Since the PACTE law came into force in France, a procedure for obtaining a visa for any public Initial Coin Offering has been provided for before the French Financial Markets Authority (the AMF).
In this context, the AMF requires issuers applying for a visa to set up a procedure to secure the funds collected during the ICO.
The Requirements
On the basis of the applicable regulations (in particular Article 712-7 of the General Regulations of the AMF), such an escrow system must provide adequate guarantees to ensure its reliability and operability in order to be valid.
1) It ensures the security of the funds and digital assets collected in the context of the ICO, including in the event of the conversion, during the offer, of digital assets into Euros, foreign currencies or other digital assets;
2) It ensures that the funds and digital assets collected in the context of the ICO are deposited in a bank account or at an address designed to receive and send digital assets, specifically dedicated to the offer;
3) It defines any beneficiary of the funds and digital assets collected and makes it easy to identify the account(s) and address(es) to which the funds and digital assets collected are stored or can be transferred;
4) It ensures that the funds and digital assets collected in the context of the offer may not be transferred to or used by the beneficiary defined in 3) if the minimum amount allowing the issue to be made, as defined by the issuer of tokens in the information document, is not reached;
5) It ensures that the funds and digital assets collected in the context of the offer may only be transferred to or used by the recipient defined in 3) if the conditions provided for by the issuer of the tokens are met;
6) It allows, where applicable, the reimbursement of funds and digital assets collected in the context of the offer under the conditions provided for by the issuer of the tokens.
Illustration of Valid Escrow Systems
The regulations set out types of solutions that provide sufficient guarantees to secure these funds, while specifying that this list is not exhaustive, so as not to restrict the solutions that technological developments could provide.
➢ Escrow agreement
A first solution involves the intervention of legal professionals (regulated profession provided it is established in the European Union or the European Economic Area).
The issuer of an ICO may thus enter into an escrow agreement with:
o a lawyer (funds deposited with CARPA (Caisses des Règlements Pécuniaires des Avocats));
o a notary (funds deposited with Caisse des Dépôts);
o a bailiff.
The prerequisites for this kind of solution are as follows:
o the prior conversion of digital assets into euros or foreign currency;
o the escrow agreement must define the amount of funds invested, the duration of the escrow and the conditions for transferring/withdrawing the funds;
o the opening of a dedicated account;
o the escrow must be in place for the entire duration of the offer or until the withdrawal/transfer conditions are met.
It should be noted that the withdrawal/transfer of funds to a third-party account of the right will require verification (closing of the offer and compliance with the transfer/withdrawal conditions provided for by the issuer).
➢ Multisignature system
A second option would be the implementation of a system of multisignature (or “multisig”), subject to the following conditions:
o that the input/output movements of the digital assets held may only take place after the authorization of more than 50% of the holders of private keys used to generate the multi-signature address;
o that the signature of withdrawal/transfer transactions to a third-party account may only be carried out if the withdrawal/transfer conditions defined by the issuer are met;
o that at least one independent third party must guarantee the reliability, operability and effectiveness of this system (the proportion of keys held by independent third parties must be sufficient to block a withdrawal/transfer);
Important Point: at least one of these independent third parties must be a lawyer, notary, bailiff or digital asset service provider (“PSAN” within the meaning of the French PACTE law), provided that it is still established in the European Union or the European Economic Area.
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Thibault VERBIEST Diane RICHEBOURG
Partner at DS Avocats Associate Lawyer at DS Avocats
