In December 2019, the Autorité des Marchés Financiers in France approved its first initial coin offering (ICO). France had previously pushed forward legislation that sought to regulate ICOs under the French Pact Law (or Loi Pacte). The Loi Pacte introduced an optional visa regime for fundraising in crypto-assets in France. While not mandatory for ICOs, it was a requirement for issuers that sought to promote crypto-asset offerings. The optional visa sought to create a path for “utility tokens” while fostering an ecosystem of innovation. Since then, few issuers have taken advantage of this regime.
According to the “Liste Blanche” or white list of approved token issuers – only two firms have utilized the new rules: French-ICO and WPO.
It appears that the most recent action under the ICO rules was for a firm called “Air Next“. This company attempted to obtain a visa for its ICO project, forwarded the required documents to the AMF. But some were “suspected of being forgeries” according to the securities regulator. The AMF warned in September 2021:
“This public offering of tokens, therefore, does not benefit from the legal guarantees associated with the AMF visa. Canvassing acts were reportedly undertaken with the public in France as part of this offer in contravention of Article L. 341-10, 6 ° of the Monetary and Financial Code, facts punishable by criminal penalties.”
The Air Next website no longer exists. The AMF has issued similar warnings in regard to ICOs.
So has the Loie Pacte been a failure? Did legislators overestimate the impact of bespoke rules to enable the once-hot ICO market? Yes, and no.
Clearly, the legislation did not accomplish its objective to foster innovation in crypto but in one, very important respect, the move by legislators and regulators is a win. France attempted to accomplish something other developed countries have shied away from – taking a risk that man policymakers would not. While you can criticize the failure, it is indicative of a willingness to try something different and learn from the experience. France should be lauded for the attempt.
Currently, the European Union is reviewing a regulatory framework called the Markets in Crypto Assets or MiCA. The proposal covers digital assets that sit outside of existing financial services law. The proposal states that:
“for crypto-asset markets to develop within the EU, there is a need for a sound legal framework, clearly defining the regulatory treatment of all crypto-assets that are not covered by existing financial services legislation. The second objective is to support innovation. To promote the development of crypto-assets and the wider use of DLT, it is necessary to put in place a safe and proportionate framework to support innovation and fair competition. The third objective is to instill appropriate levels of consumer and investor protection and market integrity given that crypto-assets not covered by existing financial services legislation present many of the same risks as more familiar financial instruments. The fourth objective is to ensure financial stability.”
While it is not quite clear as to when a regulatory framework will be approved, expectations are that a new EU law should be actionable by 2024. The French experience, along with other EU member states that are experimenting with crypto, should help better guide policy to foster innovation while protecting investors. MiCA may empower a generation of digital asset innovators and entrepreneurs, hopefully, sooner rather than later.