Name
Global FinTech Guide
Country _ Name
France
SectionTitle
ICO/token sale
Body
Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms. While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.

Introduction

Attitude of the country towards ICOs/token sales

Prior to the entry into force of the law n°2019-486 dated 22 May 2019 about the growth and the transformation of business entities ('Pacte Law') in France, members of parliament were cautious about ICOs and token sale because of the ambiguity about applicable rules for ICOs, legal uncertainty, lack of information about issuers and more generally, lack of national or European supervision about ICOs (Impact assessment of the Pacte law dated 20 June 2018, p. 345 and seq.).

All of these elements generated a risk for individuals subscribing to ICOs. Considering the success of ICOs and the growth of this market notably in the years 2016 and 2017, the need for a legal framework for ICOs in France became more and more apparent. The difficulty, however, was to conciliate the need for a binding French legal framework for ICOs in order to protect individual investors and the cross-border nature of ICOs and the possibility for issuers to easily bypass French legal framework by issuing tokens in an unregulated country.

The AMF launched a public consultation in order to assess the possibility to apply existing regulation to ICOs or to create an ad hoc regime for ICOs. The second assumption has been retained by the respondents who was in favour of an optional regime in order to avoid the disruption of this emerging market in France. The Pacte law has therefore created such optional regime for ICOs which is actually in force and aims to reduce politic and social reservations about ICOs / token sales.

The Pact Law created two distinct legal frameworks:

  • A regulatory regime for intermediaries dealing with crypto-assets: the provision of certain services on digital assets are subject to a prior mandatory registration by the AMF (custody of digital assets on behalf of third parties, the service of buying or selling digital assets for other digital assets or for fiat currency, the operation of a digital assets trading platform). Digital asset service providers (“DASP”) may apply for an optional license which is more burdensome (see details in the DLT and cryptocurrencies section).
  • A regulatory regime for ICOs: the issuance of token is subject to an optional approval (the AMF “visa”) of the token issuer (see details below).


Legal affairs

Presence of any explicit regulation on ICOs and the issuance of token/coins

Yes. Since the entry into force of the Pacte Law, tokens (French 'jetons') and token issuance (French 'offre au public de jetons') receives a legal definition in accordance with article L.552-2 and L.552-3 of the CMF and France chose to adopt an optional approval for token issuers (the AMF “visa”) as soon as they are incorporated in France.

Article L. 552-2 of the CMF, states that a token (jeton) is any intangible asset representing, in digital form, one or more rights that can be issued, recorded, stored or transferred by means of a shared electronic recording device (the French definition of the so-called Distributed Ledger Technology or DLT) enabling the owner of the asset to be identified, directly or indirectly. This definition directly targets utility tokens and excludes tokens with the characteristics of financial instruments (i.e. the security tokens) and savings bonds.

According to Art. L. 54-10-1 of the CMF, tokens are part of the broader category of “digital assets” which includes all crypto-assets, including native crypto-assets not issued by an issuer, such as Bitcoin.

Finally, a token issuance is defined as an offer made to the public, by any means whatsoever, to subscribe to these tokens (Art. 552-3 of the CMF).

In accordance with article L.552-1 and seq. of the CMF, French utility token issuers may ask AMF to obtain an approval to their token issuance by filling a document of information ('whitepaper') including some mandatory information.

As security tokens are qualified as financial instruments they are excluded from this regime and must be issued in accordance with Regulation 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market ('Propectus Regulation').

Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins

Yes. Issued utility tokens without AMF approval cannot be freely marketed to potential subscribers and token issuers without approval are therefore subject to restrictive rules about banking and financial solicitation (French 'démarchage bancaire et financier') set out in article L.341-1 and seq of the CMF.

Thus, a token issuer which conducted an ICO without prior approval of the AMF may freely advertise its ICO (general advertising) but cannot solicit French investors under the banking and financial solicitation regime (Art. L. 341-3, 7° of the CMF) and cannot use quasi-solicitation (i.e. electronic advertising with a contact form according to Art. L. 222-16-1 of the French Consumer Code). In the same way, such issuer will not be able to use any form of sponsorship or patronage (parrainage ou mécénat) according to Art. L. 222-16-2, 3° of the French Consumer Code. In addition, Article 4 of Law no. 2023-451 of 9 June 2023 aimed at regulating commercial influence and combating abuses by influencers on social networks, prohibits the promotion, by influencers, of ICOs that have not been approved by the AMF.

Obligations and requirements to issue token/coins

Issuance of tokens

The AMF approval is not defined as a license as it is not attributed to the issuer but to the issuance itself: the issuer can be an unregulated entity, but it must ask for an AMF approval for each utility token issuance if the utility tokens are intended to be marketed in France to individuals though direct solicitation (banking and financial solicitation).

The regulation about this approval is set out in article L.552-1 and seq. of the CMF and completed by article 711-1 and seq. of the AMF General Regulation ('RG AMF') and by AMF instruction DOC-2019-06 dated 6 June 2019 ('AMF Instruction').

In order to obtain the AMF approval, the issuer must comply, inter alia, with the following obligations:

  • be a legal entity incorporated in France;
  • draft an information document on the issuance (the whitepaper). The AMF approves the content of the whitepaper. The whitepaper must include any of the mandatory information required by the RG AMF and by the AMF Instruction;
  • the issuer is required to set up a system for monitoring and safeguarding the assets collected as part of the offer (e.g. an escrow agreement, a multi-signature scheme or an automated IT solution which is based on a shared electronic recording device);
  • the token issuer must also put in place a system in order to comply with its obligations regarding the fight against money laundering and the financing of terrorism (“AML-CFT”). These AML-CFT obligations are limited to the ICO and within the limits of transactions with subscribers (Art. L. 561-2, 7ter).
The filling of an application to the AMF in order to obtain an AMF approval is free of charge and AMF must notify its approval (if the application file is completed) within twenty days from the date of its acknowledgement of receipt.

Trading of tokens

According to Article L. 54-10-3 of the CMF, the provision, in France, of the following services on behalf of third parties are subject to prior registration as DASP by the AMF:

  • the service of custody of digital assets or means of access to digital assets;
  • the service of buying or selling digital assets in legal tender;
  • the service of exchanging digital assets for other digital assets;
  • the operation of a digital assets trading platform.
Before the entry into application of the Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets (the “ MiCA Regulation” please see below), the following services can be provided without specific approval in France:

  • Receiving and transmitting orders (RTO) for digital assets on behalf of third parties;
  • Portfolio management of digital assets on behalf of third parties (discretionary portfolio management);
  • Advising subscribers to digital assets (investment advice in digital assets);
  • Underwriting of digital assets;
  • Guaranteed placement of digital assets;
  • Non-guaranteed placement of digital assets.


Therefore, the trading of tokens for own accounts and the RTO activities are not subject to prior registration as DASP. On the contrary the operation of a digital asset trading platform is subject to such registration in accordance with article L.54-10-3 of the CMF.

Classification of token/coins in the jurisdiction

Tokens/coins receive specific classification under French law:

  • Utility tokens are defined by article L.552-2 of the CMF as 'any intangible asset representing, in digital form, one or more rights which can be issued, recorded, stored or transferred using a shared electronic recording device enabling the owner of the asset to be identified, directly or indirectly'. Only utility tokens issuances can be subject to an AMF approval in accordance with article L.552-1 and seq. of the CMF. Utility tokens are also included into the broader definition of a digital asset (French 'actif numérique') in accordance with article L.54-10-1 and seq. of the CMF which are subject to services on digital asset and to the French status of DASP.
  • Other tokens/coins (such as crypto currencies) are included into the following definition of a digital asset: 'any digital representation of a value which is not issued or guaranteed by a central bank or public authority, which is not necessarily attached to legal tender, and which does not have the legal status of money, but which is accepted by natural or legal persons as a medium of exchange and which can be transferred, stored or exchanged electronically'. Such kind of token is not covered by legislation regarding ICOs as it does not match with the definition of utility token.
  • Security tokens (i.e. instruments which fit with the definition of a financial instrument in accordance with article L.211-1 of the CMF, including capital shares, debt instruments, collective instrument schemes and financial contracts which are issued, recorded, stored or transferred using a shared electronic recording device) are subject to the legislation regarding financial instrument (including French legislation implementing Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (MIFID II) and Prospectus Regulation).


Presence of a duty to publish a prospectus bevor offering token/coins to investors

The publication of a prospectus ('whitepaper
') and the obtaining of an AMF approval is optional. However, without the AMF approval the issuer will not be able to perform acts of direct marketing of individuals in order to distribute the tokens (banking and financial solicitation and quasi-solicitation). The AMF approval could also be considered as a way to demonstrate to potential subscribers that the terms and conditions of the issuance has been approved by the AMF as a guarantee of safety.

Presence of AML/KYC requirements that are needed to be fulfilled regarding (i) the initial issuance of token/coins and (ii) any following transfer of token/coins to third parties

Token issuers which ask for an AMF approval must comply with AML-CFT requirements and implement AML-CFT procedures, only as part of the ICO which is subject to the AMF approval and within the limits of the transactions with the subscribers participating in the offer (article L.561-2 7° of the CMF).

Token issuers which do not ask for an AMF approval have nothing to implement in terms of AML-CFT rules, unless they belong to another category of entity which is subject to AML-CFT rules (bank, asset manager, insurance company etc.).

The AML-CFT measures to implement by token issuers are the following:

During the initial issuance of tokens

In accordance with the AMF Instruction, issuers must implement, inter alia:

  • the establishment of a risk classification making it possible to determine the risk profile of each subscriber and the level of vigilance measure to be complied with; a solution which allows the identification of potential subscribers to the tokens issuance ('KYC') and the verification of the elements of identification;
  • the token issuer has to implement an internal organization comprising:
    • Internal procedures making it possible to determine the profile of the relationship established with the subscriber and to manage the identified risks. These procedures involve:
      • classifying in an internal document the risk to which the issuer is exposed, defining measures designed to prevent and manage those risks, detecting suspicious subscriptions received;
      • appointing, in the issuer’s firm, a person in charge of the issuer’s compliance with its obligations with regard to AML-CFT within the framework of an ICO.
    • An internal control system allowing the issuer to check, according to a predefined system, the orderly functioning of the internal procedures throughout the offer period.
  • a solution which allow the issuer to comply with rules about freezing of assets (French 'gel des avoirs').
If the token subscriber is not physically present at the time of the subscription, two complementary measures have to be implemented:

  • The issuer must collect another ID document from the subscriber;
  • The subscriber must make a first payment of at least €1 in legal tender from or to a current account opened within a financial entity located in an EU/EEA member state or third country state implementing equivalent AML-CFT measures.
The issuers shall also establish a procedure enabling them to obtain information concerning the source of funds in cases of subscription for an amount that is unusually large or which appears not to have any economic justification or lawful purpose.

As a reminder, issuers are also subject to Tracfin reporting and information obligations listed in Articles L. 561-15 et seq. of the CMF and must appoint a Tracfin reporter in their organisation for this purpose.

    Following transfer of tokens to third parties
The following transfer of tokens subscribed during an ICO to third parties is not directly covered by the French AML-CFT framework. Indeed, as stated above and according to Article L. 561-2, 7° ter of the CMF, the AML-CFT obligations of an issuer are limited to the issuance and within the limits of transactions with subscribers.

Therefore, the secondary market is not covered by the AML-CFT rules governing ICOs approved by the AMF.

However, in practice most ICO subscribers have an account with a DASP, which holds their tokens. DASPs are subject to AML-CFT obligations regarding their clients.

Additional comments regarding (i) the legal situation for ICOs/token/coins and (ii) any following transfer of token/coins to third parties

The MiCA Regulation was published in the Official Journal of the European Union on Friday 9 June 2023 and came into force on 29 June 2023. MiCA will be applicable in the EU from 30 December 2024, with the exception of the provisions on stablecoins (Titles III and IV of the Regulation), which will take effect from 30 June 2024.

From 30 December 2024, this harmonized European framework will replace the French frameworks in place, and will regulate:

  • The public offer and admission to trading of tokens;
  • The provision of crypto-asset services by Crypto-Assets Service Providers (“ CASPs”);
  • The prevention of market abuse in crypto-assets.
Regarding ICOs, the MiCA Regulation distinguishes between:

  • The issuance of crypto-assets other than asset-referenced tokens and e-money tokens (a crypto-asset is defined as “a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology ”);
  • The issuance of stablecoins which can be qualified as:
    • Asset-referenced tokens which means “ a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies”;
    • E-money tokens which means a “type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency”.


a) Issuance of crypto-assets other than asset-referenced tokens and e-money tokens (Article 4 et seq.):

The regulatory framework for token issuers (other than stablecoins) is less stringent than the one for CASPs.

MiCA strengthens investor protection by establishing issuer liability and a right of withdrawal for investors.

In a nutshell, in order to issue crypto-assets other than stablecoins, issuers will have to:

  • Be a legal entity;
  • Draft a crypto-asset white paper in respect of those crypto-assets (description of the issuer, the project, characteristics of the offer etc.)
  • Notify that crypto-asset white paper to the competent authority at least 20 working days before publication;
  • Publish the crypto-asset white paper on their website;
  • Comply with certain requirements (act honestly, fairly and professionally; communicate in a fair, clear and not misleading manner; prevent, identify, manage and disclose conflicts of interests, safeguard funds or crypto-assets received, ensure the right of withdrawal etc.)


Most of these requirements do not apply when the offer is intended to fewer than 150 natural or legal persons per Member States, or the total consideration of the offer in the Union does not exceed 1 million euros over a period of 12 months or the offer is addressed solely to qualified investors (where the crypto-asset can only be held by such qualified investors).

In addition, these requirements do not apply when (a) the crypto-asset is offered for free, (b) the crypto-asset is automatically created as a reward for the maintenance of the DLT or the validation of transactions, (c) the offer concerns a utility token providing access to a good or a service that exists or is in operation, (d) the holder of the crypto-asset has the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror.

Unlike the legal framework applicable to CASPs, an issuer of utility tokens will not require ex ante approval to proceed with the issuance.

b) Issuance of stablecoins

  • Asset-referenced tokens (Article 16 et seq.)
In a nutshell, in order to issue asset-referenced tokens the issuer will have to inter alia:
  • Be a legal entity;
  • Be licensed (this license is cumbersome, beyond the drafting of a white paper the requirements are reinforced: legal opinion, policies and procedures, internal control mechanisms, capital requirements, reserve of assets etc.…)
These requirements do not apply when the issuance does not exceed 5 million euros or is intended for qualified investors

Significant asset-referenced tokens (Article 43 et seq.):

  • Based on a series of criteria defined in the MiCA Regulation, the EBA may classified an asset-referenced token as significant after a dedicated procedure (notification of the issuer etc.);
  • This classification triggers the EBA's competence as direct supervisor of the issuer and subjects the issuer to specific additional obligations (remuneration policy, custody of the token by different CASPs, monitoring of the liquidity needs, liquidity stress testing etc.).
  • E-money tokens (Article 48 et seq.)
In a nutshell, in order to issue e-money tokens the issuer will have to inter alia:

  • Be authorized as a credit institution or as an electronic money institution;
  • Comply with requirements applying to electronic money institutions;
  • Publish a crypto-asset white paper notified to the competent authority.
As against electronic money institutions, subscribers will have a claim against the issuer of those e-money tokens.

Significant E-money tokens (Article 56 et seq.):
  • Based on the same criteria provided for asset-referenced tokens, the EBA may consider an e-money token to be significant;
  • This classification triggers the EBA's competence as direct supervisor of the issuer and subjects the issuer to specific additional obligations.


Economic conditions

Market size for ICOs/token sales and existence of any previous regulated ICO/token sales in the jurisdiction

Official statistics about the number of ICOs in France are missing since the impact assessment of Pacte law in 2018, which reported that 7 ICOs have been launched since the middle of May 2018 for a total raised amount of nearly € 80 million and that 40 ICOs were intended to be launched in 2018 (French Government, Impact assessment of Pacte law project, 20 June 2018, p. 345).

As of 30 April 2024, only five ICOs obtained AMF approval..

Additional comments regarding the economic situation for ICOs/token sales or what companies must be aware of in this business area

As observed by the Chairman of the AMF on 19 July 2022, the popularity of utility tokens is in decline compared to non-fungible crypto-assets ('NFTs') whose market is growing. The latter notably explains that the AMF approval regime from Pacte law was not as successful as expected.

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