Market infrastuctures on blockchain technology: adaptation of the French securities laws

The European regulation on a pilot regime for market infrastructures based on distributed ledger technology entered into application on 23^rd March 2023. This regulation allows for certain market infrastructures to be temporarily exempted from specific requirements of Union financial services legislation, in order to experiment the use of distributed ledger technologies in post-market activities. In order to ensure the consistency of its financial laws with the pilot regime, the French securities law has recently been amended. In particular, it opens the possibility to issue bearer securities within a distributed ledger technology.

These evolutions have been inspired by the work of the Legal High Committee for Financial Markets of Paris (HCJP). A working group was tasked with making proposal on the reforms necessary to adapt French law to the pilot regime regulation and delivered detailed propositions in a report published on 20th May 2022^[1].

In a first step, the Law of 9 March 2023 (DDADUE) titled various provisions for adaptation to European Union law has made two important modifications of Articles L. 211-3 and L. 211-7 of the French Monetary and Financial Code, regarding the forms of securities. These amendments enable the issuance of bearer securities within a distributed ledger (DLT), such as the blockchain, under the pilot regime.

Such registration on a DLT can take one of two forms: either as a registered security recorded on a distributed ledger pursuant to Order n° 2005-15 of 8 January 2009 (and Order n° 2017-1674 of 8 December 2017, the so-called “Blockchain Order”), or as a bearer security issued on a distributed ledger pursuant to the DDADUE Law under the conditions set in the pilot regime.

In a second step, the Decree n° 2023-421 of 31 May 2023 adapting securities law to the pilot regime regulation has adapted regulatory provisions as a consequence of these evolutions of the legal framework. This decree clarifies the possibility for the owner of a bearer security issued on a distributed ledger pursuant to the pilot regime to entrust an intermediary with certain tasks such as the custody of cryptographic keys in the conditions set out in the General Regulations of the Autorités des Marchés Financiers (AMF). The AMF is now working on integrating these modifications within its General Regulation.

Lastly, the decree clarifies the possibility to resort to registered securities recorded on a distributed ledger, under the pilot regime. A DLT market infrastructure could be mandated by an issuer for the register-keeping as a DLT settlement system (DLT SS) or a DLT trading and settlement system (DLT TSS). In the latter case, the DLT TSS could then offer a multilateral trading facility regarding these securities (as a DLT MTF).

These evolutions offer France a solid and attractive legal and regulatory framework applicable to securities registered on DLT, such as blockchain, enabling businesses to develop innovative projects in the conditions set in the pilot regime.

Entry points to submit an application within the pilot regime

Depending on the nature of the authorization sought, the DLT market infrastructures project owners will have as entry point either the ACPR or the AMF, after clearance by the Banque de France. The authorities have specified the filling procedures and instruction conditions of DLT market infrastructures files.