Monaco: Draft Law no. 1131 introduces a new framework for crypto-asset services

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Draft Law no. 1131 regulating the activities of crypto-asset service providers would introduce a new legal framework in the Principality.

According to its explanatory memorandum, the proposed legislation notably reflects Monaco’s commitments under its Monetary Agreement with the European Union, including the adoption of measures equivalent to the European Markets in Crypto-Assets Regulation — MiCA. It also takes into account the recommendations of the Financial Action Task Force — FATF.

A deliberately limited opening

The approach adopted by the Princely Government is based on strategic considerations relating to the international environment. It provides for a limited opening of the permitted services, notably to reduce the Principality’s exposure to the risks associated with certain crypto-asset activities.

The selected services would therefore constitute a natural extension of financial activities already carried out in Monaco.

Against this background, the draft law is largely aligned with amended Law no. 1.338 of 7 September 2007 on financial activities, while adapting certain provisions to the specific features of crypto-asset services, particularly in relation to operating requirements.

A framework limited to three services

The draft law would authorise only three crypto-asset services:

receiving and transmitting orders in crypto-assets on behalf of clients;
• providing crypto-asset portfolio management services;
• providing advice on crypto-assets.

Other services falling within the scope of the proposed framework would be prohibited in the Principality. These would notably include:

custody and administration of crypto-assets on behalf of clients;
• operating a crypto-asset trading platform;
• exchanging crypto-assets for funds;
• exchanging crypto-assets for other crypto-assets;
• executing orders on behalf of clients;
• placing crypto-assets;
• providing crypto-asset transfer services on behalf of clients.

The issuance of crypto-assets within the Principality would also be prohibited.

The draft law nevertheless provides for certain exclusions from its scope, notably for certain intragroup services, certain unique and non-fungible crypto-assets and crypto-assets already governed by other legal regimes.

Prior authorisation from the CCAF

Providing any or all of the three permitted services would require prior authorisation from the Commission de Contrôle des Activités Financières — CCAF.

Authorisation could be granted to:

Monaco public limited companies meeting the conditions set out in the legislation;
• credit institutions headquartered in a foreign State, operating through a branch in Monaco and already authorised by the CCAF under Law no. 1.338.

Within their respective areas of competence, the CCAF would seek the opinion of the Autorité Monégasque de Sécurité Financière and the Agence Monégasque de Sécurité Numérique. It would issue its decision within six months of receiving a complete application.

Authorisation would notably be subject to requirements concerning:

financial guarantees, own funds and prudential safeguards;
• the competence and good repute of directors and shareholders;
• AML/CFT and asset-freezing obligations;
• business continuity and operational resilience;
• information systems security.

Client protection and conduct requirements

Authorised providers would be subject to prudential and conduct-of-business rules, together with obligations relating to conflicts of interest, record-keeping and information systems security.

Client mandates would have to be governed by written agreements.

Providers would not be permitted to accept deposits of funds or crypto-assets from their clients. They would also be required to obtain information concerning each client’s knowledge and experience to assess whether the proposed service or crypto-asset is appropriate.

Commercial approaches would also be regulated, particularly where made by unauthorised persons or entities. Restrictions would additionally apply to certain unsolicited approaches by authorised providers.

Supervision, penalties and market abuse

The CCAF would be the competent authority responsible for supervising the implementation of the framework.

Its powers would include:

determining applications for authorisation;
• monitoring compliance with professional obligations;
• conducting inspections and investigations;
• cooperating with foreign authorities;
• implementing the measures and penalties provided for by the legislation.

The draft law also provides for criminal penalties, notably where services are provided without authorisation or prohibited activities are carried out.

A specific regime would additionally address market abuse involving crypto-assets, including the unlawful use or disclosure of inside information and market manipulation.

Finally, the draft legislation would amend several Monaco laws relating to digital matters, financial activities and AML/CFT. Article 60 would notably repeal amended Law no. 1.491 of 23 June 2020 on token offerings and Title II of Law no. 1.528 of 7 July 2022.

A targeted approach

Draft Law no. 1131 therefore adopts a targeted approach: only three crypto-asset services could be provided in the Principality, as an extension of existing financial activities and subject to prior CCAF authorisation.

All other services falling within the proposed framework would be prohibited, together with any issuance of crypto-assets within Monaco.

As the draft law remains subject to examination by the National Council, its provisions may evolve during the legislative process.

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