French Regulators Propose the Creation of an EU-Wide Security Token Sandbox
The Autorité des marchés financiers (AMF), France's financial watchdog, recently called for the creation of an EU-wide regulatory sandbox that would help to support the novel security token sector. The regulator conducted a legal analysis and found that current regulation was incompatible with the growth of the sector.
What the Analysis Found
According to the legal analysis, while unlisted financial securities could be sold as securities due to the Blockchain Order of December 8, 2017, there are still major restrictions for securities tokens. For instance, the current laws do not allow securities to be fully settled on the blockchain. As a result, if a platform were to list security tokens, it would need to utilize an intermediary with the approval of a central depository. Alternatively, it would have to have received the approval of a central depository.
The AMF is the Most Pro-Blockchain Regulator in Europe
France is famously pro-blockchain. The French regulator has been consistently advocating for the adoption of blockchain across the EU. For instance, the regulator has approved various ICOs and released trial frameworks for crypto firms for self-regulation. Additionally, the country created a blockchain law in 2019 that offered legal protection to firms that chose to be regulated. The law states that if a blockchain startup chooses to be regulated, it cannot legally be denied a bank account.
Why a Sandbox is Needed
During a recent speech, Robert Ophèle, the head of the French financial regulator, said that the blockchain sector was still in its infancy. He noted than in the past three decades, the internet had radically changed various aspects of our lives such as consumption habits and communication. He noted that it had also affected the financial system.
Ophèle explained that while the current internet was powered by information, we were moving to the internet of value, thanks to the use of blockchain technology. He noted that making an international transfer of value was almost free and instantaneous.
The official said that regulators needed to understand these evolutions to ensure that regulatory frameworks were supportive. He added that the current frameworks were designed to manage risk, protect users, and ensure innovativeness. However, these frameworks were designed for centralized systems and at a time when blockchain did not exist.
Consequently, it was hard to adapt them to the decentralized nature of blockchain technology. Therefore, it had become very difficult for blockchain to operate profitably within the EU. For instance, Ophèle noted that the current frameworks require blockchain startups to go through various layers of intermediaries, which raises operation costs, and he highlighted that this was despite blockchain technology being decentralized.
The EU Cannot Just Adopt New Laws Overnight
While Ophèle acknowledges that current EU laws are not compatible with the blockchain and security token sector, he is also aware it would not be possible to adopt supportive laws overnight. He said that the EU was facing a dilemma; while the sector cannot develop under current laws, the union could not develop new laws without documentation.
The Sandbox Solution
The solution is to create a Digital Lab sandbox, which would allow regulators to get out of the current impasse. According to the AMF, the sandbox would operate for three years. During this time, the EU would closely monitor it and collect data, which would be used to shape future regulation.
It is not clear how regulators across the EU will react to this news. While they might reply differently, most experts agree that the current regulation of the bloc is not supportive of the blockchain and security token sector.
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