With ordinance n° 2017-1674 of 8 December, 2017, adopted pursuant to law n° 2016-1691 of 9 December 2016, the so-called “Loi Sapin 2”, France becomes one of the first countries in the world, and presumably the first country in Europe, to regulate the recording and transfer of securities on a shared electronic recording device, such as blockchain. This not the first time in France: ordinance n°2016-520 of 28 April 2016 relating to mini-bonds (minibons)1 already mentioned this technology in particular in respect of those mini bonds transfer. This is therefore the second time that blockchain technology is mentioned by the French legislation.
The “blockchain” ordinance will amend, among others, the provisions of article L. 228-1 of the French Commercial Code and articles L. 211-3 et seq. of the French Financial and Monetary Code so as to, eventually, allow the electronic recording of ownership, transfer and pledge of securities.
This recording will be done using a “shared digital recording device” (dispositif d’enregistrement électronique partagé, called “DEEP” in French) .This device was already mentioned by the ordinance on the abovementioned mini-bonds. Pursuant to the report made to the President of the French Republic on the blockchain ordinance, blockchain was targeted. Pursuant to the above mentioned report, the choice of a broad and neutral term would imply that “further digital developments are not excluded”.
The ordinance applies to financial securities (referred to in article L. 211-1 of French Financial and Monetary Code) that are not listed, such as:
- Equity securities, such as shares, issued by joint–stock companies,
- Marketable debt securities and other debt securities as long as they are not traded on trading platforms (as defined in I of article L. 420-1 of the French Financial and Monetary Code), and
- Units or shares in undertakings for collective investment (organismes de placement collectif).
With this ordinance, the government thus puts at the same level book entry registration and digital registration on a DEEP; doing so, this ordinance does not create new obligations, but simply offers an alternative to French companies.
The use of a DEEP would be decided by the issuing company. In the absence of the decree implementing this ordinance, we can assume that it would be a decision of the legal representative of the company. However, if the by-laws expressly provide for book entry registration of the company’s securities, the said by-laws would logically need to be updated in case of option for the DEEP.
The new rules will come into force on the publication of the implementing decree and, at the latest on 1 July 2018.
In the absence of the implementing decree and taking in account the suspicion of many lawyers about the blockchain and the lack of current applications of this technology which is more and more often mentioned in the news, many questions remain outstanding. In particular, questions pertaining to accessibility, verification and reliability: the answers to those questions will depend partly on the type of blockchain elected. Presumably, a private or consortium blockchain will be chosen, these types of blockchains being favored by the participants to the consultation performed in preparation of the ordinance. The publication of the implementing decree should thus bring more certainty in this respect.
This is a major step forward to the “democratization” of the use of blockchain technology which may spread to other legal registers. This is about to occur in Ghana in respect of their real estate register (cadastre), within the framework of the “Bitland” project whereby it is envisaged to record the thousands of parcels of land in the country in a digital register, that is open and tamper-proof thanks to blockchain technology, enabling them to drastically limit fraudulent manipulations of the cadastral register, which is a problem in many African countries .
The acknowledgement of the blockchain as a valid mean of securities registration is therefore an undeniable improvement that, once the questions of its implementation will have been fully secured, will certainly please lawyers and their clients. After the scheduled end of the Assemblact notarial contract-bindings, which will soon be replaced by electronic signature devices, it seems to be the end of the endless handwriting sessions on the share registers during M&A closing meetings, which would save a precious time to all parties involved in this kind of transaction, blockchain eventually bringing a new dimension to register keeping.