France has shown unprecedented enthusiasm for blockchain technologies and the opportunities they presented, specifically Initial Coin Offerings (ICOs). While China and South Korea have banned ICOs altogether, and limitations and uncertainty cloud the regulation of ICOs in the United States, France is embracing the emerging technology by proposing regulations that would give companies a clear and reasonable pathway to issue ICOs while protecting investors.
An ICO is an alternative to an Initial Public Offering and is popular because it is seen as a way to build capital without navigating the byzantine regulations that govern an Initial Public Offering (IPO). In the U.S., the use of ICOs has been made increasingly more complicated and risky as the Securities and Exchange Commission (SEC) attempts to classify tokens issued through ICOs. Regulators tend to consider all tokens “equity tokens” and therefore securities whilst the innovators and blockchain community considers “utility tokens” to be more akin to pre-booked revenue and therefore not a security. This determination relies on the “Howey Test,” which classifies a security (or equity token) as an investment of money in a common enterprise with the expectation of profits due to the efforts of a third party. It is uncertain how this test will apply to utility tokens, and so far enforcement has been handled on a case by case basis, but the United States District Court of New York has been called upon to make the determination of whether a token is in fact a security.
France is clearly taking a different approach to ICOs by making the process more transparent and informative for investors, all while avoiding tying the hands of companies who want to engage in an ICO. Finance Minister Bruno Le Maire announced that The Action Plan for the Growth and Transformation of Enterprises (PACTE) will include a voluntary regulatory framework that allows companies wishing to legitimize their ICO to follow certain guidelines. Essentially, France will issue a license to a company wishing to issue tokens in an ICO that informs investors that the government approves of the ICO and identifies any risks associated with the practice.
The licensed tokens will be placed on a “whitelist” that gives government assurances to investors that the token is credible by providing a set of assurances to investors. A unique aspect of the proposed regulation is that the license is not required to lawfully issue a token for an ICO. Companies wishing to issue tokens by their own means through their own methods will not be prevented. However, those companies who decide to forgo the licensing process will be met with more scrutiny by investors if the regulations are reasonable. The French Ministry of Finance stated:
“Our goal is to provide legal certainty for those who seek it, without hindering those who want to follow their own path. 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.”
Le Maire enthusiastically advocated for the advantages blockchain technology can offer, such as creating a trust network without the need of intermediaries to engage in transactions, the ability to track transactions and make them more transparent, and to make the economy more efficient. Le Maire is dedicated to make France a leader in blockchain technology and stated that, “this is the role of France: to be a force of proposal to build to world of tomorrow. We will not miss the blockchain revolution.”
Following in the footsteps on Switzerland, whose Financial Market Supervisory Authority (FINMA) issued a new set of guidelines outlining the treatment of ICOs in February, France is on track to leave the rest of the world behind by changing the way companies and investors interact. Instead of shying away from the new world of blockchain technology like most of the world, France is making an effort to meet the interests of those wanting to issue tokens and those wishing to purchase those tokens through reasonable regulations.
Thank you to trustnodes for translating much of Minister Le Maire’s statements.