France introduces an innovative legal framework for digital assets


In brief...

The French PACTE law has created a new legal framework for digital assets (actifs numériques) including, but not limited, to assets recorded in, and transferred through distributed ledger technology or blockchain.

After becoming one of the first countries to authorize the registration and transfer of unlisted securities using blockchain technology, France has adopted an innovative legal framework on law on Business Growth and Transformation, the so-called PACTE Law, governing initial coin offerings (ICOs), digital assets (actifs numériques) and digital assets services providers (DASPs or PSAN, prestataires de services sur actifs numériques) with the aim of being at the forefront of the blockchain technology.

The PACTE law of 22 May 2019 allows entities, under certain conditions, to issue digital assets that may grant certain rights to customers (excluding shareholder rights such as voting rights or dividends). Digital assets include tokens (except those qualifying as financial instruments) and digitally registered assets, including cryptocurrencies, that are accepted as a means of exchange that can be transferred, stored or exchanged electronically through distributed ledger technology (DLT or blockchain).

“ The definition of digital assets is very broad and not limited to ICO tokens and virtual currencies (as defined under European law) and potentially extends to tokens related to other industries (retail, transportation, healthcare, media, etc.).”

The provision of certain services on such digital assets – listed in article L. 54 10 2 and define in article D. 54 10 1 of the French monetary and financial code – triggers, depending on the type of service, either a mandatory or an optional license with the French authorities (Autorité des marchés financiers, AMF and Autorité de contrôle prudentielle et de resolution, ACPR) as DASPs that is limited to the French territory (ie services on digital assets do not benefit from any passport within the EU/EEA).

DASPs providing the service of digital asset custody or purchase/sale of digital assets in exchange for legal tender are subject to mandatory registration with the AMF. Conversely, DASPs only providing other services on digital assets (eg operation of a digital assets trading platform, purchase/sale of digital assets against other digital assets, reception and transmission of orders or placement on digital assets) may apply for an optional license, subject to compliance with a set of rules (internal control procedures, resilient IT system, transparent pricing policy, etc.).

“ Public offering of tokens is subject to specific rules also including an optional registration (visa) with the AMF requiring the drafting (in English or French) of a “white paper” made available to investors.”

Thus, companies wishing to obtain a visa must issue such information document. The visa attests that the AMF has verified the offer and is valid for six months. It only applies to the particular ICO on which it relates to. During such period, the AMF may withdraw the visa if the offer no longer complies with the information document. If the visa is not a condition for the validity of the token issuance, its absence notably limits the possibilities of marketing, solicitation, canvassing or advertising.

The PACTE Law further entitles professional specialized investment funds and professional private equity investment funds to invest in digital assets, subject to specific conditions and limits.

It is also questionable how such French regime should be combined with other types of instruments potentially simultaneously applicable such as electronic money and digital payments (which are regulated at the EU and not at a national level in France). This type of issue should be considered carefully and analyzed on a case-by-case basis when building a new platform of digital assets or creating a new digital assets product issued or distributed in France (or having connection with France). Further guidance is expected on this matter, pending EU regulation notably on crypto assets and cryptocurrencies.

Finally, potential conflict of law rules should also be analysed carefully considering the lack of French specific conflict of law rule and the complexity of applying general international law principles related to conflict of laws to tokens and blockchains (in particular open blockchain). A legal instrument providing for a clear conflict of law is critical to the development of blockchains both at the level of the EU and more generally, at a United Nations or international level.