A UK Jurisdiction Taskforce (UKJT) has published a document entitled “Legal Statement on cryptoassets and smart contracts.” The members of this Taskforce include a blend of both public and private entity participants.
The UK has established itself as the leading jurisdiction when it comes to Fintech innovation. Beyond a risk-taking, entrepreneurial society, the UK ecosystem has benefited from a regulatory environment that both accepts and encourages change. The lead securities regulator, the Financial Conduct Authority (FCA) incorporates a stated mission of fostering competition. This means early-stage firms seeking to challenge entrenched incumbents must be provided with a compliant path to compete. Few other jurisdictions in the world embrace such an approach.
The goal of the Legal Statement is to “provide the best possible answers to the critical legal questions under English law” when it comes to cryptoassets. More specifically, the document addresses cryptoassets that veer from regulated securities or currencies.
In a forward to the document, Sir Geoffrey Vos bluntly proclaims:
“In legal terms, cryptoassets and smart contracts undoubtedly represent the future.”
There is no equivocation here from the Taskforce.
The Taskforce seeks to clarify existing ambiguity when it comes to certain legal questions, hence the report. The UK has already published several papers regarding the treatment of cryptoassets as it strives to maintain its relevance in the global Fintech world. While it is not the intent of the Taskforce to write any laws they hope this publication can be foundational to any changes or reforms.
The members who created the Legal Statement include:
- Sir Geoffrey Vos – Chancellor of the High Court and Chair of the UKJT
- Lawrence Akka QC – Twenty Essex
- Sir Nicholas Green – Chair of the Law Commission of England and Wales, as an observer
- Richard Hay -Linklaters LLP
- Peter Hunn – Accord Project
- Mary Kyle – City of London Corporation
- Christopher Woolard – Financial Conduct Authority
- Sir Antony Zacaroli – Justice of the High Court
The Legal Statement sets out to provide a definition, in general terms, the features of cryptoassets and how they compare to more traditional assets. More specifically, the Legal Statement describes cryptoassets as property – and then overlaps existing law. This is of importance as ownership of property is widely recognized in existing law
To quote the document:
Whether English law would treat a particular cryptoasset as property ultimately depends on the nature of the asset, the rules of the system in which it exists, and the purpose for which the question is asked. In general, however:
(a) cryptoassets have all of the indicia of property;
(b) the novel or distinctive features possessed by some cryptoassets—intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralisation, rule by consensus—do not disqualify them from being property;
(c) nor are cryptoassets disqualified from being property as pure information, or because they might not be classifiable either as things in possession or as things in action;
(d) cryptoassets are therefore to be treated in principle as property.
Regarding smart contracts, the Legal Statement states:
There is a contract in English law when two or more parties have reached an agreement, intend to create a legal relationship by doing so, and have each given something of benefit. A smart contract is capable of satisfying those requirements
just as well as a more traditional or natural language contract, and a smart contract is therefore capable of having contractual force. Whether the requirements are in fact met in any given case will depend on the parties’ words and conduct, just as it does with any other contract.
While the legal statement is not conclusive it is another important step in crafting a viable regulatory regime in an area that is very new and more than a bit arcane.
The Legal Statement is said to provide a dependable foundation for the “mainstream adoption of cryptoassets and smart contracts.” The UK is home to an established blockchain community and London claims to host more blockchain and crypto meetup members than San Francisco, Berlin, and Seoul.
Tech Nation, the issuer of the document, states that the common law system of the UK is well-suited to adapting to and dealing with fast-changing technologies. Perhaps better than the French Loi Pacte that provides legal clarity for utility token issuance?
Sir Geoffrey Vos, chair of the UKJT, states:
‘‘I hope that the Legal Statement will go a long way towards providing much-needed market confidence, legal certainty and predictability in areas that are of great importance to the technological and legal communities and to the global financial services industry.’’
This emerging legal certainty regarding non-security digital assets is something that is missing in the largest financial market in the world – the United States. Perhaps the Yanks can learn something from the Brits?