The UK Jurisdiction Taskforce (UKJT) recently published a consultation paper requesting submissions from stakeholders working with, or interested in, cryptoassets, distributed ledger technology (DLT) and smart contracts. Submissions will inform a legal statement by UKJT which will aim to settle questions on the legal status of cryptoassets and smart contracts. UKJT is drawn from industry, government and the judiciary and was formed to facilitate the growth of the UK legal sector.
UKJT seeks to clarify whether cryptoassets, DLT and smart contracts are compatible with, and can be relied upon with sufficient legal certainty in, English private law. UKJT’s legal statement should also provide clarification on any areas of uncertainty in the interaction of English law with cryptoassets, DLT and smart contracts.
The consultation paper identifies the legal uncertainty surrounding the status of cryptoassets as an important area in need of clarification. The consultation paper requests input on when a cryptoasset and a private key should be characterised as personal property. UKJT has limited the scope of its investigation to focus on property law rather than include other areas such as tax or data protection law. This is in order to resolve the central question of whether cryptoassets should be considered personal property in the hope of facilitating the appropriate future development of cryptoassets. The current approach of English property law is not fully compatible with the various understandings of cryptoassets. In particular, English property law has difficulties characterising cryptoassets in terms of whether they may be seen as a physical thing or a right (chattel, chose in action or chose in possession) or as property (whether personal or intellectual), and determining where they are located.
UKJT is interested in determining the enforceability of smart contracts and the circumstances under which a smart contract is capable of giving rise to binding legal obligations. The consultation paper highlights the need to clarify how the general principles of contractual interpretation by a court may need to be recalibrated when applied to smart contracts. There are also concerns over how parties may be able to enforce their rights and rely on smart contracts in the event that the technology malfunctions or does not perform as expected.
The consultation paper identifies the difficulty in defining DLT, an area that is constantly evolving and with developing terminology and taxonomy, meaning that any recommendations may quickly require reconsideration. However, understanding DLT is key to informing any future regulation of cryptoassets or smart contracts. The consultation paper, therefore, requests input on whether DLT could be considered to be a register for the purposes of evidencing, constituting and transferring title to assets.
This consultation paper is the latest addition in a recent trend by regulators in the UK, Europe and the U.S. seeking to recalibrate their approach to regulating these emerging sectors and products. If you are interested in finding out more on cryptoassets, DLT and smart contracts, we recently published a white paper on Blockchain which can be found here.
If you would like to respond to the UKJT consultation, we would be happy to assist you to do so by the deadline of 21 June 2019.
IOSCO has also recently released a request for input on key considerations for regulating cryptoasset trading platforms, which can be found here.