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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.
Legal affairs
Presence of any explicit regulation on ICOs and the issuance of token/coins
Yes. 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 which include “utility tokens”. 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.
Securities tokens are however excluded from this regime and are 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 fin