THE FORUM – the market of The Initial Corner Offerings (ICO), the raising of funds in virtual currency, is in full swing and starts to develop in France. Do you plan to regulate them ?
FRANCK GUIADER – This is a market that is very recent, the exponential growth since the end of 2016, which was accelerated this summer : even if it is necessary to handle the figures with care, the amounts raised in excess of $ 1.5 billion from a year ago. In France, we are in the early stages : the three Initial Corner Offerings have been made public by their initiators, for an estimated amount of a little less than $ 50 million in terms of tokens. It is a universe very diverse, with different technologies and forms are very variable : they give rise to the issuance of tokens (chips) in consideration of the financial contribution, some of whom will have a future value if a secondary market is created, others will sometimes in addition to the rights of use of services, others offer to intervene in the governance.
Given this development and the associated risks, the AMF has undertaken a quick reflection on the Initial Corner Offerings and their implications, both economic and financial, legal and regulatory. The question is whether the existing law may apply, or if changes are needed. We will in the next few months, lighting is a very concrete about the rules that might apply, particularly in terms ofinformation provided to the recipients of the tokens issued during these ICO. The market could be more professional by respecting good practices stemming from regulatory texts, we are already seeing that some issuers write with law firms of “white papers” (white papers) which are based in part of the listing prospectus on the regulated markets. At this stage, we would like to invite issuers to a dialogue with the regulator, and in particular on those issues of information that are the white papers.
What are the risks to investors who participate in the ICO ?
This is a very important issue. There are several types of risk. The first, very important, is the scam. If the company that issues does not exist at all, or if the funds are not placed under receivership, there is a high risk of losing all of their investment. There is a risk on the transferred information, in particular on the benefit associated with the token : is it a right to vote, a right to property, a right of use ?
Another risk pertains to the understanding of the ecosystem Blockchain [or ” chain of blocks “, the technology of storage and transmission of information underlying virtual currencies, editor’s note] around the project : the technological partners of the issuing company are they reliable, what are the linkages and the rights they have ? Another risk relates to the valuation of the tokens, which doesn’t meet any international standard, and can therefore undergo a large fluctuation to the downside. There is also the issue of the audits carried out in respect of the fight against money laundering and the financing of terrorism including through the platforms of exchange of foreign currency into tokens which are also still very varied. Finally, there is an economic risk is high, because it is, in general, the projects very risky.
Do you plan a communication to alert investors, such as warning the public of the british counterpart of the AMF, the FCA, on Tuesday ?
We need to continue our reflection to set the target of this communication and education on these new modes of financing. On account of misappropriation of funds shown on some of the ICO, we are leading naturally to an approach by the risks, as can be done, for example, the FCA continues an analysis of the ICO on a case-by-case basis. We are very vigilant on the kind of the buyers, by looking at the characteristics of the operations that today are still very rare in France. Obviously, these operations can apply to any type of buyer. If one is not techie, knowledgeable and ready to take a significant risk, it should not go.
The gendarme u.s. stock exchange, the SEC (Securities and Exchange Commission), has estimated this summer that the tokens issued during the ICO could be titles, securities. Is this the case in France ?
It all depends on the definition that is made in the national law of what is called a “digital asset” (defined by some as virtual currencies, for example). The token has no legal status final today. In the majority of cases, it may not be considered as financial, but it seems that he could be the subject of an offer from individuals so that it exhibits some of the characteristics of a title financial. Some operations making use of tokens could be closer to the plan of the sale of miscellaneous goods, such as manuscripts, works of art or bottles of wine, which the intermediaries must comply with the rules in the field of communication, under penalty of sanction. We are conducting a legal analysis in the light of existing legislation, to see to what extent these operations deserve to be captured by a body of existing rules or if it is necessary to provide the ad hoc rules more adequate.
The boss of JPMorgan, Jamie Dimon, recently said bitcoin is scam and bubble that was going to end badly. Is this the case of the ICO ?
It is not surprising that the banks are wondering about the impact of new technologies on their business model and that this gives rise to strong reactions and oriented. For scams, on the great markets of the ICO, for example the United States, the amount estimated by some observers is 10% of the transactions. There are scams real identified. Some specialized sites that provide the list of ICO denounce the event of diversion or the risks of cyber security. We need to analyse if certain types of ICO promote the diversion. This will help us to define a framework.
The outbreak of the ICO, which looks like a bubble, say the same of some of the experts of the ecosystem of the Blockchain, is of concern to the AMF ?
From the moment where there is fraud, it is a matter of concern. But the volumes remain very confidential, so this is a good time to find a regulatory response. It is also a matter of competitiveness, we benefit in France from a technological expertise, financial and legal, which is characteristic of the Blockchain. The idea is not to prohibit absolutely all the ICO or let it do everything, but to investigate the relevance of different forms in an innovative environment. The ICO might be able to finance complementary, alternative, innovative players making use of advanced technologies for investor geeks.
The startup French DomRaider is in the process of raising a significant amount, 35 million euros, by way of an ICO. The regulation must be modulated in function of the amounts ?
We do not have a firm position on the subject. If the operation is well documented, the amount could have legitimacy, the developed technology represents a cost. The important thing is to explain what are these amounts, the different phases of development, what are the expected cash flows. If it is limited to a certain amount, it would no doubt create a micromarket more dispersed.
The amounts are similar to those raised by an SME is introducing in the Stock market. These new methods of financing, could they replace the stock market ?
The amounts raised in the ICO does not have anything to do with those of the ipos of the order of 56 billion dollars last year in the world. In addition, these operations relate to only one segment of the economy in connection with the technology Blockchain. It is usually the companies at a stage of maturity and specific, which have often already made one or two rounds and want to evolve their technology with the financial support of their community.
The ICO approach-they are not crowdfunding, crowdfunding ? Could they in the future be structured on platforms ?
It is a form of ” crowdsale “, it sells to the crowd, but we say : be careful, not to any mob. Crowdfunding is used to finance specific projects, and entitle the counterparty to bonds, equities or claims, even if there are also donations. The Initial Corner Offering does not fit all in the same paradigm. If she were to pass through a platform, we would be moving away from the philosophy that decentralizing the ecosystem Blockchain.
Interview by Delphine Cuny