UK Jurisdiction Task Force: The issuance and transfer of digital securities under English private law
On August 1, 2022 the UK Jurisdiction Taskforce (UKJT) published a consultation paper which looks at the way in which English law can support the issue and transfer of equity or debt securities on blockchain and Distributed Ledger Technology (DLT) systems.
The consultation paper notes that a number of jurisdictions have introduced tailored legislative frameworks to facilitate the commercial use of blockchain and DLT under their respective legal systems, but 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 as a consequence. In order to address these concerns and promote the choice of English law for digital securities arrangements, the UKJT sees merit in delivering a legal statement, to provide clarity to the market as to the types of digital security models which English law will support (a “Legal Statement on Digital Securities”)
This follows the publication by the UK Jurisdiction Taskforce, in November 2018, of its Legal Statement on the Status of Cryptoassets and Smart Contracts (which Statement expressed the view that cryptoassets were property and smart contracts were contracts under English law) and the publication, on April 22, 2021, of 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.
In the consultation paper, the UK Jurisdiction Taskforce is asking experts and members of the public to provide their input into the questions that the proposed Legal Statement on Digital Securities can most usefully answer.
The focus is on equity or debt securities which are constituted or evidenced by reference to a blockchain or distributed ledger. Certain rules of English law govern how traditional securities can be issued, and how they can be transferred from one person to another, with some securities also having to be registered. The questions in the consultation paper focus on whether (and if so how) English law might apply these rules to digital securities and how blockchain and DLT might legally be used for any necessary registers. They relate to issuance of digital securities, stapling of rights and interests to a cryptoasset or other entry in a blockchain or DLT-based system, transfers of digital securities and corporate requirements for UK companies (for example, can a blockchain or DLT-based system serve as a register of members or debenture holders for the purposes of compliance with sections 113 and 743 Companies Act 2006).
Responses to the consultation are requested by September 23, 2022. Once the consultation has closed and the results have been considered, it is intended that the Legal Statement on Digital Securities will be published in December 2022. It will then be possible to see whether any further steps are necessary or appropriate.
(UKJT, The issuance and transfer of digital securities under English private law – Public consultation, 01.08.2022)
(UKJT, Public Consultation for Legal Statement on Digital Securities, 01.08.2022)