETTA proposes to prohibit influencers from promoting the following services, offers, and products: 

• Financial contracts as defined in Article L. 533-12-7 of the Monetary and Financial Code 

No comments regarding this provision.

 

• The provision of services relating to digital assets as defined in Article L. 54-10-2 of the same code, with the exception of those for which the advertiser is authorized under the conditions set forth in Article L. 54-10-5 of said code

This provision permits the promotion of products or services only by digital asset service providers (DASPs) authorized by the French Financial Markets Authority (AMF). However, the AMF has not—to date—issued any authorizations to DASPs. Such a provision therefore amounts to a ban on all communications in France regarding digital asset services. Yet 7% of French unicorns have been built around blockchain technologies and crypto-assets. Without international harmonization and/or increased oversight of published content, preventing the French market alone from promoting these activities would harm the competitiveness of our companies in this market, without providing better protection for consumers, who will continue to access promotions from abroad.

Proposal:In this regard, it would therefore be appropriate to extend the promotion of content on digital assets to the following stakeholders: 

⇒Digital asset service providers registered under Article L.54-10-3 of theMonetary and Financial Code. In fact, these 65 providers are operators regulated by the French Financial Markets Authority (AMF), and their registration criteria have recently been strengthened under the DDADUE law, which already subjects them to clear and non-misleading disclosure obligations toward their audience. In this regard, allowing them to run promotions on their products and services does not appear to conflict with the objective of protecting consumers from potential scams. This is all the more true given that these providers are authorized to advertise in accordance with Article L. 222-16-1 of the Consumer Code, which would create an inconsistency in French law. Since the vast majority of these companies are French, this would also allow them to promote their services to consumers who would otherwise naturally turn to foreign providers, which are more competitive and often less regulated.

⇒Service providers whose activities are not subject to digital asset regulations and are not intended to be. It should be noted here that digital asset services are not necessarily financial services. This is particularly the case for companies offering their usersutility tokens(digital assets linked to rights and services) that can, for example, be exchanged within a community to better share computing storage capacity. Again, it does not appear that the promotion of this type of product and service runs counter to consumer protection.

1. (c) A public offering of tokens within the meaning of Article L. 552-3 of the same code, except where the issuer has obtained the approval provided for in Article L. 552-4 of said code

This provision does not pose any particular practical difficulties; therefore, there is no reason to oppose it. However, the following two points should be emphasized: 

• Only three companies hold a license under Article L. 552-4 of the Monetary and Financial Code. It therefore appears that influencers could only enter into partnerships with these three operators, which does not seem to be a viable economic situation for influencers specializing in the field of crypto-assets. Such a situation would lead influencers in the sector to either diversify their activities and thus lose expertise, or to establish themselves in a jurisdiction with more flexible regulations regarding such activities, and thus face less oversight. Both of these situations run counter to consumer protection.

• The approval process is optional for entities wishing to conduct an initial coin offering (ICO). It was designed to address the financing challenges faced by startups, enabling them to raise funds from the public through alternative means at a stage of development and maturity where traditional sources of financing (bank or market-based) may not be readily available to them. Consequently, it seems contradictory to refuse to allow these companies to communicate the launch of their project to the public at the same time.

1. (d) Investments that expose the consumer to the risk of loss in a digital asset or, more generally, in a fungible or non-fungible intangible asset that represents, in digital form, one or more rights or one or more assets, which may be issued, recorded, stored, or transferred by means of a shared electronic registry and that do not possess the characteristics of a financial instrument, with the exception of investments or placements related to services for the provision of which the advertiser is authorized under the conditions set forth in Article L. 54-10-5 of the same Code.

This provision is specifically aimed at prohibiting the promotion of non-fungible tokens (NFTs) by influencers and, to that end, seeks to define them legally. This attempt calls for great caution for the following reasons: 

• NFTs are not legally defined under French law. Work is currently underway on this issue in France and across Europe. As the Level 1 texts of the MiCA (Markets in Crypto-assets) regulation were being finalized, the European legislator also chose to exclude NFTs from its scope in order to better address the complexity of the subject. Further deliberations will be conducted throughout this year to develop a proposal that will be submitted by the European Commission by early 2024. Similarly, in France, discussions are currently being led by the General Inspectorate of Finance (IGF) to define a regulatory framework suited to NFT technological innovations and relevant to the protection of consumers who use them. In this context, it would appear premature to use legislative measures aimed at regulating the influencer profession at this stage to draw legal conclusions that have not yet been evaluated in relation to this technological innovation.  

• A preliminary analysis of the proposal set forth in this section (d) already suggests that the provision will cover certain non-fungible tokens (NFTs) that are used in contexts that do not pose risks to users. Indeed, NFTs have a wide range of characteristics and functionalities. These technologies can, for example, be used: in the context of event-related activities (ticketing, event souvenirs, in-event entertainment); by brands to build customer loyalty; to represent a product in digital and virtual worlds (e.g., a handbag from brand XXX in the metaverse); to create decentralized identities that enable customer verification (KYC) while protecting personal data. There appears to be no justification for why companies offering these—non-exhaustive—use cases for NFTs should not be able to promote their products and services through influencers. 

Proposal: It seems advisable to wait until regulations governing NFTs are established—after taking the time necessary to understand this innovation, industry practices, and the legal definition of these digital objects—before considering a regulatory framework for the advertising practices associated with them. Without this, France risks preventing innovative companies—which pose no risk to consumers—from promoting their business and growing. 

 

II. ADAN’s Alternative Proposal: Establish stricter guidelines regarding disclosure requirements for influencers who share commercial content on digital platforms

Influencers promoting crypto-assets must comply with the general provisions applicable to all influencers as well as with existing law (e.g., the requirement that the promotion of products, acts, or services provided by the persons referred to in Article L. 122-26 must be indicated by a visible banner on the image or video throughout the entire promotion, or that the advertiser who has contracted with the influencer can be unambiguously identified by its brand or any other means). 

However, influencer marketing related to crypto-assets may indeed require specific additional requirements. The promotion of products and services involving digital assets must therefore strike a clear balance between highlighting the performance and benefits of digital assets and the risks associated with this type of investment. Influencers, as the primary sources of information for users in this market, are effectively responsible for ensuring this balance through the content they disseminate. As such, influencers must be regulated in a manner that takes into account the specific characteristics of the sector and market practices. This proposal therefore establishes an additional framework for promotions disseminated by influencers when they specifically concern digital assets, so that users have the information necessary to make an informed decision.

Article 1

I. In paragraph 7, delete the words: “and digital assets”

II. After paragraph 11, insert a new section III worded as follows:

“III. – The promotion on social media of investments in digital assets that entail a risk of loss for the consumer is also prohibited, except under the following conditions: 

“1. It clearly, accurately, and truthfully describes the nature of the product and/or service being promoted, while maintaining a balance between performance and disclosure of risks, including the risk of capital loss, volatility, and technological risks;

“2. The public is explicitly informed, via a banner displayed on the image or video for a reasonable duration of the promotion, that these are intended for adults only; 

“3. It does not present the returns as being consistently achievable, easily obtainable, or recurring, while concealing the risks mentioned in paragraph 4 of this article; 

“4. It does not constitute gambling as defined in Article L. 320-1 of the Internal Security Code; 

“5. It does not give the impression that purchasing the product and/or subscribing to services involving digital assets is an easy and quick way to make money; 

“6. It specifies whether the product or service involving digital assets is promoted by a service provider registered or authorized under Article L.54-10-3 of the Monetary and Financial Code, or whether the digital asset is offered in accordance with Article L.552-4 of the Monetary and Financial Code.”

III. Accordingly, renumber the text in accordance with paragraph 11.