The latest crash in the global crypto market demonstrates the need for strong legal foundations across the sector, the master of the rolls said last night in a call for contributions to his latest move to establish England and Wales as the jurisdiction of choice.  

The UK Jurisdiction Taskforce, part of the government-funded LawtechUK initiative, is seeking input for a forthcoming legal statement on the issuance and transfer of digital securities such as bonds and shares. 

The statement, due to be published in January, follows a 2019 statement on the legal status of cryptoassets and smart contracts.  Sir Geoffrey Vos, who chairs the taskforce, said that such a statement on digital securities would help create a 'strong legal foundation' for digital transformation. ‘The collapse of the crypto market this year underlines the need for this kind of approach,’ he added. 

A public event organised by LawtechUK heard that competing jurisdictions such as France and Germany had already passed statutes covering crypto assets. However statutory measures 'are not necessarily technology neutral and may not be able to adapt', Vos said, pointing to the inherent flexibility of England and Wales common law. 

Taskforce member Lawrence Akka KC said the statement aims to set out 'not what the law should be, but what the currrent law says'. It is likely to cover two categories of security: those based on debt, such as bonds, and those based on equity such as company shares. 

Taskforce member David Quest KC predicted that current law might be more applicable to the first category, as debt security is 'essentially contractual in nature' and lends itself to 'drafting around the issues'. 

Equity securities would be ‘potentially more complicated’ because of statutory requirements, for example in the Companies Act. The need for a process to pay stamp duty is a particular barrier to full 'dematerialisation', the event heard. Other difficulties include the need for an asset to have a location in order for it to be possessed and for the disposition of an equitable interest to be evidenced in writing. 

The consultation comes amid turmoil in a market in crypto products valued at $3 trillion earlier this year. The deputy governor of the Bank of England warned yesterday that regulation of the market is essential to prevent collapses such as that of the FTX exchange triggering a wider financial crash. 

The UK Jurisdiction Taskforce's consultation closes 30 November. 

 

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