The French parliament has passed what many analysts are describing as the most progressive and comprehensive legislative framework for Initial Coin Offerings (ICOs) to date.
French Finance Minister Bruno Le Maire announced via Twitter on September 13 that the legislation, known as Article 26, had been “adopted in committee” and had created “a legal framework (for) ICO”.
Le Maire also announced that the country’s financial watchdog, the Autorité des Marchés Financier (AMF), “will be able to issue a visa (license) to actors complying with the criteria” and that “this legal framework will attract innovators from around the world”.
Article 26 sets out a legal framework that will enable French businesses to raise capital through the use of ICOs. Under the legislation, proposed ICOs will be required to fully disclose the details of their project for AMF scrutiny to ensure that all legal criteria are met and that the project “provide(s) specific guarantees for investors”.
Once satisfied, the AMF will be able to grant a license (visa) to the ICO issuer and place it on a public white-list for the benefit of potential investors conducting their due diligence.
The new legislation, expected to go into effect by early 2019, continues a crypto-positive trend in France, which recently slashed its taxes on crypto-trading earnings by more than half.
The AMF has previously noted that the absence of clear ICO regulation increased the risk to investors due to the absence of disclosure documents. It has also previously expressed serious concerns about money laundering, volatility or lack of liquidity on the secondary market, and terrorist financing, due to the lack of clear ICO regulation.
How the ICO Legislation Will Work
The new legislation is perhaps the first in the world to provide a clear definition of tokens. According to an analysis published earlier this year by the French law firm Kramer Levin the legislation defines a token as:
“Intangible property representing, in numerical form, one or more rights that can be issued, registered, conserved or transferred using a shared electronic registration mechanism that facilitates the identification, directly or indirectly, of the owner of said property.”
However, tokens sharing the same characteristics as financial instruments will continue to be regulated under the existing laws governing the public offerings of securities.
According to the Kramer Levin report, the legislation also defines an ICO as “any offer to the public, in any shape or form, to purchase tokens,” and adds that “it is interesting to note that the legislation opted not to make securing AMF authorization mandatory for issuers. Instead, the issuers were provided with the right to submit disclosure documents to the AMF, allowing buyers to make an informed decision regarding the ICO.”
The Role of the AMF
The AMF will be tasked with assessing a host of disclosure documents provided by ICO issuers seeking approval. Such documents could include, but would not be limited to, whitepapers and promotional or advertising material published by the ICO issuer.
The AMF would then seek to determine whether these documents are “accurate, clear, devoid of misleading information and detailed as to the risks faced by investors when buying tokens”.
The issuer must also be verified as a legal entity organized under French law and registered in France and to have “adopted adequate procedures to track and safeguard the funds raised in the ICO.”
If the AMF decides that the ICO in question has failed to satisfy its obligations under the legislation, it can compel the issuer to cease selling tokens, terminate any promotional campaigns and withdraw AMF approval.
The Bigger Picture
This new legislation is in keeping with French President Emmanuel Macron’s “Action Plan for Business Growth and Transformation (PACTE)”, announced earlier this year. The plan seeks to attract entrepreneurs and stimulate business innovation by making it easier for organizations to operate in France.
France has made no secret of its desire to be at the forefront of the rapidly evolving cryptocurrency and blockchain sector. Finance Minister Bruno Le Maire earlier this year referred to blockchain technology as a “revolution” which will “make the economy more efficient.”
It seems likely that the legal certainty provided by this ICO legislation will help to boost investor confidence and attract blockchain entrepreneurs from across the globe to France.
However, it remains to be seen what knock-on effects the legislation might have on the wider EU regulatory environment, which appears to be taking a more conservative wait-and-see approach. This reticence was recently evidenced when, despite Brussels-based think tank Bruegel recommending that the EU adopt common rules for cryptocurrencies, European finance ministers concluded that regulations could wait.
At a meeting of 28 EU member state representatives in Vienna this month, Bruegel also recommended increased scrutiny of cryptocurrency trading and urged EU policymakers to improve their understanding of the economic potential of blockchain technology.
The report by Bruegel further noted that it would be sensible to limit “the exposure of financial institutions” to cryptocurrencies and that individual country-based solutions within the EU could be a suitable prelude to the establishment of an EU-wide policy.