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

Attendees and apologies

• Kate Forbes, Minister for Digital Economy and Public Finance, Scottish Government 
• James Wolfe,QC, Lord Advocate, Scottish Government 
• Stephen Ingledew, Founder and Chief Executive, FinTech Scotland 
• Maggie Craig, Head of Department Scotland, Financial Conduct Authority
• Anthony McFadyen, Senior Solicitor,  Law Society Scotland 
• John McKinlay, Partner, DLA Piper 
• Martin Sloan, Partner, Brodies LLP
• Callum Sinclair, Partner, Head of Technology and Commercial, Burness Paull 
• Denise Swanson, Access to Justice, Scottish Government
• [redacted – s.38 – personal information], Cyber Resilience, Scottish Government
• Stephen O’Neill, Digital Economy and Data Driven Business, Scottish Government
• [redacted – s.38 – personal information], , Local Government and Economy, Scottish Government

Apologies

• James Ness, Head of Data Analytics, Law Society Scotland
• Andrew Akintewe, Partner, Brodies
• [redacted – s.38 – personal information], Financial Services and Fintech Policy, Scottish Government

In attendance

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

Items and actions

Summary of discussion 

The Lord Advocate (LA) and the Minister for Digital Economy and Public Finance welcomed members to the inaugural meeting of the group. An overview of the group’s purpose was provided and the LA explained that, going forward, Lord Hodge has agreed to Chair the group. The first session should therefore be regarded as an introductory conversation and it would be for Lord Hodge to shape the group’s work in more detail.   

The LA encouraged members to consider whether there was expertise missing from the group’s existing composition. Following discussion it was agreed that a lawyer specialising in technology enabled property transactions would be helpful.   

The LA made clear that Professor David Fox (University of Edinburgh) will also participate in the group’s work and that he has given considerable thought to these matters, including the crucial issue of the application of intellectual property law to digital assets.   

Stephen Ingledew suggested that a helpful way of identifying the key challenges was begin the group’s work from a practical standpoint i.e. to work with Fintech Enterprises to understand in detail the real-life legal and business challenges they are facing. It was agreed that approaching the work from challenges posed by real-life examples would be useful. For example, one of the problems facing the industry is raising capital because there is insufficient legal clarity on whether it is possible to raise a security over Fintech.   

While other countries and jurisdictions (e.g. some of the US states) are also considering these matters, as yet none have provided a comprehensive solution. Allied to its existing strengths in digital and Fintech innovation, placing Scotland in a position where it has an effective legal framework in relation to digital assets would therefore place Scotland in a position of significant economic advantage.   

It was agreed that Scots law is less likely to be able to cope with questions relating to digital assets than English law. English common law is less prescriptive and with that comes more flexibility.   

It was agreed that, broadly speaking, there are two key legal challenges: 

• first, Scots property law is more prescriptive than English law about what counts as an asset. In the absence of the flexibility offered by English common laws, it is therefore unclear how the Scottish Courts would treat the question of crypto-assets
• second, we are likely to wait for a long time if we allow the Courts to clarify the position through case law. Such a delay may jeopardise what is a substantial economic opportunity for Scotland – legal clarity would encourage inward investment and allow products and services to be developed from a position of certainty and assurance

For these reasons it was discussed and agreed that it is imperative for the group to consider the question of whether a legislative solution is necessary and, if it is, what the appropriate vehicle might be. Equally, it was agreed that the group should be careful not assume that a new Bill may be required. 

If primary legislation is necessary (and it may well be) then there may be other legislative vehicles such as the Moveable Transactions Bill. In accordance with the Programme for Government, the Scottish Government will carry out a focused consultation on aspects of the Scottish Law Commission’s Report on Moveable Transactions which are currently being considered. The Minister supported this and underlined these points by making clear that the legislative calendar for the remainder of the Parliamentary term would be extremely tight.  

The Minister made the further point that it was important for the group consider both existing legislative challenges and those that may emerge in future. While the future of technology is difficult to predict, we know enough to make intelligent assumptions and should try to future proof our approach as much as is possible.    

There followed a detailed discussion of the UK Crypto-assets Taskforce and the extent to which the work it has already undertaken might offer the Scottish group a head start. The following was agreed: 

It would be useful for a member of the taskforce to attend the Scottish group to update on their work and to common challenges. There are also important question of scope – is the UK taskforce considering Scottish contracts and if so to what extent have they engaged Scottish expertise.   

The UK consultation posed pertinent questions that provide a useful starting point for the Scottish group. They have also conducted a literature review that may be helpful.   

There are case studies in the UK consultation that again act as a useful starting point. Can we generate additional case studies that may shed light on any gaps or other issues specifically relevant to Scots law? A good example may be intellectual property law. 

This information would provide a useful basis to discuss in more detail whether there ought to be a Scottish consultation and, if so, what its form and scope should be. Lord Hodge will likely have a view on these matters.    

It was observed that the UK taskforce has something of a head start not just in the UK but internationally. It is therefore possible that if the UK arrives at an effective legal solution, supported by the work of the Scottish group, then this could act as a model law for other countries. This is likely to be economically advantageous.  

Members agreed that a date should be identified for a further meeting prior to Christmas and that this date should ideally be suitable for the attendance of Lord Hodge and Professor Fox.    

Actions 

• all members to give further thought to identifying appropriate individual(s) specialising in technology enabled property transactions and send nominations to [redacted – s.38 – personal information]
• Stephen Ingledew to consider how best the group can engage with fintech companies with relevant legal challenges  
• Denise Swanson to have an initial discussion with officials leading on the Moveable Transactions Bill about whether their timelines might be favourable to the work of the group 
• Denise Swanson to invite a member of the taskforce to attend the Scottish group to provide an update on their work   
• Denise Swanson to approach the taskforce to request sight of both the consultation analysis and the literature review
• Stephen Ingledew to facilitate generation of case studies through his close links with the fintech sector   
• FCA to provide case studies on the different types of digital tokens that are emerging and different legal and regulatory challenges posed by each
• [redacted – s.38 – personal information], to ensure the possibility of a Scottish consultation is included as an agenda item at the next meeting
• [redacted – s.38 – personal information], to confirm Lord Hodge and Professor Fox’s availability for next meeting possibly before Christmas