English law key to UK’s global leadership in digital financial market
A new legal statement and research have been published by a government-backed initiative to provide legal clarity for market participants in digital securities.
The Legal Statement on the Issuance and Transfer of Digital Securities under English private law was issued by the UK Jurisdiction Taskforce (UKJT) of LawtechUK, an industry-led group tasked with promoting the use of English law and UK jurisdiction for technology.
Digital securities, or the issue and transfer of equity or debt securities on blockchain and DLT systems, have grown in importance as digital transformation becomes the top priority for many institutions operating in the financial markets. The statement finds that there are clear commercial benefits for conducting digital security transactions under English law.
The statement finds that the existing framework of English law supports the transfer and issue of securities on blockchain or distributed ledger technology. It highlights the benefits of inherent flexibility of English law, which readily adapts to the changing commercial needs in the digital economy.
The statement clarifies that, along with other common law systems, English law precludes the need for statutory intervention to support new asset classes or financial structures. It provides certainty and confidence to market participants seeking a reliable and adaptable legal framework, suitable for the agile commercial environment.
Today’s announcement follows a public consultation and research commissioned by LawtechUK, which reinforces the important role that English law has to play in maintaining the UK’s position as a global leader in financial services. The research, completed by the finance and economics consultancy Oxera, explores the capacity of the English legal regime to facilitate the commercial use of blockchain and DLT in capital markets, reinforcing the UK’s position as a leading jurisdiction for internationally mobile transactions.
Oxera’s findings suggest that there is an economic opportunity stemming from English law becoming a global standard in internationally mobile digital markets, which may be captured by other jurisdictions if action is not taken to provide legal certainty to market participants. An English legal system that is supportive of digital securities is likely to create value for the UK economy and the wider UK legal system.
Furthermore, a supportive English law will generate additional activity in the legal and professional services ecosystem based in the UK, making the UK a more attractive trading and financial cluster for the international economy.
Sir Geoffrey Vos, the master of the rolls and head of civil justice in England and Wales, who chairs the UKJT, said: “English law is respected internationally for its ability to evolve and adapt to new technology and new commercial situations. The legal statement will hopefully provide market confidence as to the use of English law in the digital space and as to the complex issues related to digital securities.”
Director of LawtechUK, Alexandra Lennox, said: “English law is a critical piece of infrastructure that underpins business activity, not only in the UK but globally. As market activity becomes increasingly digital, it is important that English law continues to provide market participants with the certainty they need to grow and innovate. The UK Jurisdiction Taskforce of LawtechUK’s legal statement provides much needed clarity that the inherent flexibility of English law can support the operation of digital securities, today. The economic opportunity stemming from English law becoming a global standard in digital markets cannot be understated.”
Reinder van Dijk of Oxera said: “Oxera’s analysis shows that the market landscape and economic characteristics of digital securities mean that, although digital securities activity is currently at a small scale, markets can very quickly ‘tip’ to using new technologies. However, legal clarity is an important prerequisite for this to take place. Our new analysis builds on previous work by Oxera on the value of English law, which also highlighted that English law is a critical piece of business infrastructure and a platform that ultimately benefits UK plc and international business. The prominence of English law in capital markets means it is well-placed to become a global standard in digital securities markets.”
Justice minister Mike Freer, said: “English law is central to how legal services are delivered across the world and its ability to adapt to new technologies is widely recognised in the sector.
“This is an important step in demonstrating how English law can support the digitalisation of financial services like bonds and equity schemes and provide legal surety to this fast-moving industry.”