Will France be the next ICOuntry?
“If you try to solve the problems of the future with the tools of the past, it is an exercise in futility.” Moses Ma, FutureLab Consulting.
On October 26th, the French regulatory authority (Autorité des marchés financiers — AMF) launched a public consultation on the regulation of ICOs. France Digitale and La ChainTech joined their forces to defend the implementation of a regulation specific to ICOs. This new regulation would combine the issuance of a visa by the AMF with a warning mechanism for ICOs that would not have been granted the AMF’s visa.
“ICO” has become an catch-all term, used to describe different kinds of project — from not-for-profit projects aiming to develop decentralised networks using blockchain technology, such as Ethereum, to commercial ones that rely on this mode of fundraising as an alternative to venture capital. Some claim that ICOs are just another strategy to bypass current regulations, we argue that ICOs are a new fundraising model, which will benefit innovation and foster entrepreneurial initiatives.
French and European startups are still struggling to fill the financial gap that distantiate them from their American counterparts.
Would ICOs be the solution to it? Yes, as long as it becomes a regulated process that does not jeopardise neither investors, nor entrepreneurs who are willing to fund their future projects via the issuance of cryptotokens.
Regulations on ICOs has sparked hot debates worldwide: from radical bans in China and South Korea, to a case-by-case approach in the US and in the UK, and the tortuous creation of foundations in the Canton of Zug in Switzerland. Various options have been under consideration. Yet, none is sustainable on the long-run. It is time for a national regulator to take a stance and lead the way. Therefore, we call on the AMF to seize this opportunity to put France at the heart of the new financial world cryptocurrencies and ICOs are shaping.
As things stand, we advocate for the introduction of an optional authorisation regime. In our view, this is the only way to ensure the sustainable development of ICOs and to strengthen the attractiveness of Paris as a financial centre, while protecting investors. However, the establishment of such a flexible regulation will have to overcome several legal challenges. Four are of crucial importance.
The main obstacle lies in the legal definition of a crypto-token. Tokens are hybrid in nature and, thus, do not fit in a specific existing regulation. The absence of a clear definition leads to regulatory uncertainty harmful to businesses and innovation.
In some instances, crypto-tokens can be classified as security tokens and fall under the European “prospectus” regulation. However, the token is not a security in itself, thus not allowing for legal characterisation. Therefore, the AMF will have to solve these technical difficulties.
Where crypto-tokens do not fall under the umbrella of existing regulations, the regulator has to come up with a specific one. We suggest that a company launching an ICO shall provide guarantees as to information on the project team, information on the risks associated with the ICO (hacking, complete loss of capital, etc.), a segregation mechanism or escrow account to secure raised funds, clear information on compensation for purchasers, etc. The challenge is thus to strike the balance to prevent entrepreneurs from cumbersome administrative procedures, while defining a safe regulatory framework for investors.
Defining an accounting model and tax treatment for crypto-tokens are yet another hurdle that has to be overcome. An effective regulation can not gloss over these two issues. Unclear rules upon the issue of invoice, constraining fiscality in case of profits for purchasers, fiscal uncertainties on the treatment of tokens for companies, are as many stumbling blocks to the stable development of ICOs.
For all these reasons, we call on the AMF to take a stance and to set up a national dialogue bringing together all the stakeholders involved. This is the only way forward for France to become the leading financial place for ICOs.
J-David CHAMBOREDON (France Digitale) & Alexandre Stachtchenko (La ChainTech)
