EthCC 2: Arnaud Grunthaler

Madame okay this last two days you are all hearing about sto security talk and offering presumably you are all very familiar with securities and with the ice here also this last two or three years in France we're hearing every day about icos the difference is that almost all of the ICS launched in France these three last years were utility tokens we are more familiar with UT tokens in these environments but STS is now the need for investors because as you know they are looking for more protection they are looking for more assets and security token is on the point the assets of the underlying company the objective of this presentation is this pitch is just to show you what is the regulatory environments summarized in France when you intend to launch a nice year and the French lo I must admit that I she owes in France these last three years were none regulated it will be in the future by facts concerning sto and security token offering we are know falling within more I will say common regulatory process with a I was a regulation which is much more structured and existing at European level what we have so far is new process with tokenization of the Securities and I will inform you I will just describe briefly what will be a kind of innovation in the matter through very new regulation concerning registration of security today we have a a kind of need for securities and in France it is more and more popular because of position which has been taken from the ESMA the ESMA is the European security and market authority it is a European level Authority and they provide some guidelines about what shall be considered as a security when we are talking so far the Asthma provide guidelines in January saying that when you are offering a token which give rights to a kind of entitlement a financial entertainment with a share in the profit of the company or a share of the dividends of the voting rights of the company and if you have a predator mine cash amount of cash which give rise by the talkin then you shall be in the presence office security Esmail is in fact conducting what we know in the US with the re tests and and the fact that the OE test is using some criteria to determine whether the talkin shall be qualified as a security and the these are we tests when applied will lead to the conclusion that potentially the securities hacks us will apply this is same thing with asthma which is conducting this dis analysis and which is concluding with the fact that potentially securities and prospectus regulation should apply what does that mean that means that you are now in a process which is known in France but not by the web act you of you all have heard what the dwop Act which will regulate in the future ice use but securities are excluded securities talkin are excluded from the lower backs the ruop act will only coat the ice you is conducted with the launch of utility tokens and then if you have service providers which will be caught by the roller PACs it is not because they are dealing was security talking but only with the utility token and then it is not the lower pact which will regulate security talk and in the future the IMF is also of the views that if you have a token which is giving right to the dividend of the company or adopting rights or which give rise also to cash like debt then you shall be submitted to an existing regulation which is the Prospectus regulation and there is no specific guidelines or there is no specific regulation or position from the French financial market Authority which could lead to the conclusion that another regulation could apply or an alternative regulation could apply in this condition in this condition what is the regulation this is an EU regulation which is implemented in all the EU countries including France this regulation this is a directive existing since 2003 but which is now replaced by a regulation from the European Parliament and the principle is to establish a prospectus you have whole earth about what is the prospectus but this objective of this regulation it to have identical process and documentation all across Europe because the objective of the prospectus regulation is to allow an issuer to be authorised in a country in a EU country and then benefit from a passport these passports will authorize and will although this issuer to use the same documentation in all the other EU countries so that it is faster simpler and costly I take the example of an issue were located in France is issuing securities through a public offer this security could be tokenized and it shall submit prospectus with the IMF the IMF has 10 days - it is fine the IMF has 10 days to investigate and to analyze this prospectus and then grants what we call a visa this visa enhance the public offer could be conducted in France but it could be also conducted in all the e orders EU countries were the sure wants to offer and market the securities which means that we have here the EU areas the EU passport allowing this offer it does not exist in other countries which mean that it is possibly flexible for a you but not outside of you the prospectus directive is applicable when there is the offer of securities as I said securities are equity securities with mean a share of the company it is also non equally securities as debts like bonds or notes but each time you have a receivable on the issuer you have an underlying assets and because you have this underlying assets then you have this offer to the public which is the marketing conductin to make this offer and communication made to convict this offer are the facts that's a regulated entity an intermediary is offering this securities as a financial intermediary on a practical point of view the prospectus is a document which will provide as much information as possible in relation to the issuer and in relation to the security which is offered then you will have precisely to disclose any information concerning the characteristic of the products the the characteristic of the companies whether you have guarantee what will be the financial information at the disposal of the investors to be sure that this investors will invest be fully informed about the nature of the products the risk taken you have huge risk factors section which will describe all the risk linked to these investments and this is mandatory information which is conducted which is sorry provided in in each in each prospectus for small companies you have the new rules which will provide the EU gross prospectus which is a kind of alleged prospectus smaller prospectus when the company is complying with some criteria because this is a small company because he has a small turnover which make this prospectus simpler to be drafted to be in the process to be complied with when there is a submission with the IMF but in any case there is the need for the approval by the IMF of the prospectus to be in a position to offer markets the securities on the French market and to obtain a passport for the other EU countries hopefully you have exception exemption to file prospectus and to obtain a visa with the IMF you have more than 20 exemptions I will just here provides the more the main one the more important one you are exempted to file and to obtain the visa for prospectus when you are offering the securities to qualified investors qualified investors are professional companies which have certain level of turnover 50 Millions certain level of employees at least 2050 and which are in a position to understand the nature of the investment and then to conduct their own investigation and to take the risk without being protected like retail investors professional qualified investors are also individuals but who had a portfolio of more than 500 thousand euros who are with the habits to analyse these securities who have taken position professional position in the financial area for at least one year and were making trades like for example trade of at least 600 euro per trade and 10 trade a quarter for the last four quarters and then because of this criteria and assumption the regulations are considered that these people do not need to be brought because they are considered that not professional but qualified investors it's a little bit like the accredited investor and the u.s. level do you also fall within the section of the I will say private placements when the condition of the offer allow you not to file a prospectus for example when the nominal amount of your security is at least hundred thousand euro and when the subscription by the investor is at least four hundred thousand euro then the amount is so important that the regulator is considering that the protection is not necessary for these investors which there is an assumption that they understand and they can take the risk on this investment and then this is also an exemption to file a prospectus when you are addressing the offer do these kind of investors the the the last exemption which is interesting for startups and new companies is a new trash hole which has been negotiated last year by which has been implemented last year by the French regulator is that any offer less or equal to 8 million euro a year in this condition there is no need to file prospectors and then there is no need to obtain a visa from the IMF there is however the need to file a specific document which is in fact a simplified information documents these documents will provide information in relation to the issuer and the security but it will be easier less painful and then it will be with no need for an approval by the AMF under this kind of condition the type of the offer and the type of the subscriber the investor then you can benefit from from an exemption another way of benefiting of an exemption is depending of the nature of the security all the securities are not cowed by the prospectus regulation and then if you are issuing certain type of security you are not obliged and you are not under the obligation to file a prospectus some of them are here such as share capital from Member States or central banks or Association which are linked to nonprofit bodies specific securities once again which are not necessary the securities you called issue as a commercial company concerning fund because we are all discussing about securities but securities could be sure in the capital a receivable like a bond and also a share of a fund that fans are excluded from the directive prospectus there are submitted to another directive depending of the nature of the fund who is issuing the securities which curl IFM alternative investments funds you have to obtain an approval from the IMF as long as you are offering the shares of the fund which are managed by a specific management company complying with some requirements to be in a position to manage this friend it is what I just told you there is not new the fact that security talk and are submitted to this regulation it's quite classical there is no innovation in saying that EU prospectus regulation will no apply this is I will say common process for public offer however there is somewhere some innovation in France with a process which called the deep which is a new way of registering the securities which are been tokenized the deep is a dematerialized registration of securities through an electronic registry which is different with the classical process where you have the issue of securities and then the obligation to have securities accounts to register the securities or a classical registry with paper establishing the owner and who is the owner of the other securities it still exists in the future you will be in a position to tokenize your security and to register these securities in what we call the deep and in fact the deep will impose a change in our Abbott's because the registration of the securities will be different and will need to be adapted the holding of the securities will now be done true this dematerialize registry which can use blockchain and also the way the general meetings of the shareholders which are the investor holding the securities with with the rules concerning general meeting with also needs to be amended to comply with this new way of holding the securities and in fact the French regulation is providing with this possibility to register the securities in a dip which shall be structured in such a way that the registration of the securities it guaranteed and secured the integrity of the system should also be ensured the French regulation is not providing for technical details in the ordinance of 2017 or in the decree of end of 2019 there is just a reference to the existence of the deep and the nature of and the characteristic of the the ethic the the the security which would be guaranteed for the older of the securities but there is no technical aspects technical aspect will be the responsibility of the issuer structuring organising a deep or of a service provider which will perform the services of offering a deep to the issuer in which the security will be will be registered the the only things that the regulation is providing a the kind of security process just that back up system identification murderers security system to be sure that the the recalls and the keeping of the securities is is efficient so far you have some project in France of issuing an sto having the Securities tokenized and registered in the deep as far as I know and I'm not from the regulator there is no security token offering which has been launched that some of them are under the process and also we are in a classical regulation this is quite new to have this the material register the deep which does not exist in all the other countries which is a kind of innovation for France also I appreciate that for an issuer who conducted IC o---- distrust ly three years in France and now being in the process of launching at an uneasy oh you are now following with more constraints and more complicated and structured regulation which is at European level because you have the benefits of tokenization of your security which is more liquidity being trade seventy seven days a week 24 hours a day however you have all of these benefits with wide base investor and having more liquidity for these securities but you had also some limits the limits I see is that when we launch a nice year few years ago when I say a few years ago or last year for example we were just analyzing some of the regulation in some of the countries which mean that we were just thinking about taking care of China regulation taking care of u.s. regulation not to be code by Securities Act and for example for French issuer France regulation but potential the token as utility where offer a subscribe in other countries and without the show having really being informed about the risk of the regulation because in most of the country there was no regulation at all when you're talking about securities the notion of the passport which is more flexibility is only in Europe which means that you only have 27 28 countries in which you can benefit from the flexibility of the passport but if you want to offer your security your securities in the u.

s. you will have to complied with the u.s. security exact and the u.s.

regulation you will have to comply investigate and be very cautious about complying with this regulation in all the countries where your security could be offer and market which is much more painful less flexible because the passport at worldwide level does not exist at all it only exists for Europe it is perhaps in the future a way to be much more flexible and to facilitate the offer of securities to have a passport at world--well level because today making a security talking offering is without considering worldwide it is just some areas when you could invest and be sure that all the regulator's from all the countries outside of EU will approve your prospectus or will make sure that you benefit from exemption to make this issue it is not so flexible as lack for IC o---- in utility talking where it was possible to issue because of the length of a regulation in in more countries you have some question no no no I was just saying we're running yeah thank you very much [Applause]