Since the end of 2017, French financial regulations have been considering the use of blockchain technology with a view to gradually integrating it into the French financial ecosystem. The purpose of this analysis is to explain the main legal bases for the use of the blockchain in French law.
The sapin Law of 9 December 2016: an explicit legislative authorization for the French government to legally establish the blockchain.
Article 120 of the Sapin (2) law of 9 December 2016 on transparency, the fight against corruption and the modernisation of economic life empowers the government to reform the law applicable to financial securities. Its purpose is to enable the representation and transmission, by means of a shared electronic recording device, of financial securities that are not admitted to trading by a central depositary or delivered in a settlement and delivery system for certain financial instruments.
This authorization to make a “Blockchain” order is intended to adapt positive law in order to authorize the representation and transmission of certain financial securities not admitted to the operations of a central securities depository using the blockchain.
Ordinance №2016–520 of 28 April 2016 on savings bonds.
The new ordinance on savings bonds was an opportunity for the French government to create new securities called “minibons de caisse” (registered and non-negotiable securities with a commitment by a trader to pay on a fixed date, issued in exchange for a loan, see L. 223–1 of the Monetary and Financial Code), which may be registered on the blockchain.
Consequently, Article L. 223–12 of the Monetary and Financial Code stipulates that “the issue and sale of minibons may also be recorded in a shared electronic recording system enabling these transactions to be authenticated, under conditions, in particular security conditions, defined by decree in the Council of State”.
Decree №2016–1453 of 28 October 2016 on securities and loans offered as part of equity financing specifies the conditions under which “minibons” may be issued and transmitted using the blockchain.
Article D.223–1 of the Monetary and Financial Code provides for the information that must be included in the certificate of registration in the register given to the owner of a savings bond (information relating to the issuer and then to the owner of the savings bond) and the characteristics of the loan for which the savings bond is issued (C. mon.fin.,art. D. 223–2 et seq.).
Article L.223–13 of the Monetary and Financial Code provides an important clarification: “The transfer of ownership of minibons results from the registration of the transfer in the electronic system mentioned in Article L.223–12, which serves as a written contract for the application of Articles 1321 and 1322 of the Civil Code. The mention is important since the use of a written document is required under penalty of nullity.
The French legislator therefore defines blockchain technology in order to allow the exchange of minibons by this means.
Ordinance №2017–1674 of 8 December 2017 on the use of a shared electronic recording device for the representation and transmission of financial securities.
Then he adopted this definition in the context of the Ordinance of 7 December 2017 on the use of a shared electronic recording device for the representation and transmission of financial securities.
On this point, it is interesting to note that the Report to the President of the Republic accompanying the Order of 7 December 2017 specifies that the term “shared electronic recording device” (DEEP), used in the authorisation, corresponds to the way in which “blockchain” technology, among other things, is already referred to by the provisions of Article L. 223–12 of the Monetary and Financial Code relating to minibons, introduced by Order No 2016–520 of 28 April 2016 on savings bonds. This name covers the main characteristics of the “blockchain”: its vocation as a registry and its shared character.
In essence, the Ordinance of 7 December gives registration in a shared electronic recording device the same value as registration in a securities account. The article L. 228–1 of the French Commercial Code, resulting from the 2017 Ordinance, provides in paragraph 6 that securities must be registered in an account or on a shared electronic registration system.
In addition, according to Article L. 211–3 of the French Monetary and Financial Code, “Registration in a shared electronic registration system shall take the place of book entry. »
From now on, certain financial securities will be able to be represented and transmitted on a blockchain.
To place this law in a broader legal context, it should be recalled that the 1981 law enshrined the registration on securities accounts for the representation of securities, i.e. the justification of their holding in a dematerialised framework. The entry in a securities account therefore makes it possible to justify the transfer of ownership of a security, in accordance with Article L. 211–17 of the Monetary and Financial Code. The legal added value derived from the Ordinance of 7 December 2017 must be understood in the sense that from now on, the use of a shared electronic recording device will have equivalent force for such justification.
Conclusion
The French legislator therefore considers blockchain technology to be sufficiently reliable because of its role as a registry and its shared nature to incorporate it into its financial regulations. Thanks to that, it is now possible to record in this shared register the processes of issuing and trading minibons as well as certain financial securities that are not admitted to trading by a central depository or delivered through a settlement and delivery system for certain financial instruments (unlisted securities).
The transactions for the sale of these securities registered on the blockchain are now enforceable against the third party on a legal basis.
French financial regulations are adapting to support the use of Blockchain technology within its economic landscape. Blockchain technology is officially called upon to play the role of a trusted third party in order to facilitate the implementation of certain transactions within the French financial ecosystem.
However, it should be noted that the legislator acts cautiously.
The regulations do not give a real definition of the shared electronic recording device. Transaction security is by no means defined in terms of technical standards.
Admittedly, Article D. 223–1 of the Monetary and Financial Code legally defines certain procedures to be followed in order to register a transfer transaction in this shared register. But for the rest, the legal understanding of the purely technical functioning of technology is totally non-existent at the moment. The technical conditions for the authentication of transfer transactions in the shared electronic register still need to be defined and clarified by the legislator. French law is therefore still silent on the implementation of these technically shared registration systems (the last paragraph of Article L. 223–12 of the Monetary and Financial Code is significant on this point).
This is certainly due to the fact that the blockchain technology has not yet reached a sufficiently advanced level of maturity. The notion of a shared registry therefore remains deliberately broad. To be convinced of this, it is sufficient to have regard to the Report of the President of the Republic concerning Ordinance №2017–1674 of 8 December 2017. When he discusses the legal definition of this shared registry, he states that “this designation remains broad and neutral with regard to the various processes in order not to exclude subsequent technological developments”.
It is to this end that the Court of Auditors created, in June 2017, an experimental blockchain platform for the management of registered shares reserved for the equity financing platforms of SMEs called minibons. Caisse des Dépôts (CDC) and the association Financement Participatif France (FPF) announced on May 29, 2009, that they were working on the implementation of a Blockchain infrastructure dedicated to managing loans to SME’s through equity financing. The current prototype being worked on by the CDC and the FPF will present a blockchain architecture including all participatory financing platforms that can manage minibons.
It will also allow users to issue, subscribe and, in the long term, exchange minibons on the secondary market. The project also aims to contribute to the development of regulatory conditions for the use of blockchain in the French financial ecosystem in partnership with the regulator.
Predictive justice is the bearer of major transformations and can no longer ignore the fundamental movement that leads the financial world towards distributed ledger technology (of which the blockchain is a variation) through multiple initiatives.
Bibliography:
Articles
S. Schiller, « Représentation et transmission des titres financiers par une blockchain À propos de l’ordonnance n° 2017–1674 du 8 décembre 2017 », La Semaine Juridique Edition Générale n° 3, 15 Janvier 2018.
D. Legeais, « Utilisation d’un dispositif d’enregistrement électronique partagé pour la représentation et la transmission de titres financiers, Ordonnance n°2017–1674, 8 déc. 2017 : JO 9 déc. 2017, texte n° 24 », La Semaine Juridique Entreprise et Affaires n° 4, 25 Janvier 2018.
Quéméner M., “ Le droit face à la disruption numérique”, Gualino, 2018. pp. 46–47.
« Bons de caisse », Fiche d’orientation, Dalloz, Avril 2018
D. Legeais, « La blockchain », RTD Com., Dalloz, 2016.
« Organisme de placement collectif en valeurs mobilières (OPCVM) », Fiche d’orientation, Dalloz, Avril 2017.
Cabinet d’avocats Simmons & Simmons LLP, « Le droit et la technologie blockchain : une approche sectorielle », Revue Contrats, Concurrence et Consommation n°10, Octobre 2017, étude 10.
X. Vamparys, « Blockchain et droit des sociétés, Quelques réflexions d’un praticien », La Semaine Juridique Entreprise et Affaires n° 17, 26 Avril 2018.
Law text
Ordonnance n° 2016–520 du 28 avril 2016 relative aux bons de caisse, JORF n°0101 du 29 avril 2016 texte n° 16.
Loi 81–1162 1981–12–30 JORF 31 décembre 1981 rectificatif JORF 3 mars 1982;
Rapport au Président de la République relatif à l’ordonnance n° 2017–1674 du 8 décembre 2017 relative à l’utilisation d’un dispositif d’enregistrement électronique partagé pour la représentation et la transmission de titres financiers
Ordonnance n° 2017–1674 du 8 décembre 2017 relative à l’utilisation d’un dispositif d’enregistrement électronique partagé pour la représentation et la transmission de titres financiers JORF n°0287 du 9 décembre 2017 texte n° 23