Cote d'Ivoire -- Securities Classification Regulatory Overview

Côte d'Ivoire, as a member of the West African Economic and Monetary Union (UEMOA/WAEMU), primarily relies on the regional financial market regulator, the Conseil Régional de l'Épargne Publique et des Marchés Financiers (CREPMF), for the classification and regulation of financial instruments, including cryptocurrency tokens that might be deemed securities.

The CREPMF has issued guidance that addresses digital assets, focusing on whether they constitute financial securities under existing regional laws.

Legal Test Used (Howey Test Equivalent)

The CREPMF does not explicitly adopt a "Howey Test" equivalent by name. Instead, it employs a substance-over-form approach, assessing whether a digital asset, regardless of its technological form, possesses the characteristics of a traditional financial security as defined in the regional legal framework.

The key legal framework for this assessment is primarily CREPMF Instruction No. 001/2021/PCMF/COS-UMOA of January 12, 2021, on the Regulation of Public Offerings of Digital Assets within the UEMOA Financial Market. This instruction provides definitions and regulatory requirements.

Under this framework, a digital asset is likely to be classified as a security if it:

1. Confers Rights Similar to Traditional Securities: It grants rights to the holder that are analogous to those typically associated with shares (e.g., voting rights, dividend entitlements, participation in profits, liquidation rights), bonds (e.g., right to fixed or variable interest payments, repayment of principal), or units in collective investment schemes.
2. Represents an Investment: The primary purpose for acquiring the token is an expectation of financial return or profit derived from the efforts of others (e.g., the issuer, project developers). This implies an investment in a collective enterprise.
3. Is Transferable: It can be transferred or exchanged, often on secondary markets, although this is a characteristic of many digital assets, not solely securities.

The instruction seeks to apply existing securities law principles to new digital forms. The focus is on the economic reality and the rights and obligations associated with the token, rather than merely its technical nature (e.g., being built on a blockchain).

Which Tokens Are Considered Securities

Based on the CREPMF Instruction 001/2021, tokens are generally categorized to determine their regulatory treatment:

• Security Tokens (Investment Tokens): These are digital assets that meet the criteria described above. They represent traditional financial securities in a digital form. Examples would include:
  • Tokens representing equity in a company (tokenized shares).
  • Tokens representing a debt instrument (tokenized bonds).
  • Tokens granting a right to a share of future profits or revenue streams.
  • Tokens representing units in a collective investment scheme.
  • Any token that, due to its characteristics and the rights it confers, qualifies as a "security" under the CREPMF's organic texts.
• Utility Tokens (Payment Tokens or Access Tokens): These are generally not considered securities if their primary purpose is to grant access to a product, service, or network within a defined ecosystem, and they do not confer rights analogous to financial securities or a direct expectation of profit from the issuer's efforts. For example, a token used to pay for transactions on a blockchain, or to access features of a software application. However, even utility tokens can be reclassified if marketed or structured in a way that suggests an investment motive.
• Hybrid Tokens: Some tokens may combine characteristics of both security and utility tokens. In such cases, the CREPMF would likely apply a holistic assessment, leaning towards classifying it as a security if the investment component is significant.

Registration/Exemption Requirements for Token Issuers

For digital assets classified as financial securities, the CREPMF Instruction 001/2021 imposes strict requirements for public offerings:

1. CREPMF Visa (Approval): Any public offering of digital assets classified as securities within the UEMOA financial market requires a prior visa (approval) from the CREPMF. This is analogous to prospectus approval for traditional securities offerings.
2. Prospectus Requirements: The issuer must submit a detailed prospectus that provides comprehensive information, including:
   • Details about the issuer (legal status, financial situation, governance).
   • Description of the project or underlying asset.
   • Characteristics of the digital asset being offered (rights, technical specifications).
   • Use of proceeds from the offering.
   • Risk factors associated with the investment and the technology.
   • Information on the offering procedure, subscription terms, and trading conditions.
   • Legal opinions regarding the classification of the digital asset.
3. Authorized Intermediaries: The offering must be managed by financial intermediaries approved by the CREPMF.
4. Information Disclosure: Continuous information disclosure requirements apply post-issuance, similar to listed companies, to ensure market transparency.

Exemptions: The Instruction may include specific exemptions, typically for:

• Private placements: Offerings to a limited number of qualified investors or below a certain monetary threshold.
• Offerings to a restricted circle of persons: Such as existing employees or board members, under specific conditions. The exact thresholds and conditions for exemptions would be detailed in the instruction itself or subsequent guidance. Generally, offerings to the "public" without specific qualification are subject to registration.

Secondary Trading Rules

If a digital asset is classified as a financial security and has undergone a public offering approved by the CREPMF, its secondary trading is expected to adhere to the CREPMF's existing rules for securities trading. This would imply:

• Trading on Regulated Platforms: Trading would likely need to occur on exchanges or multilateral trading facilities authorized and supervised by the CREPMF.
• Market Integrity Rules: Adherence to rules preventing market manipulation, insider trading, and ensuring fair and orderly markets.
• Intermediary Role: The involvement of authorized financial intermediaries (brokers, dealers) for executing trades.
• Transparency and Reporting: Reporting requirements for transactions to the CREPMF.

It is important to note that the infrastructure for regulated secondary trading of digital securities is still developing in the WAEMU region. However, the regulatory intent is clear: if it's a security, it must be traded under security market rules.

Enforcement Examples

Specific public enforcement examples in Côte d'Ivoire or the broader WAEMU region specifically for misclassifying a cryptocurrency token as a non-security to avoid registration are scarce. This is due to several factors:

• Nascent Market: The market for security token offerings (STOs) is still in its early stages in the region.
• Focus on Fraud/AML: Most enforcement actions or warnings by regulators in emerging markets regarding crypto tend to focus on:
  • Fraudulent schemes/Ponzi schemes: Where crypto is used as a lure for illicit activities.
  • Unlicensed financial activities: Issuance of fiat-pegged tokens (stablecoins) without proper licensing as a payment service or e-money institution.
  • Anti-Money Laundering (AML) / Counter-Terrorist Financing (CFT) risks: Warnings against unregulated crypto exchanges and service providers.

The CREPMF has issued general warnings to the public about the risks associated with investing in unregulated digital assets and platforms, emphasizing that such investments are not covered by investor protection mechanisms. However, a high-profile case of a token issuer being penalized for failing to register a security token offering under Instruction 001/2021 has not been widely publicized.

It is more common for initial regulatory actions to take the form of warnings, cease-and-desist letters, or public announcements advising caution, rather than immediate heavy penalties for misclassification, especially when the market is new.

Specific Legislation and Regulatory Guidance URLs

1. CREPMF Official Website:

   • https://www.crepmf.org/
   • This is the primary source for all CREPMF regulations and guidance. You would need to navigate to the "Textes Réglementaires" or "Instructions" section.

2. CREPMF Instruction No. 001/2021/PCMF/COS-UMOA of January 12, 2021, on the Regulation of Public Offerings of Digital Assets within the UEMOA Financial Market:

   • While a direct public link to the PDF might not always be stable or readily available without searching within the CREPMF's document repository, this is the foundational text. You would typically find it listed under "Instructions" or "Règlementations" on the CREPMF website. A specific direct URL is difficult to provide due to potential changes in document hosting, but searching for "Instruction 001/2021 CREPMF actifs numériques" on their site or via a search engine should yield results.

It is always advisable to consult the most recent versions of these documents directly on the CREPMF's official website or through legal counsel specializing in UEMOA financial markets, as regulations can evolve.