French lawmakers have enacted the PACTE law in early 2019, creating a legal framework for non-security token offerings. According to French regulators, the first issuances are going to be approved under the new rules shortly.
“We are pioneers,” said the French finance minister Bruno Le Maire in April, when he announced a €4.5 billion innovation fund set up by the government to accelerate technological development. Blockchain technology was part of the roadmap.
And while governments in Liechtenstein and Switzerland are ahead of France regarding crypto regulations, Le Maire is still not entirely wrong with his statement. Among the larger economies, France has taken a relatively progressive stance on blockchain technology and cryptocurrencies.
PACTE law regulates ICOs; first offerings to be approved under new rules shortly
The French parliament enacted the PACTE law on 23 May 2019 – legislation designed to create a legal framework for blockchain-based fundraising.
PACTE stands for “Action Plan for Business Growth and Transformation.” Its goal is to close a gap in the existing regulatory framework. While there are EU-wide regulations for securities offerings – namely, the MiFID directive – Non-Security Initial Coin Offerings (ICOs) remain widely unregulated.
Last week, Anne Marechal, the executive director for legal affairs at the French financial markets watchdog AMF said the body is now about to approve the first offerings under the new rules.
“France is a precursor. We will have a legal, tax and regulatory framework,” she said. “We are in talks with three or four candidates for Initial Coin Offerings.”
According to Marechal, the AMF is also holding talks with a range of digital exchanges, custodians and fund managers, to support the build-up of a digital ecosystem in France.
ICO issuers need to apply for a “visa”
The PACTE law allows ICO issuers and “digital assets services providers” (DASPs), to obtain an “optional visa” from the AMF to give legitimacy to their business activities in France. Only ICOs with such approval will be legally allowed to advertise or solicit their offering to prospective investors.
Under the rules of the PACTE law, ICOs become some sort of a lightweight securities offering. Issuers have to provide an investor prospectus, legally register in France, provide a secure asset custody solution, and prove that they comply with AML regulations. They also have to pay tax, meet capital requirements, and adhere to French consumer protection laws.
ICOs that get a visa will be added to a whitelist. Otherwise, they will end up on a blacklist. Both lists will be published on the AMF’s website. Approved ICOs will be allowed a maximum duration of six months.
Article 85 of the law contains a provision that calls on banks to establish “objective, non-discriminatory and proportionate” rules that enable token issuers and service providers to get access to corporate financial services. In case a bank declines such services, it will have to justify this decision to the AMF.
The current market trend moves away from ICOs; economic impact of PACTE law not clear
Over the last year, the importance of ICOs has decreased drastically. In most jurisdictions, businesses have started to structure their offerings as STOs, mainly because regulatory authorities have cracked down on ICOs that were in fact securities offerings.
Thus, in the current market environment, the effect of the PACTE law might be rather small, because there won’t be many Non-Security ICOs anymore anyway. Nevertheless, it has increased the attractiveness of France as a location for ICOs and depending on the success of the framework, other countries might introduce similar regulations.
Finance minister Le Maire seems confident. “I will propose to my European partners that we set up a single regulatory framework on crypto-assets inspired by the French experience,” he said. “Our model is the right one.”