Blockchain Ordinance: New legislation
As the second stage of an experimental system for introducing distributed ledger protocols—blockchain—into French law, a draft ordinance has been submitted to the Government by the Treasury Department. This ordinance aims to allow crowdfunding platforms to diversify their offerings to investors and attract new issuers (limited liability companies, SARLs).
Following a consultation launched between March and mid-May 2017 with industry professionals—banks, asset management companies, sector players, fintechs, and consulting firms—on the transfer of certain financial securities via blockchain, the summary was published in September. A second consultation followed in October, and a draft ordinance was then submitted to the Government by the Treasury Department.
On December 9, the ordinance concerning the use of a shared electronic registration system for the representation and transfer of financial securities was published. It is scheduled to enter into force on July 1, 2018, amending the Commercial Code and the Monetary and Financial Code.
Scheduled for the same date, the implementing decree will make it possible to know the conditions under which financial securities can be registered in a shared electronic registration system offering guarantees, particularly in terms of authentication, at least equivalent to those offered by registration in a securities account.
Transfer of ownership of financial securities via blockchain authorized
Issued pursuant to the provisions of the Sapin II Law of December 9, 2016, which notably allows for the adaptation of the law applicable to certain financial securities by means of a shared electronic registration system, or “distributed ledger technology” (DLT), the ordinance introduces into French law the registration of the issuance or transfer of financial securities using this new module.
Following the ordinance of April 28, 2016, on cash vouchers enabling the registration of minibonds on the blockchain, the December 9 ordinance inserts the expression “shared electronic registration system” (DEEP) into the various codes.
According to the report presented, this corresponds to the way in which “blockchain” technology is already designated by the provisions of Article L. 223-12 of the French Monetary and Financial Code relating to minibonds: “This designation remains broad and neutral with regard to the different processes so as not to exclude future technological developments. This name encompasses the main characteristics of ‘blockchain’: its function as a ledger and its shared nature.”
Many articles added since September were ultimately not included, presumably to be addressed in the implementing decree.
Law & Blockchain: A minimal ordinance
Beyond the general principles outlined, the ordinance remains vague on several points, such as the operating conditions and registration on the blockchain, as well as the financial securities and pledges that can be registered there. We must wait for the implementing decree to understand its exact scope. Similarly, the applicable law regarding security ownership and settlement methods remains subject to considerable uncertainty.
Indeed, the exercise of pre-emption rights and approval procedures traditionally included in company bylaws and shareholder agreements, along with the prior consent of issuing companies for the registration of securities on the blockchain, are all factors that, in practice, limit the impact of this ordinance.
At the risk of being quickly overtaken by blockchain technology, the implementing decree will reveal the ordinance’s effectiveness, even though many participants in the consultation process expressed reservations about the reform of the current legal framework for security transfers.
They argued that the legislature’s intervention should be limited to “ensuring the technological neutrality of the substantive requirements imposed on existing players.”
More information and details:
The blockchain ordinance, published in the Official Journal on December 9, 2017, initially provided a broad definition of blockchain. This definition proved insufficient and was clarified by a decree published at the end of 2018.
