French Financial Market Authority : ICO Consultation

Response to the French Financial Market Authority consultation on the applicable regulation to “Initial Coin Offerings”

 Since 2015, Crypto4all has put all its energy into the democratization of the Blockchain Technology and naturally answer to the call from the French Financial Market Authority (Autorité des Marchés Financiers).

The Crypto4all team has been mobilized to respond to the consultation launched by the AMF on the regulations applicable to “Initial Coin Offerings”. In addition, we answered to the previous public consultation from the French Treasury in May 2017 regarding the completion of unlisted financial securities transactions through the use of Blockchain technology.

Our response based on the expertise of legal and financial professionals, developers and engineers.

We welcome the proactive approach of the AMF, which demonstrates its willingness to involve stakeholders, professionals and potential investors in the construction of regulations adapted to this new form of financing.

Here is a summary of our opinion

  • Legal qualification of “Tokens”

The introduction of regulations inevitably involves the need to determine the legal status of the “Tokens”. Legal analysis may lead to attaching “Tokens” to existing legal categories or to the creation of a new legal category.

We agree with the AMF’s position that “Tokens” cannot be qualified as financial securities within the meaning of Article L.211-1 of the French Monetary and Financial Code. Indeed, the nature of “Tokens” may vary significantly from one ICO to another: they may confer financial, political, property ownership or use of a service. Thus, some “Tokens” may have characteristics similar to those of financial securities (shares, bonds, units of UCI, etc …) but the fact remains that they do not confer similar rights and are not based on similar mechanisms.

  • Applicable Regulation of ICOs

We promote the establishment of a code of good practice that would include the following elements:

  • Identification of the key actors of the ICO;
  • Provision of a white paper by including a language as comprehensible as possible (plain language);
  • Clear, accurate and not misleading information;
  • Establishment of an escrow service (multisig wallet) to ensure the release of funds under predefined conditions and with the agreement of several parties (three minimum);
  • Transparency on the evolution of the amount of funds collected at the ICO and at its closure;
  • Realization of a security audit of the smart contract;
  • Inform investors about how to resell or keep “tokens”;

Regarding the relevance of setting up a system for the prevention of money laundering and terrorist financing in the framework of the ICO, we agree in principle. Nonetheless, we believe that the KYC and AML processes would be more effective if they are performed at the level of the players that allow the acquisition of cryptocurrency with conventional currencies (Euro, USD, GBP, etc …) such as trading platforms and distributors bitcoins. Indeed, the participation of an investor in an ICO implies that it already has cryptocurrency (BTC, ETH).

The establishment of a lighter system of identification and verification of investors would be an important first step and would make it possible for the initiators of the project not to be burdened with cumbersome procedures. In addition, the entry into force on 25 May 2018 of the European regulation n ° 2016/679, known as “GDPR”, will have the consequence of confirming an important responsibility of the initiators.

We also wish to highlight the fact that ICOs should not be systematically designated as the new main vector of money laundering and terrorist financing. In the same way as the postal money order, the purchase of cryptocurrencies and “Tokens” can be one of many means to achieve this.

Concerning the choice of the regulations applicable to the “Initial Coin Offerings”, we recommend the introduction of a dedicated regulation which take into account technical characteristics and the purpose of the ICOs. We believe that a declarative system would be more appropriate than a system based on prior approval by the AMF insofar as it would make the initiators accountable and retain the main advantages of this new means of financing: speed, flexibility, flexibility & competitive cost.

The AMF will be able to become aware of the existence of this kind of operation and to carry out checks during or at the end of the ICO or even to stop and impose sanctions. In other words, this is about reconciling innovation with investor protection purpose.

The applicable regime could include the following obligations:

  • Declaration of the existence of this transaction with the AMF within 1 month of the first public communication;
  • Identification of the initiator of the project;
  • Writing information documentation in accordance with the “white paper standard”;
  • Respect of the rules enacted in the code of good conduct;
  • Mandatory solicitation for binding opinion of professionals;

In addition, the standardization of the white paper would help to improve understanding and comparability with other ICOs. Also, the analysis and validation of the documentation (ie white paper, terms & conditions, privacy policy) by experts on the basis of an approach similar to that of the independent expertise required in the context of specific financial operations could be appropriate (capital increase with high discount, listed company targeted by a public offer – AMF Recommendation 2006-15). In addition, we also recommend creation of a Code of Ethics for professionals and ecosystem experts.

We encourage the French government to put in place EU-wide regulations to avoid legal dumping practice and promote innovation for the improvement of the EU market.


FOR FURTHER : Please find our complete answer here and of course in French 😉

[1] Consultation publique de l’AMF sur les Initial Coin Offerings (ICOs)
[2] « Consultation publique sur l’ordonnance “Blockchain” applicable à certains titres financiers »