“Pacte Act” | Initial Coin Offerings poised to enjoy an ad hoc regulatory regime in France

Purpose of the reform project on ICOs:

The reform proposes an optional visa regime enabling the French Financial Markets Authority (Autorité des Marchés Financiers, AMF) to grant a visa to actors who wish, via an ICO, to issue digital tokens in particular on the French market to finance a project or an activity, so long as they respect certain rules to avoid manifest abuse and to protect and inform investors.

Scope of the ICO regulation:

Tokens would be defined as “any intangible asset representing, in a digital form, one or more rights, that can be issued, registered, kept or transferred using a shared electronic registration device through which it is possible to identify, either directly or indirectly, the owner of said asset”.

The regime will apply to ICOs, i.e. offers for the public, under any form whatsoever, to subscribe to these tokens.

The regime would apply by default, in particular if the ICO is not governed by the provisions of the monetary and financial code on currencies (book I), products (book II), services (book III), and financial markets (book IV). Tokens presenting characteristics of a financial security would remain subject to the regime governing public offerings of securities.

An offering to only a limited number of investors (as defined in the upcoming version of the AMF’s general regulations (“RGAMF”)) would not be deemed as an ICO.

Conditions for obtaining a visa:

Requesting a visa from the AMF for an ICO should be conducted “prior to a token sale offer” and be carried out on the issuer’s initiative, who would, however, not be obliged to do so. Conditions for obtaining a visa will be defined in the upcoming RGAMF. According to the impact study published on the draft bill, such a visa should be granted prior to the tokens’ “pre-sale” stage (first stage of the sale, at a low price), but could also be granted after the “private sale” stage (limited subscription period).

The AMF would check the content of the white paper, or information document, as well as the issuer’s other communication documents and the “supporting documents on guarantees offered”, following procedures to be included in the RGAMF.

Issuer obligations:

Token issuers should be set up as legal entities established or registered in France, and should put in place a mechanism for monitoring and safeguarding funds raised as part of the ICO, such as an escrow account.

Although the explanatory statement mentions the implementation of a client identification and knowledge system as a possible condition for obtaining a visa, draft articles L. 552-1 et seq. of the French monetary and financial code do not make explicit reference to it at this stage. This requirement could be introduced into French law in the AMF general regulations.

The white paper should contain information that is useful to the public on the offer proposed and on the issuer. This information document and promotional communication about the ICO should be precise, clear and not misleading, and set forth the offer’s risks. Subscribers to the offer should be informed of the results of the offer and of the terms and conditions for organising the secondary market, based on conditions to come in the RGAMF.

AMF powers:

The AMF would publish a white list of token issuers to which it has granted a visa.

The AMF could stop new subscriptions or offers, halt any promotional communication concerning an offer, and withdraw its visa in line with conditions set forth in its general regulations.

The power to order the end of all new subscriptions or issuances could therefore only apply to offers which have received a visa. It could not apply to foreign issuers.

Next steps:

The draft bill will be discussed in September 2018 by the French Assemblée Nationale and the Sénat, with final adoption expected at end 2018.

The introduction into the Pacte Act of an ad hoc regime for ICO could significantly increase the attractiveness of France for such operations. It would offer a framework that is dedicated to these complementary financing methods, which are one of many innovations in the field of digital transition.

This Client Alert is not intended to constitute legal advice and should not be taken as a recommendation to take action or withhold from taking action.