Publication of the "blockchain" ordinance
Published at the last minute on December 9, 2017, the "blockchain" ordinance (officially Ordinance No. 2017-1674 of December 8, 2017 on the use of a shared electronic recording device for the representation and transmission of financial securities) has finally been adopted.
This ordinance is important because it allows the issuance or transfer of financial securities to be recorded on a blockchain.
Nevertheless, if (I) the reminder of the conditions of creation of the ordinance allows to understand what the Government wanted to do, it is necessary to note that (II) the contributions of this text appear limited today.
I - Reminder of the conditions of creation of this ordinance
1. Context of experimental regulation of blockchain by way of ordinances
The ordinance of December 8, 2017 is the second stage of an experimental system of introducing distributed ledger protocols (or "blockchains") into French law.
The first stage took place with Ordinance No. 2016-520 of April 28, 2016 on savings bonds, which allows minibonds ("bond-like" financing) to be registered on the blockchain.
The impact assessment carried out on this occasion noted that the ordinance was intended to enable participatory financing platforms ("crowdfunding") to diversify their offerings to investors and to capture new issuers (LLCs).
The ordinance created two new articles (L223-12 and L223-13) in the Monetary and Financial Code that defined for the first time in French law the blockchain as a "shared electronic recording device".
Unfortunately, this first step has so far remained unfinished: the implementing decree allowing the use of minibonds has still not been published more than a year after the ordinance came into force.
A second step was opened by the Government in the context of Law 2016-1691 of December 9, 2016 on transparency, the fight against corruption and the modernization of economic life (also known as the "Sapin II Law"). This law allowed the Government to take the necessary measures by ordinance to: "adapt the law applicable to financial securities and securities in order to allow the representation and transmission, by means of a shared electronic recording device, of financial securities that are not admitted to the operations of a central depository or delivered in a financial instruments settlement and delivery system."
With this new ordinance, the Government wanted to open up the experimentation of blockchain: moving from the niche sector of minibons to a much broader sector, that of financial securities.
At the request of the opposition (taken in the person of the Deputy Laure de la Raudière), the deadline for the publication of the ordinance has been reduced from 18 months to 12 months.
As the Sapin II law was published on December 9, 2016, the Government had until December 9, 2017 to publish its ordinance.
2. Originality of the elaboration of the ordinance made through consultation of the concerned circles
The ordinance has the particularity of having been preceded by two public consultations conducted by the Treasury Department:
a first public consultation from March to May 2017, on the draft legislative and regulatory reforms relating to blockchain. The purpose of this consultation was to consult all interested stakeholders on the scope, principles and level of regulation to be retained in the context of this reform. Aware that distributed ledger technology had an international dimension that it could not ignore, the Treasury Department presented an English translation of its consultation so that the greatest number of people could respond; and
a second consultation in September and October 2017, concerning the draft ordinance comprising 11 articles amending the Monetary and Financial Code and the Commercial Code.
This consultation procedure can be considered commendable because, as blockchain technology is complex and evolving very quickly, the participation of the relevant circles is essential.
However, there is no evidence that the responses to these consultations have had a significant influence on the final result obtained.
II - Contributions limitations of the "blockchain" ordinance
Contributions of the "blockchain" ordinance
The ordinance of December 8, 2017 contains eight articles.
In most cases, it merely inserts the term "shared electronic recording device" into the articles of the Monetary and Financial Code and the Commercial Code alongside the terms "securities account" or "on account", as well as applying these provisions in certain overseas collectivities (the islands of Wallis and Futuna, French Polynesia) and in New Caledonia.
According to the report presented to the President of the Republic on the occasion of the publication of this order, the term "shared electronic recording device" corresponds to the way in which "blockchain" technology is already designated by the provisions of Article L. 223-12 of the Monetary and Financial Code relating to minibonds.
"This designation remains broad and neutral with respect to the various processes so as not to exclude future technological developments. This designation covers the main characteristics of the "blockchain": its purpose as a register and its shared nature."
This new precision of the report refers to the principle of technological neutrality, which does not allow the Government to favor one technology over another. It is therefore conceivable that in the future, financial securities could be put on registers that do not have all the characteristics of current blockchains.
It should also be noted that the final version of the ordinance presents several differences with the draft ordinance proposed by the Treasury Department last September.
On the one hand, the draft wanted to make an adjustment to the existing codes by inserting the term "shared electronic recording device" and, on the other hand, to create new articles in the Monetary and Financial Code:
- Article L211-3-1 which stated that could be registered in the blockchain:
"1° Negotiable debt securities ;
2° Units or shares of collective investment schemes;
3° equity securities issued by joint stock companies and debt securities other than negotiable debt securities, provided that they are not traded on a trading platform, within the meaning of the preliminary chapter of Title II of Book IV of this Code", and
- Article L211-3-2, which stated that "rights to financial securities registered in a shared electronic recording device are governed by French law when the issuer's registered office is located in France or the issue is governed by French law".
However, the ordinance published in the Official Journal only retains the proposed adjustments to the articles of the codes and deletes all new articles.
The report presented to the President of the Republic notes that the ordinance "does not create any new obligation, nor does it alleviate the existing guarantees relating to the representation and transmission of the securities concerned".
The general impression is that the Government, pressed for time, wanted to delete all the articles where questions were unresolved, in order to deal with them, we hope, in the forthcoming implementing decree.
2. The limited effects of the ordinance
The Government has given the Ordinance a delayed entry into force. It has made the effective date of the ordinance coincide with the date of publication of the implementing decree and no later than July 1, 2018.
As with the cash voucher ordinance, the important points (such as the conditions for operation and registration on the blockchain, as well as the financial securities and collateral that may be registered on the blockchain) are referred to an implementing decree.
Nevertheless, it should be noted that in practice, the ordinance will have a limited effect due to the clauses related to the right of pre-emption or to the approval procedures that are generally found in the companies' articles of association or in the partners' agreements.
Moreover, the issuing companies will have to give their prior consent for such a registration of their securities on the blockchain and it is not clear that they will accept to do so in large numbers.
It will be easier to find cases of use of this ordinance in crowdfunding companies with the creation of investment vehicles using the blockchain.
In conclusion, the ordinance has the merit of introducing into French law the possibility of registering financial securities on a blockchain. However, while the text sets out the main principles, it does not provide any details on how this registration will work in practice.
In a rapidly evolving ecosystem, the "blockchain" ordinance risks being quickly outdated.
This article was first published on: www.bitcoin.fr