With the future French PACTE law, currently under discussion, the legislator wishes to create an incentivising legal environment for all crypto-active actors.
The French legislator's approach is very clear: to identify the issues on which its intervention is necessary, particularly to protect investors, while at the same time allowing this new means of raising funds to prove its worth.
Indeed, while it was already announced that a legal framework would be put in place for token issuers (also known as “Initial Coin Offerings” - “ICOs”), a recent amendment aims to extend a broader framework to all crypto-active players.
The legislation is still evolving as amendments are adopted through parliamentary debates.
A Legal Framework For ICOs: Article 26
Article 26 of the future PACTE law relates to the creation of a French regime for token offers and Initial Coin Offerings (or "Initial Token Offering"), i.e. fundraising via a shared recording device (in particular using the so-called "blockchain" technology) via the issuance of digital "tokens".
For the time being, these transactions are not subject to a clear legal framework, since, under French and European law, the "tokens" issued in this way can be legally qualified in different ways depending on their specific characteristics. In particular, most of these tokens do not meet the elements of the definition of financial securities.
The obligations contained in Article 26 shall apply to any issuer making a public offer of tokens and applying for a visa from the French Financial Markets Authority ("AMF").
➢ The article first provides some definitions:
- A token is any intangible property representing, in digital form, one or more rights, which may be issued, registered, retained or transferred by means of a shared electronic recording device that identifies, directly or indirectly, the owner of such property.
- An Initial Coin Offering consists in proposing to the public, in any form whatsoever, to subscribe to these tokens. The ICO open to subscription by a limited number of persons acting on their own behalf does not constitute an offer to the public of tokens.
➢ Application process for an optional prior visa from the AMF:
1/ Issuers shall prepare a document intended to provide all relevant information to the public on the proposed offer and on the issuer (which may be prepared in another language commonly used by the financial community, provided that it is accompanied by a summary in French).
This information document and the promotional communications relating to the ICO shall present accurate, clear and not misleading content and make it possible to understand the risks related to the offer.
2/ The AMF verifies whether the proposed offer provides the required guarantees for a public offer and in particular that the issuer of the tokens:
- is constituted as a legal entity established or registered in France;
- sets up any means to monitor and safeguard the assets collected as part of the offer.
3/ If, after having affixed its visa, the AMF finds that the ICO no longer complies with the content of the information document or no longer offers the guarantees provided for in the previous article, it may order that any new subscription or issue, as well as any promotional communication concerning the offer, be terminated and withdraw its visa.
A Framework Extended To All “Service Providers On Digital Assets”: Amendment 2492
The French National Assembly also adopted the amendment to insert an additional article following Article 26. The purpose of the draft text would be to regulate the activity of all providers of services on digital assets. By listing the various digital asset services covered, the future framework covers a wide range of activities.
The text provides for:
- for some service providers, mandatory registration with the AMF;
- an optional approval procedure with different conditions for each provider covered
For the application of this future provision, the tokens are the same as those referred to above for the regulation of ICOs.
➢ The crypto-active services and activities covered by the amendment:
1) The service of storing digital assets or private cryptographic keys on behalf of third parties, in order to hold, store and transfer digital assets;
2) The service of buying or selling digital assets in legal tender;
3) The service of exchanging digital assets for other digital assets;
4) The operation of a platform for trading digital assets;
5) The following services:
- The reception and transmission of orders on digital assets on behalf of third parties;
- Portfolio management of digital assets on behalf of third parties;
- Advice to subscribers of digital assets;
- Underwriting of digital assets;
- Guaranteed investment of digital assets;
- The unsecured investment of digital assets.
➢ Mandatory registration with the AMF for certain service providers
Before carrying out their activity, the service providers mentioned in 1) and 2°) must be registered by the AMF, which checks whether their managers and beneficial owners possess the good repute and competence necessary for the performance of their duties. To this end, the AMF seeks the opinion of the Autorité de contrôle prudentiel et de résolution (ACPR).
The practice of the profession of service provider mentioned in 1) and 2) is prohibited to any person who has not been previously registered by the AMF.
➢ The opportunity to obtain optional approval from the AMF
For all service providers established in France who apply for approval by the AMF, they must provide proof of:
- A professional liability or equity insurance or a comparable guarantee covering fraud risks, security risks and operational risks;
- An adequate security and internal control system;
- A resilient computer system;
- A system for managing conflicts of interest.
They also shall provide their customers with clear, accurate and non-misleading information, including information of a promotional nature, which shall be identified as such, and make their pricing policies public.
In order to ensure the sound and prudent management of service providers seeking approval, the AMF assesses the status of their shareholders or associates who hold, directly or indirectly, more than 20% of the capital or voting rights.
Then, the conditions for obtaining approval are different according to the activities concerned:
1. The service of storing digital assets or private cryptographic keys on behalf of third parties, in order to hold, store and transfer digital assets must in any case meet the following conditions:
- conclude an agreement with their clients defining their missions and responsibilities;
- establish a conservation policy;
- ensure that at all times they are able to return digital assets or cryptographic keys stored on behalf of their customers;
- segregate customer accounts from their own accounts;
- refrain from making use of digital assets or cryptographic keys stored on behalf of their customers, unless the customers give their express prior consent.
2. and 3. The service of buying or selling digital assets in legal tender and the service of exchanging digital assets for other digital assets must in any case meet the following conditions:
- establish a non-discriminatory commercial policy;
- publish a firm price of the tokens or a method for determining the price of the tokens;
- publish the volumes and prices of the transactions they have carried out;
- execute their clients' orders at the prices posted at the time of their receipt.
4. The operation of a platform for trading digital assets must in any case meet the following conditions:
- set operating rules;
- ensure fair and orderly negotiations;
- only commit their own capital to the platforms they manage under the conditions and within the limits set by the general regulations of the AMF;
- publish details of orders and transactions concluded on their platforms.
5. The different services referred to in 5) above (crypto-active services and activities covered by the amendment) must in any case meet the following conditions:
- have a programme of operations for each of the services they intend to provide, specifying the conditions under which they intend to provide the services concerned and indicating the type of operations envisaged and the structure of their organisation;
- have the appropriate means at their disposal for the implementation of the said program.
Access To A Bank Account?
Article 26 of the draft law currently states as follows:
"Credit institutions shall establish objective, non-discriminatory and proportionate rules to govern access by token issuers with [AMF] approval, by providers [registered or approved] to the deposit and payment account services they maintain. This access is sufficiently extensive to allow these people to use these services efficiently and without hindrance."
As this provision is not sufficiently binding on banks, it does not, as it stands, create a real "right to an bank account" but will normally provide for a possibility of legal recourse in the event of a refusal by credit institutions.
The conditions for the application of this provision will be specified by Decree.
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After a first round trip between the two chambers (French Senate and National Assembly), the text is once again under discussion before the National Assembly (since March 13, 2019) and could be definitively adopted as early as next April.
Thibault VERBIEST Diane RICHEBOURG
Partner at DS Avocats Associate Lawyer at DS Avocats