Distributed Ledger Technologies (DLT) provides a huge potential for innovation, and change of the European economy. This has been acknowledged by the EU’s Blockchain Strategy and the intention of the ECB to roll-out digital euro (payment system based on DLT). A number of national and European regulatory actions are also trying to provide legal and commercial certainty to DLT users. In this context there are two main issues that need to be noted. The first one is that the EU position on DLT regulation is that everything should be allowed, and regulation should focus on voluntary standards. The second issue is enforcement on crypto assets, as the latter have functional differences between custodianship and ownership. In other words the custodians may not be able to comply with a court order, due to the technical architecture of the asset.
For the smooth functioning of the Single Market it is necessary for private creditors (commercial types of credit, invoices, bank lending, family, or inheritance) to be able to collect their dues from the borrowers. In the context of DLT the challenge is to have a coherent system that may be used by the creditors. The flip side of this challenge is from the perspective of DLT projects administrators, who should have the manual on how to proceed, should court sanctioned requests for enforcement on DLT assets come their way.
How standardisation activities help face the challenges
A voluntary standardisation could provide a manual of the actions that DLT administrators should take in advance, so they would be able to handle in swift and predictable manner private enforcement action. Those actions would be compliant and build upon a number of Union’s legislative tools (e.g. Regulation 1215/2012, Regulation (EC) No 593/2008, etc.), where already existing practices will be incorporated to provide coherence among off-chain and on-chain actions. Having in mind the multitude of technologies the voluntary standard is designed to be descriptive and provide a knowledge base for subsequent technical implementation by the DLT asset administrators.
Having a singular procedure for on and off-chain private enforceability actions, singular documentation, requirements and steps will be a substantial benefit for the Digital Transition of the European economy. This will make it easier for the EU citizens to pursue activities across the Single market, will foster credit flaws and allow easier access to justice. From the perspective of DLT administrators it will provide a clear view of the needed actions and will reduce substantially the legal expenses they would need to incur to comply with the legislation.
We are looking forward to implementing the proposed voluntary standard within the OttCT project - enhancing investors’ protections on DLT assets. Further, we will start looking towards building detailed technical implementation of the proposed voluntary standard or elements of it.