The UK Jurisdiction Taskforce (UKJT), an industry-led group of LawtechUK, tasked with ‘positioning English law as a law of choice for new technologies’, has launched a public consultation on the issuance and transfer of digital securities via blockchain technology under English private law.
The consultation aims to ‘provide clarity to the market as to the types of digital security models which English law will support’.
They continued: ‘A number of jurisdictions, including Luxembourg and France, have introduced tailored legislative frameworks to facilitate the commercial use of blockchain and DLT under their respective legal systems. However, no similar statutory regime has been introduced in the UK and there is some perception in the market that English law may be comparatively less supportive of digital securities.
‘The consultation aims to address these concerns and promote the choice of English law for digital securities arrangements. Despite the lack of a statutory regime or case law specifically considering digital securities, English common law provides a high degree of flexibility and is already capable of accommodating many digital security structures.‘
The main aim therefore is to understand whether English private law supports the issuance and transfer of equity or debt digital securities using ‘a system deploying blockchain or DLT’.
And to put this in some context, the UKJT in November 2018 published its Legal Statement on the Status of Cryptoassets and Smart Contracts. The Legal Statement expressed the view that cryptoassets were property and smart contracts were contracts under English law.
Then, on 22 April 2021, they published its Digital Dispute Resolution Rules to be incorporated into on-chain digital relationships and smart contracts. They allow for arbitral or expert dispute resolution in very short periods, for arbitrators to implement decisions directly on-chain using a private key, and for optional anonymity of the parties.
And so now the same team has turned its attention to the way in which English law can support the issue and transfer of equity or debt digital securities via blockchain and DLT systems.
Sir Geoffrey Vos, Chancellor of the High Court and Chair of the UKJT, said: ‘The use of blockchain offers obvious advantages that will inevitably be taken up over time and the curve plotting the growth of DLT usage closely tracks the growth of the internet. These are borderless technology and it is likely that one or two systems of private law will come to dominate and underpin the use of DLT and digital assets recorded on-chain. If English law can be positioned as a good candidate to provide the legal foundation for the use of DLT and cryptoassets internationally, it would be even more significant for the UK economy.
‘I urge as many people as possible to use this opportunity to share their views with the UKJT.’
The public consultation will close on 23rd September 2022.
You can find the consultation site here.
The move follows the recent news that the LawtechUK group has been given £4m in further funding by the British Government and has now installed its new director, Alexandra Lennox.
Overall, this is the next stage in a continued pattern of focused support for the crypto world by the LawtechUK group and its subgroups, in particular aimed at making the UK a centre for crypto-related legal advice and dispute resolution, which would in turn benefit lawyers based here.
And you may well ask: what is a digital security? Is that like Bitcoin….? The answer is: well, kind of, but one step removed. Or as Wikipedia helpfully explains in relation to the equity side of things:
‘A security token offering (STO) / tokenized IPO is a type of public offering in which tokenized digital securities, known as security tokens, are sold in security token exchanges. Tokens can be used to trade real financial assets such as equities and fixed income, and use a blockchain virtual ledger system to store and validate token transactions.
Due to tokens being classified as securities, STOs are more susceptible to regulation and thus represent a more secure investment alternative than ICOs, which have been subject to numerous fraudulent schemes. Furthermore, since ICOs are not held in traditional exchanges, they can be a less expensive funding source for small and medium-sized companies when compared to an IPO. An STO on a regulated stock exchange (referred to as a tokenized IPO) has the potential to deliver significant efficiencies and cost savings, however.’
See full article on Wikipedia here.