French Financial Regulator Suggests Europe-Wide Security Token Sandbox

France’s Financial Markets Authority (AMF) has proposed that all of Europe adopt a regulatory sandbox to support the emerging security token industry.

The “Digital Lab” would run for three years, the watchdog said in a March 6 legal analysis, exempting projects from financial regulations like the MiFID and CSDR that AMF’s analysis deemed incompatible with the blockchain sector’s growth.

“These frameworks were designed to frame centralized market infrastructures,” AMF President Robert Ophèle said in a speech. He explained that “they are not suited to the decentralized nature of the blockchain environment” and therefore render many projects almost assuredly unprofitable.

But Ophèle insisted that Europe could not just adopt new regulations for blockchain and security tokens overnight.

“We are faced with a ‘chicken and egg’ paradox,” Ophèle said. The space cannot develop under the current framework, but without documentation, new frameworks cannot evolve either. 

A Digital Lab sandbox would give regulators both, Ophèle said. Authorities would closely monitor how these projects evolve when unshackled from Europe’s traditional markets regulation, collecting three years of feedback and data to shape the formation of new, more flexible regulations. 

“As a regulatory authority, we need to understand these changes and ensure that our regulatory frameworks remain appropriate. These frameworks must make it possible to manage risks – to effectively protect users – without losing the benefit of innovations,” Ophèle said.

It remains to be seen how other continental financial regulators will react to AMF’s latest recommendation. The press offices for Germany’s, Italy’s, Austria’s, Ireland’s and Finland’s respective securities regulators did not immediately respond to requests for comment, and neither did the European Securities and Markets Authority, the top securities watchdog for the EU.