French Financial Regulator to Introduce Legislation on ICOs

AMF wants to recognize initial coin offerings (ICOs) as a legitimate means of investment.

by Marin Marinov
19 March • 4 min
In Regulation

French financial regulator, the Autorité des marchés financiers (AMF), works on a legal framework for initial coin offerings (ICOs), French newspaper Les Echos reported on Monday.

AMF wants to recognize ICOs as a legitimate means of investment, according to the Ministry of Economy. Analysts believe that this step is part of President Emmanuel Macron’s liberalization plan to make Paris the new European Union (EU) financial capital after Brexit. In a similar move, Macron’s government allowed in December local companies to create decentralized blockchain platforms for trading of unlisted securities.

The new ICO regulations will authorize AMF to issue licenses for initial coin offerings and put them in a public register. Licensed ICOs will guarantee security for investors by following certain rules of AMF. According to Les Echos, ICOs without license will not be banned.

“We have a rather liberal approach. We work for a flexible, non-dissuasive framework. At the same time, we are not naive either, we know that these products can be risky,” sources from the Ministry of Finance told Les Echos.

Public consultation

white notebook with a pen on the right side

French financial regulator measures come after public consultations on ICOs last year. AMF wanted to hear different opinions from academics and the industry because of an existing legislation hole. Most replies agreed with the AMF's analysis that “if a token issued as part of an ICO presents features similar to those of a financial instrument, the ICO should then be subject to the relevant current regulations, in particular those governing the public offering of financial securities[IPOs].”

AMF has, however, decided to introduce special legislation for ICOs, different from the rules for initial public offerings (IPOs).

Another important point is AMF’s attitude towards the legal definition of financial securities. Presently, under the Monetary and Financial Code only certain entities are authorized to issue financial securities: state, legal persons, mutual funds, real estate funds, professional real estate funds, specialist financing funds or securitization funds. It is important if AMF will recommend change of the list to lawmakers because many tech startups don`t fit in any of these categories. These startups are the main companies that use ICOs for raising money.

France and crypto-world

The news for the AMF legal framework comes on the day of the opening of G20 Summit of financial ministers and central banks governors in Buenos Aires and about a month after French and Germany called for a joint global action on cryptocurrencies: “Tokens [crypto-assets] could pose substantial risks for investors and can be vulnerable to financial crime without appropriate measures. In the longer run, potential risks in the field of financial stability may emerge as well,” finance ministers and central bank governors from the two leading EU-member states wrote to the Argentine G20 presidency.

France has two different approaches towards crypto-assets: legitimating ICOs as a means of investment and working on a special framework. On the other hand, there is no legal recognition of cryptocurrencies. In December 2017, Bank of France governor Francois Villeroy de Galhau said that Bitcoin (BTC) is “in no way a currency or even a cryptocurrency”. Galhau warned the public of a high risk of investing in the virtual currency market leader.

Securities or commodities

Securities or commodities: this is a fundamental question for introducing legislation for crypto-assets. If ICO tokens and cryptocurrencies are defined as securities, they will be put under supervision of financial markets regulators and financial securities laws. If these assets are defined as commodities, they will be subject to futures market regulation.

capital letter B with small computers around it

Cryptocurrencies are decentralized and not issued by a state unlike fiat money. The French Criminal Code (Article 442-4) states that “the circulation of unauthorized currencies that are intended to replace coins or banknotes that are legal tender in France is subject to five years' imprisonment and a 75,000 euro fine”. There are similar articles in most financial laws around the world, suggesting that crypto-assets could be defined as securities or commodities if recognized as legitimate financial means.

Last year, the European Securities and Market Authority (ESMA), the EU regulatory body of financial markets, published a report about the impact of distributed ledger technology (DLT) on securities markets. Examples of DLTs are the blockchains of Bitcoin (BTC) and Ethereum (ETH). Blockchain uses cryptography and every change is recorded in a public ledger, making the technology highly secure and transparent. ESMA emphasized on the need of a legal framework for DLTs, but did not define crypto-assets as securities or commodities.