Report: Distributed Ledger Technology and Governing Law: 27 March 2018

Distributed Ledger Technology (“DLT”) systems involve databases that are shared across digital networks. DLT systems are decentralised, borderless and span several jurisdictions, which can often lead to issues of legal uncertainty. Market infrastructures, regulated firms, members of the public and others conducting transactions might be left vulnerable to multiple—and potentially inconsistent—assertions of governing law. Such issues often stem from the lack of clarity as to where assets and their records are located in a DLT environment. The increase in potential applications of DLT in the financial markets has heightened the need for the development of an international conflict of laws framework for financial transactions and certain DLT applications.

This FMLC paper, entitled Distributed Ledger Technology and Governing Law: Issues of Legal Uncertainty, examines governing law and related conflicts of law issues in the context of DLT systems. The paper outlines possible connecting factors to be used when identifying the governing law for the proprietary effects of transactions conducted on a DLT system, and sets out the FMLC’s recommended solution. The FMLC further recommends that any solution is promulgated by a body such as the Hague Convention, UNIDROIT or ISDA, in order to ensure that it is adhered to on an international basis.

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