Cleary Gottlieb on France’s New Framework for Approving ICOs
On April 11, 2019, the French parliament adopted a law (the “Loi Pacte”or “Law”)[1] that establishes a new regulatory framework for initial coin offerings (“ICOs”) of blockchain based tokens by entities established or registered in France. At the heart of the Law’s ICO provisions is an innovative framework that will allow issuers to request an optional visa from the French Financial Markets Authority (the “AMF”) prior to undertaking an ICO. ICOs of tokens that are not financial instruments will still be permitted without a visa, but the expectation is that issuers obtaining the visa for an offering of such tokens will have a distinct advantage relative to offers that lack such approval. ICO issuers that do not obtain a visa also will be subject to restrictions on certain kinds of advertising and sales methods. By “white-listing” issuers serious enough to seek and obtain an AMF visa, France hopes to give investors a new tool for screening out potentially fraudulent offers and help ICO issuers establish the investor confidence necessary to secure funding. Many of the details of the new framework will be specified in implementing regulations to be adopted by the AMF, which are expected to be issued shortly after the Law is officially promulgated. The AMF published an overview of its planned regulations on April 15, 2019, providing further clarity on how the regime will work in practice.[2]
While the Law provides a framework for ICOs, it will not be available for all kinds of tokens. If a token qualifies as a “financial instrument,” it will continue to be governed by existing EU regulations applicable to financial instruments and will not be eligible for the new framework. Accordingly, ensuring that the token’s terms fall outside the definition of “financial instrument” will be a critical first step for any issuer considering an offering under the new framework.
The new framework is part of a broader French government effort to establish France’s reputation as a leading “blockchain-friendly” jurisdiction and to make France a hub for blockchain innovation. By adopting laws tailored to the needs of companies promoting blockchain technology and investing in the sector, France hopes to establish an attractive ecosystem that allows companies focused on blockchain technology to achieve their full potential.[3]
New Framework for Token Offerings
Eligible offerings....MORE
The new framework for token offerings generally will apply to any issuer that makes a “public offering” of tokens[4] and requests a visa from the AMF. There are three important exceptions. First, the Law provides that the new framework will not apply to offers of tokens already covered by specified provisions of the French Monetary and Financial Code[5] including Book II of the Code, which covers “financial instruments.” As a result, tokens that qualify as financial instruments will not be eligible for the new regime and will continue to be governed by applicable EU regulations including the EU Prospectus Regulation.[6] Second, the framework will not apply to offers of tokens to a limited number of persons acting for their own account. The draft regulations published by the AMF set the threshold for such offers at 150 persons or less. Finally, the framework will only apply to issuers that are established or registered in France.
Requesting a visa will be optional
Requesting a visa from the AMF will be optional. In choosing to make the visa optional, the Law’s proponents argued that a law prohibiting ICOs without a visa would simply discourage issuers from offering their tokens in France, and would prove difficult to enforce in practice. By offering issuers the marketing benefits of having an information document approved by a regulator, together with a tailored regime designed from the ground up with distributed ledger technology and tokenized offerings in mind, France hopes to attract token issuers to the French market on a voluntary basis, and to play a central role in establishing market practices for reputable “white-listed” offerings. While obtaining a visa will be optional, the Law provides that ICO issuers that do not obtain a visa will be prohibited from engaging in solicitation (démarchage) activities in connection with the ICO.[7]....
