Designed to pave the way for increasingly popular games based on digital assets such as crypto-currencies, a new regulatory framework will soon come into force in France, opening up a three-year period of experimentation with games based on monetizable digital assets. Under certain conditions, which will be set out in detail in forthcoming decrees, the main attraction of the rules set out in the law on Securing and Regulating the Digital Space (the “SREN Law”) is that they exempt certain categories of games (e.g. games based on blockchain-based assets, such as non-fungible tokens) from the system of prior authorization by the French Gambling Authority, making them subject to a declaration system.

WHICH GAMES ARE COVERED BY THE NEW REGULATION ?

While a list of games that may be offered on the French market should be drawn up in a forthcoming decree, the SREN Law already specifies that the new regime applies to games based on “monetizable digital assets”, which will be offered under certain conditions.

It follows from the text of the law that “monetizable digital assets” should be understood as ‘game elements, which only confer on players one or more rights associated with the game, and which may be transferred, directly or indirectly, for consideration to third parties’; in other words, elements granting the player a specific right in the game, and which may be transferred outside the game.

In addition, the games concerned must meet the following conditions:
– be offered as an online game,
– involve a financial sacrifice,
– be based on a mechanism of chance,
– with an expectation of reward, consisting of monetizable digital objects — to the exclusion of any monetary gain.

WHAT’S THE DIFFERENCE WITH GAMBLING ?

Under French law, four criteria must be met to be regulated as gambling: (i) an offer to the public, (ii) a financial sacrifice and (iii) the presence of a mechanism involving chance and (iv) the expectation of a monetary gain.
It is this last criterion that differs for games based on monetizable digital assets and therefore distinguishes the new legal classification from gambling per se.

In other words, these games based on monetizable digital assets cannot offer the possibility of winning money directly, but only so-called “monetizable digital assets”. As an exception, subject to conditions which will be detailed by a forthcoming decree, rewards other than monetizable digital assets (e.g. crypto assets) may be awarded – to the exclusion of any monetary gain in real currency – provided they are only awarded on an ancillary basis.

What about the impact on loot boxes ?

To date, according to the French Gambling Authority, lootboxes are exempt from the gambling regulations as long as the reward they offer the player cannot be monetized outside the game.

As mentioned above, the new rules only affect games with monetizable digital assets that can be transferred outside the game. Consequently, “closed loop” loot boxes, which give rise to a reward that is non-transferable or non-monetizable outside the game, should not fall within either the gambling category or the games based on monetizable digital assets category and remain outside the supervision of the French Gambling Authority.

How to prepare for the experimentation ?

Operators willing to participate in the forthcoming three-year period of experimentation and offer games based on monetizable digital assets must be prepared to comply with a specific set of obligations that will be monitored by the French Gambling Authority.

Regulated operators will have to ensure the integrity, reliability, and transparency of gaming operations and the protection of minors (age verification mechanisms and warnings about age restrictions on the game interface).

In addition, the SREN Law lists numerous obligations, some of which are to be supplemented by decrees, in particular:

• location and appointment of a representative within the European Union;
• verification of user’s identity and obligations to prevent the risk of addiction;
• restriction similar to the one applicable to gambling: prohibition on advertising to minors, prohibition on purchasing the assets they make available, obligations relating to cooperation in the fight against money laundering and terrorist financing, respect for the rights of sports federations, etc.

Operators who fail to comply with the new requirements will be liable to various sanctions, such as a warning, a temporary suspension of gaming operations, a temporary or permanent ban on gaming operations, or a ban on the operator’s activities in this field.

WHAT TO EXPECT IN THE COMING MONTHS ?

Operators wishing to offer games based on monetizable digital assets on the French market will also remain attentive to the publication, expected by the end of 2024, of a series of decrees aimed at specifying:

• the categories of games authorized under this experimental framework;
• the conditions under which rewards other than monetizable digital objects may be awarded on an ancillary basis;
• the information that operators must declare to the French authority;
• the procedures for opening, managing, and closing player accounts.