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France

STO regulation and law in France

Table of contents
  1. Are Security Tokens securities in this jurisdiction?
  2. Under what conditions is a prospectus necessary under this jurisdiction?
  3. Do the prospectus duties of this jurisdiction apply to STOs?
  4. How long does it take to have a prospectus approved, including the time for the legal groundwork?
  5. Do KYC/AML requirements apply?
  6. Can rights be securitized or otherwise represented by way of tokens under this jurisdiction?
  7. Do issuers of security tokens have to comply with further legal requirements?
  8. Statements from authorities and/or legislator regarding STOs
France

1. Are Security Tokens securities in this jurisdiction?

Security Tokens are qualified as financial securities within the meaning of article L. 211-1 II of the French Monetary and Financial Code (MFC). French law allows for securities to take the form of tokens and be booked in a distributed ledger 1 Articles L. 211-1 et seq. and R. 211-1 of the MFC resulting from the Ordinance 2016-1674 of December 8 2017 and the Decree 018-1226 of December 24 2018.  (dispositif d'enregistrement électronique partagé – DEEP). 

2. Under what conditions is a prospectus necessary under this jurisdiction?

The French implementation of the Prospectus Directive 2 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading.  applies to Securities Tokens Offerings. A prospectus shall be drawn for initial public offerings of securities and admissions to trading of securities on a regulated market 3 Article L. 412-1 of the MFC. . By way of exception, a prospectus is not required for initial public offerings 4 Article L. 411-2 of the MFC. :

  • which are addressed exclusively to qualified investors 5 Qualified investors are defined as persons or entities with the necessary skills and means to apprehend the inherent risks of transactions on financial instruments. ;
  • which are addressed to less than 150 non-qualified investors in each EU member state;
  • whose total amount in France and in the EU is less than EUR 8 million;
  • which are intended to investors who subscribe the securities for at least EUR 100.000;
  • of securities that have a minimum value of EUR 100.000;
  • issued by credit institutions on a regular basis and have a value of less than EUR 75 million across the EU.

3. Do the prospectus duties of this jurisdiction apply to STOs?

Yes, prospectus requirements apply to the same extent as if the tokenized right was sold without being tokenized.

Depending on the extent of the preparation and the clients' cooperation and the time the Autorité des marchés financiers takes to respond, we estimate the time required from the preparation of the prospectus to the approval to be approximately 3 to 4 months. However, a more accurate market practice will only emerge with the approval of further STO prospectuses in the future.

5. Do KYC/AML requirements apply?

French KYC/AML requirements apply regarding Securities Tokens in the same manner as they would apply regarding any other financial securities. Therefore, entities listed in article L. 561-2 of the MFC (such as credit institutions, investment firms, portfolio management companies, financial investment advisors) shall apply KYC/AML requirements where they provide services regarding securities tokens. Moreover, pursuant to the fifth AML Directive 6 Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU  KYC/AML requirements apply to providers carrying out exchange services between virtual currencies and fiat currencies, and also to custodian wallet providers. This directive must be implemented in France by 10 January 2020.

6. Can rights be securitized or otherwise represented by way of tokens under this jurisdiction?

Yes, Article L. 211-20 of the MFC provides for securitization of security tokens under French law.

French law provides for specific regulatory requirements applying to STO issuers. According to article R.211-9-7 of the MFC, the distributed ledger in which the security tokens are registered must be conceived and used in such a way to ensure the proper recording and the integrity of registrations, to allow, directly or indirectly, the identification of the owners the number and the nature of the securities. The registrations in the distributed ledger shall be subject of an updated business activity plan including an external device for periodic data storage.

8. Statements from authorities and/or legislator regarding STOs

No further statements have been made so far. However, it is worth mentioning that France is viewing to implement a specific regulatory framework for utility tokens and other digital assets within the bill PACTE 7 Draft law on the growth and development of firms, NOR: ECOT1810669L, article 26. . The issuers of such tokens would be able to apply for an optional visa with the Autorité des marchés financiers (AMF). The AMF will verify that the offeror is a legal entity established or incorporated in France and that it sets up monitoring and safeguarding of the collected assets.