Franck Julien, President of the Commission for the Digital Development at the National Council of Monaco answers Wealth Monaco’s questions on Blockchain and digital finance.

During the budget debates, you recently criticized the government’s attitude towards Blockchain, why?

Whenever I have had the opportunity, I have congratulated the government for the actions taken under theExtended Monaco project. But it is clear that the Blockchain is the notable absentee from this project.

The government cannot be satisfied with the token offerings law to claim that it has sufficently addressed the questions around Blockchain. This is a major misconception that we must quickly eliminate from our path.

In its explanatory memorandum to Bill #995, the government stated that :

« Blockchain technology is considered to be a great revolution, even the technological revolution of the beginnings of this 21st century. Taking into account the innovations it comprises and the many uses that could be made of it, some believe that this technology could in the future experience a growth comparable to that of the Internet. »

We cannot both glorify the Blockchain and limit its scope to token offerings only. It is typically this observation that prompted me to bring forward Bill #246 on the tokenization (or dematerialization on TRD) of the securities of unlisted companies.

Beyond the subject covered, the objective was to encourage the government to think about how it could use Blockchain technology for sovereign uses.

Indeed, many questions arise. In particular that of the public or private nature of the Blockchain to be used for financial securities. Who will be in charge of registrations within the Blockchain? Should we use “restricted tokens” in order to limit the conditions of transfer? How to identify the owners of the securities? Should we use a list of previously identified addresses?

I hope that the future bill, that the government is constitutionally obliged to table before July 2021, will be ambitious and will allow these questions to be answered, by enshrining a solid foundation in the law.

What could be the advantages of the tokenization of company securities in Monaco?

First of all, there will be an obvious benefit in terms of image. In France, the dematerialization of company securities is possible since a law dating December 30, 1981. Almost 40 years later, in Monaco we are still with paper registers!

Another advantage is that the system envisaged makes it possible to remove with certainty the uncertainties linked to the non-pledge of company securities.

The advantage of going directly through the dematerialization of company securities on the Blockchain is that it is possible to implement smart contracts that will have the effect of facilitating certain pre-agreed operations. In this way, profit-sharing in their company’s share capital will be greatly facilitated for employees.

In addition, the implementation of this technology should facilitate administrative procedures. The example of the transfer of shares in limited liability companies is particularly eloquent, since the statutory numbering of the shares leads to the rewriting of the of the company articles, and therefore to the holding of an Extraordinary General Meeting …

This procedure should be made unnecessary with dematerialization of the company securities on Blockchain.

Why limit tokenization to only securities of unlisted companies?

The purpose of a bill is not to develop a perfect text of law, since before entering into force, the bill must be accepted by the Government, transformed into a bill, then studied by the National Council, voted by the National Council before any regulatory texts be published.

The main objective of tabling Bill #246 was to encourage the Government to reflect on this issue.

But indeed, just as the French PACTE Law allows, tokenization could be extended to debt securities (such as bonds convertible in shares but which are absent from Monegasque company law) but also extended to units or shares of investment fund. If the latter possibility is not included in the bill to be tabled by the Government, as part of its power of amendment, the National Council may raise the topic with the Government.

The United States has just authorized the use of stablecoins for the payment activities of the banks. Is this possible in the future for Monaco? A new path for our banks?

The Monegasque co-legislator does not have the power to decide on such an authorization … If it ever happens, it will be decided at the European level. Nonetheless, the example you give demonstrates, if needed to be, the profound paradigm shift that took place in 2020.

Even if the jolts are numerous, and the current Bitcoin price is probably not stranger to it, it seems legitimate to say that during the year 2020, crypto-currencies, whether stable or not, have acquired their letters of nobility.

The crypto-currency phenomenon has gained momentum and will continue over time. As the Anglo-Saxons say : « Too big to fail ».

The first Internet revolution was the Internet of information revolution, the second Internet revolution was the one of the Internet of value. The ones of Blockchain and crypto-assets. Monaco missed the turn of this first revolution, it is now our duty not to repeat the same mistakes as in the past. A country like Monaco can redesign its economic model in a very advantageous way, provided that these structural and disruptive changes are properly addressed.

The other conclusion that I draw from this recent authorization is that international bodies recognize the effectiveness of Blockchain technology and more generally of Distributed Registry Technology, in terms of costs, efficiency, resilience, accessibility, and transparency.

You don’t have to be a great diviner to say that in 2021, there will be a lot of debate about these new uses. Recent statements by central banks on the use of Central Bank Digital Currencies (CBDC) will only fuel these debates and will be sources of major innovations.

But as mentioned previously, at the European level, the use of major stablecoins or CBDC will only be possible after a significant change in the regulatory texts.

Last December, the order of the French Government was published aiming to submit the exchange of digital assets activities against other digital assets to the same obligations of the Monetary and Financial Code in terms of AML-CFT, thus putting an end to the ‘anonymity. A criticized choice. How do you think you can reconcile AML-CFT and exchanges of digital assets in the principality?

In the law we adopted last December, the subjugation of activities related to digital assets has already been incorporated, following the passage of the law relating to token offerings [1].

The formulations used are broad enough to cover so-called “fiat to crypto” exchanges and “crypto to crypto” exchanges. Our texts are therefore already in line with the work of the Financial Action Task Force (FATF) and do not require toughening in this area.

In Monaco, digital assets and AML-CFT should therefore go hand in hand.

[1] Aarticle 1 of bill n ° 1008, strengthening the system for combating money laundering, the financing of terrorism and corruption.

« Insofar as they expressly provide for it, the provisions of this law are applicable to the bodies and persons listed below:

23°) legal entities holding the authorization to make a token offering referred in Article 2 of Law No. 1.491 dated 23 June 2020;

24°) any person who, as a usual profession, either acts as a counterparty himself or as an intermediary, in view of the acquisition or sale of virtual financial assets that may be kept or transferred for the purpose of ” acquiring a good or a service, but not representing a claim on the issuer;

25°) third party custody service providers of digital assets or access to digital assets, where applicable in the form of private cryptographic keys, for the purpose of holding, storing and transferring digital assets.

Find the previous articles of Franck Julien: Part 1Part 2