Blockchain gaming and the French Jonum Law

Blockchain Gaming and the French Jonum Law in the light of the EU MiCAR Regulation

On itmedialaw.com, I don’t normally report often on legal developments outside Germany. Especially in the area of blockchain and cryptocurrencies, it is a challenge to even begin to consider the international aspects. But today I’m making an exception, because something has happened in France with the so-called “Jonum Law” that could also be of great interest to German blockchain gaming providers. The Jonum Law is part of the broader law on the regulation of the digital space (SREN) and was passed by the French National Assembly with 561 votes. It creates a special regulatory framework for video games that use NFTs (non-fungible tokens) and crypto-based monetization strategies. This makes France the first country to introduce dedicated regulation for this sector.

What is the Jonum Law?

The Jonum Law, often referred to as the “Jonum regime” (for “Jeux à Objet Numérique Monétisable”, i.e. “games with monetizable digital objects”), aims to strike a balance between promoting innovation in French-based start-ups in the games industry and protecting users. One of the most important aspects of this law is the formal definition of “Jonum”, a term that was previously not clearly defined in law. This definition opens the door to a potential new regulatory framework that is specifically tailored to crypto games and differentiates them from traditional video games and gambling activities.

The law defines jonum as any online game that allows players to win redeemable digital assets issued by the game operator. A jonum is therefore any game that meets the following criteria:

– An online game
– Associated with a financial stake
– Based on a random mechanism
– With the expectation of a reward consisting of a monetizable digital asset – excluding any monetary winnings.

A monetizable digital asset is “an element of a game that confers one or more rights associated with the game solely on players and that can be transferred directly or indirectly to third parties in return for payment”.

An interesting question here is the extent to which the Jonum regime is compatible with the EU Markets in Crypto-Assets Regulation (MiCAR). MiCAR aims to create a harmonized European regulatory framework for crypto-assets that promotes innovation and enables the exploitation of the potential of crypto-assets while ensuring financial stability and investor protection. While MiCAR is not specifically aimed at blockchain games, it could still have an impact on the Jonum regime, especially when it comes to the definition and regulation of utility tokens and other crypto-assets used in games.

Obligations for Jonum providers

Jonum companies will be subject to similar obligations as providers of games of chance and lotteries. For example, they must have their headquarters within the EU or in another member state of the European Economic Area that has concluded an agreement with France that includes a clause on administrative assistance to combat tax fraud and tax evasion. They must also appoint representatives based in France to ensure local accountability and a point of contact for regulatory matters.

As jonums are prohibited for minors, operators must implement robust age verification mechanisms – as with gambling and sweepstakes. This includes clear warnings about age restrictions, the obligation to open an account to access the game with age verification steps and ensuring that minors do not receive promotional material related to jonum. Advertising communication by influencers (within the meaning of the French law of June 9, 2023 on the regulation of commercial influence) is only permitted on online platforms if there are technical means to exclude minors from the audience.

Operators are also obliged to inform users about the risks associated with excessive gaming. This includes the dissemination of warnings and the introduction of transparency measures to prevent compulsive or pathological gambling behavior. They must also integrate features such as self-exclusion and spending limits and provide users with summaries of gaming activity.

Before offering Jonum services, operators must declare their intentions to the French gambling authority ANJ (Autorité Nationale des Jeux), but can offer their services without prior authorization. This declaration is a fundamental step for regulatory oversight and differs from the full licensing process required for traditional gambling and gaming operators. The ANJ is responsible for monitoring compliance with the regulations.

These obligations for Jonum providers appear to be largely compatible with the requirements of MiCAR, particularly in relation to consumer protection, the prevention of money laundering and terrorist financing and supervision by regulatory authorities. However, it remains to be seen how MiCAR will ultimately affect specific aspects of the Jonum regime. In particular, the question of whether and how the digital assets used in Jonum games are to be classified under MiCAR will be decisive. MiCAR distinguishes between crypto-assets that are considered financial instruments and those that are not classified as financial instruments. The latter fall under the scope of MiCAR. The European Securities and Markets Authority (ESMA) will issue guidelines on the criteria and conditions for the classification of digital assets as financial or non-financial instruments by December 30, 2024. These guidelines will also be relevant for the classification of digital assets used in Jonum games.

Open questions and outlook

While the dialog between the French legislator and the European Commission is commendable, it has led to a delay in the adoption of the SREN law, which is detrimental to the principle of legal certainty. However, this very principle had prompted the legislator to quickly create an appropriate legal framework to enable French Jonum companies to quickly develop ambitious projects.

In addition, numerous provisions applicable to Jonum will be referred to the regulator after the promulgation of the Act. These include the determination of the characteristics of the rewards and the cap criteria for certain reward categories that are not monetizable digital assets, the list of permitted game categories, the list of information that the company must submit to the ANJ when making its declaration, the procedures for opening, managing and closing player accounts, the information to be provided to the ANJ during gaming operations, and the conditions under which the ANJ’s inspections will be conducted.

The evolving legal landscape underscores the need for a stable and transparent regulatory environment to foster trust and innovation in the Web 3.0 market. The Jonum Law and the Jonum Regime aim to create a regulated environment for the growing crypto-based video games sector. This legal framework not only provides clarity, but also introduces safeguards for users and the industry as a whole. Although the law’s journey is not yet complete and there may still be hurdles to overcome in the Constitutional Council, it represents a significant step towards recognizing and regulating the crypto gaming industry in France.

It will be interesting to see how the Jonum regime can be reconciled with MiCAR. While MiCAR is intended to create a comprehensive framework for the regulation of crypto-assets in the EU, the Jonum Act is specifically tailored to blockchain games. It remains to be seen whether and how these two sets of rules can be harmonized to create a coherent regulatory environment for the European crypto gaming industry. In particular, the question of how the digital assets used in Jonum games are to be classified under MiCAR will be decisive. Further developments, in particular the guidelines announced by ESMA, are eagerly awaited.

For German blockchain gaming providers, it is always advisable to keep an eye on developments in France and at EU level. Even if Jonum Law does not apply here directly, it does indicate a possible direction in which regulation could develop. Ideally, in the long term, it will lead to a harmonized legal framework across Europe that promotes innovation in this exciting future market and at the same time guarantees consumer protection. MiCAR will play a central role in this as an EU regulation. German providers should familiarize themselves with the requirements of MiCAR at an early stage and check whether and how their business models are affected.