Businesses are increasingly turning to tokenisation in a bid to raise funds, relying on blockchain technology. The Principality, which is creating a dedicated platform, is now the world’s first country to have a specific legal framework for security token offerings (STOs).
The security token offering (STO), a financial instrument that is enjoying a surge in popularity, has become an essential way of raising money for entrepreneurs. To position Monaco as an advanced “Funding nation”, in June 2020 the Principality introduced legislation in this area, becoming the first country in the world to have a dedicated legal framework for STOs.* Monaco then established an STO platform designed to attract new digital businesses to the country. The goal: to create around a hundred jobs every year and inject €150 million into the Monegasque economy over the long term.
A brand new legal framework
Specifically, a security token entitles the holder to a share in the issued capital of the company issuing this type of token, with the same purpose of funding an economic project or developing the activities of the issuing company. Consequently, the share-token confers the same rights held by a shareholder in a company (entitlement to dividends, access to the accounts, participation in general meetings, appointment of directors). STOs rely on blockchain technology. “The new law means that Monegasque companies, and companies looking to establish themselves in the Principality, can make use of this alternative and innovative approach to financing,” explains Diego Bonaventura, who is responsible for the digital economy within the Digital Transition Office. “Blockchain allows companies to raise funds in an environment which is secure, as a result of a series of controls relating to the identity of issuers and investors, as well as to the transactions and assets involved, with no intermediaries,” he continues, noting that this new mechanism offers new opportunities for development to companies that do not have access to the traditional funding market. “This is a genuine stock market that is developing, with capitalisations capped at €20 million,” he adds. The challenge is real: “What the Principality is seeking to do is to become a nation that funds innovation, that is open to the world and that is a place where high-quality projects are developed and financed,” says Frédéric Genta, Country Chief Digital Officer. To reassure investors, a partnership has been concluded with Tokeny Solutions, a fintech company operating in the Principality in which Euronext Paris is a shareholder. This will allow the Principality to apply control and compliance to the Ethereum blockchain.
Ensuring the safety of token offerings
To issue tokens, companies must prove that they are qualified. Businesses applying to issue tokens (the denomination per unit of the tokens must be at least €100,000) must therefore fulfil certain obligations. Compliance with good character and legal requirements, registration in Monaco, legal status of the company (where tokens are used as financial instruments, the offering can only be conducted by a joint-stock company), establishment of a mechanism enabling funds raised during the offering to be monitored and safeguarded, with sufficient guarantees to ensure reliability, operability and efficiency… The legal framework imposes very strict criteria.
Token offerings – which are addressed to investors who are purchasing tokens for a total price of at least €100,000 per investor and per separate offering – are naturally subject to a detailed review. This covers financial viability, the robustness of the initiative and the impact in terms of creating wealth for the Principality. The values of sustainability and responsibility are key.
The same approach to ensuring the safety of the investment is paramount when it comes to the selection of investors. “The primary market, comprising token issues, is open to ‘qualified’ (due to requirements to comply with financial trading regulations), trusted investors,” says Diego Bonaventura. This description covers companies approved or regulated to operate on the financial markets, companies meeting at least two of the following criteria: total assets of €20 million, turnover of €40 million and equity of €2 million and institutional investors, as well as governments, central banks and international institutions.
Individual investors – finance professionals – must also meet certain criteria, notably a share portfolio (including bank deposits) with a value exceeding €1 million.
All token offerings must be certified
To ensure even better safety, all token offerings are subject to obtaining advance administrative authorisation in the form of a certificate issued by the Minister of State following consultation with a dedicated committee. Monitoring their consistency will be up to staff from the Business Development Agency, who can rely on the support of a range of experts. “Once the certificate has been issued, investors subscribe to the tokens issued via a digital platform supplied by the technology partner, Tokeny, a subsidiary of Euronext Paris,” explains Diego Bonaventura. “Thanks to this mandatory certificate, the projects selected by the Principality of Monaco will be easily recognisable by investors as serious, quality opportunities for investment,” he says at Tokeny. The first projects will be certified in late September.
Tokeny issuing platform
The operational part has been entrusted to fintech firm Tokeny. “For each token issue, Tokeny provides the issuer with a secure subscription platform. This is a white-label platform via which investors will be able to identify themselves, log in, consult the legal documentation for the security, supply the required data and documents to confirm that they comply with the eligibility criteria set out by the issuer, subscribe to tokens representing the security issued and, finally, obtain the necessary instructions to make payment,” explains Diego Bonaventura.
IceBreaker, the production company owned by Oscar-winning documentary filmmaker Luc Jacquet (March of the Penguins), is the first to benefit from this initiative. “IceBreaker intends to take advantage of blockchain technology to facilitate funding of production of a very wide variety of content, while retaining all of the associated rights. This will open up new opportunities for monetisation through films, exhibitions, etc. March of the Penguins and the subsequent Antarctica exhibition showed that the model can be profitable by making it attractive to investors while holding on to the freedom to express my creativity and promoting the quality and value of my projects,” commented Luc Jacquet.
* The National Council adopted Act No. 1491 on token offerings during the legislative session on 16 June 2020.
