Digital Assets in Scots Private Law: Expert Reference Group minutes: December 2019

Attendees and apologies

• Rt Hon Lord Patrick Hodge, Supreme Court of the UK
• James Wolfe, QC, Lord Advocate
• Stephen Ingledew, FinTech Scotland
• Maggie Craig, Financial Conduct Authority
• John McKinlay, DLA Piper
• Martin Sloan, Brodies LLP
• Callum Sinclair, Burness Paull
• Stephen O’Neill, Scottish Government, Digital Economy and Data Driven Business
• James Ness, Law Society of Scotland
• [redacted – s.38 – personal information], Scottish Government Private Law Unit
• Daniel Broby, University of Strathclyde
• Professor David Fox, University of Edinburgh
• Christine Bamford, Women’s Coin
• Paul Roach, Zumo
• Richard Bradley, QWallets

Apologies

• Kate Forbes MSP, Scottish Government, Minister for Public Finance and Digital Economy
• Anthony McFadyen, Law Society of Scotland

In attendance

• [redacted – s.38 – personal information], Scottish Government, Local Government and Economy
• [redacted – s.38 – personal information], Secretariat
• [redacted – s.38 – personal information], Secretariat

Items and actions

Welcome and introductions

Lord Hodge welcomed everyone to the meeting and noted apologies. He explained that he will now chair the group going forward and thanked the Lord Advocate and the Minister for bringing this important matter forward for discussion.  Lord Hodge welcomed Professor David Fox, University of Edinburgh and Daniel Broby, University of Strathclyde, to their first meeting.

The Lord Advocate and Lord Hodge set out the main purpose of the group.  Lord Hodge explained that adapting the law to facilitate investments can provide Scotland with a competitive advantage.  To do this the group should look at defining the nature of the assets we are dealing with and at providing security for investors. 

Lord Hodge referred to Paragraph 11 of the Legal Statement published by the Ministry of Justice earlier this year which provides a helpful list of items under their consideration as well as items not being considered.  Going forward the group will specifically consider Intellectual Property, contract law and the protection of consumers. 

The need to consider the issue of liability in Scots law and the possibility of compulsory insurance in order to protect consumers should form part of the group’s deliberations. The integration between fintech and the law as well as private international law will all have to be addressed.  It was agreed that case law should not be relied upon and legislation will be required in some matters.  The Lord Advocate confirmed that there is a possibility of Scotland taking a different course of action from the rest of the UK.

Minutes from previous meeting

A correction to the minutes has been made at paragraph 9 to explain that the Moveable Transactions Bill has not yet been introduced. Two further corrections were identified; paragraph 3 (delete the word “intellectual”) and at paragraph 4 (insert the word “to” on the second line). Subject to these corrections being made, group members were content to approve the minutes from the last meeting.

Matters arising report

Lord Hodge explained that there were no outstanding actions from the previous meeting.  However, the action for members to nominate individuals with appropriate expertise should remain as a continuous action.

Update on UK Taskforce and Moveable Transactions Bill

[redacted – s.38 – personal information] gave a short update on the work being undertaken by the Lawtech Delivery Panel and explained that their published report has now been referred to the Law Commission.  Ministry of Justice colleagues have agreed to keep us up-dated on further developments.

[redacted – s.38 – personal information] also updated members on the Moveable Transactions Bill which is nearing the end of its process.  The legislative programme will not be announced until the Programme for Government in September and as such may not make this a suitable vehicle However, it could be amended to provide security over crypto-assets. It was noted that the Scottish Law Commission Report Bill also has the potential for smart contracts to be included.

It was agreed that the Moveable Transactions Bill is not likely to be a silver bullet but rather the first stage and platform to move on from. The Moveable Transactions Bill would provide the fundamental building blocks for a framework to develop the law. Members agreed that it would be helpful to have further information on the Bill and [redacted – s.38 – personal information] agreed to circulate a paper setting out what it aims to achieve.

Daniel Broby explained that the law should be amended to enable banks to store crypto-currencies and members agreed that as a reserved matter this would be for the UK Government and possibly the Law Commission to consider.

It was also noted that there may be interconnecting acts going through Parliament such as the Scottish National Investment Bank Bill.  Providing further security for consumers was discussed and the group agreed that this was more a matter of regulation and therefore for the FCA.

Crypto-assets FCA case studies

Maggie Craig updated the group on the work being undertaking by the FCA.  She explained that 3 percent of UK consumers hold crypto-assets and half are under £200. From market data, exchanges operating in the UK account for approximately 3 percent of globally traded volume. The FCA published guidance on crypto-assets in July providing some clarity on what falls within their regulatory remit. Further guidance on crypto-derivatives is being undertaken and a money laundering directive is on course to be published in 2020. Early stage analysis on unregulated crypto-assets is underway that will analyse the harm and what a response might be.

In terms of consumer protection Lord Hodge confirmed that the FCA should be the first port of call.  Maggie explained that regulated firms dealing with something that is unregulated could be looked at by the FCA but that it doesn’t solve the problem.

How other countries deal with crypto-currencies was discussed briefly with Australia in particular highlighted.  Christine Bamford kindly prepared a paper on this issue which was circulated to members.     

Fintech case studies

Stephen Ingledew introduced three fintech case studies.  He explained that there is a thriving fintech community in Scotland and these case studies will help shape the discussion from a practical point of view:

• Zumo: Paul Roach is the co-founder of the company which provides ultra-secure access to digital assets.  They are not a bank and they do not need any physical infrastructure. He confirmed that there were opportunities for Scotland and proposed a White Paper on the opportunities of digital currencies.
• Women’s Coin: Christine Bamford gave a brief overview of her business. Women’s Coin is the first global women’s digital currency based on social value. Women’s coin micro finance/credit will enable women to set up small businesses to create self-reliance and a sustainable future. Christine confirmed that their main concern was security. 
• Quantum Wallets (qWallets): Richard Bradley explained that qWallets provide a range of services including;  educational and consultancy services for emerging and foundational technologies; tech upskilling for organisations and the development of educational material, block chain, cyber security, AI, IoT etc. He explained that a review of the legal implications was welcomed.  A formal definition of crypto-assets and the laws applicable to them will assist in the wider discussion about the benefits and opportunities.  The implications of theft information remains a significant concern.

Members agreed that these presentations were extremely helpful in understanding industry needs.

Scottish Consultation and next steps

Lord Hodge noted that agenda items 4 and 5 were related and should be discussed as one item.  Members agreed that in order to move forward a paper outlining what it is we are doing and why we are doing it is necessary. This should include property rights, security and insolvency.  Professor Fox agreed to undertake this work and will inform secretariat of the likely timescale involved although he confirmed a first draft could be ready for the Spring.  Once this paper is complete a further group meeting should be arranged for consideration of the paper and also who should be consulted.

Actions

• Professor Fox to prepare a paper by the Spring for the group’s consideration
• secretariat to arrange a further meeting once first draft is complete
• [redacted – s.38 – personal information] to circulate a paper on the Moveable Transactions Bill to all members
• there was no other business raised and Lord Hodge thanked members for their contributions