- DIFC introduces a consultation for a new Digital Assets Law.
- An official definition for ‘Digital Assets’ has been provided, including a confirmation of its characterisation in the DIFC as intangible property.
- Existing DIFC laws have been amended to accommodate the increasing use of Digital Assets.
- A clear set of rules have been introduced to ascertain ownership of Digital Assets, where title is determined by who has control over the Digital Asset in question.
The Dubai International Financial Centre Authority (DIFCA) has issued a consultation paper on its proposal to enact a new Digital Assets Law (DAL) and to amend several existing DIFC laws to accommodate the legal features and consequences of the recognition of digital assets as a type of property. The consultation paper invites comments from interested stakeholders by 5 November 2023.
Legal nature of digital assets
The DAL aims to provide legal certainty and clarity on the foundational aspects of the legal nature and treatment of digital assets as a matter of property law, such as the definition, characterisation, acquisition, transfer, interference in the use, and recovery of digital assets. The draft DAL defines a digital asset as a thing:
(a) that exists as a notional quantity unit manifested by the combination of the active operation of software by a network of participants and network-instantiated data, independent of any particular person or legal system;
(b) that is not capable of duplication; and
(c) whose use or consumption by one or more persons necessarily prejudices its use or consumption by one or more other persons.
A digital asset is characterised as being intangible property, which is neither a thing in possession nor a thing in action. The consultation paper sets out a detailed explanation of the reasons for the position the DIFC has taken as regards the legal status of digital assets, which is in line with the position adopted by the Law Commission of England and Wales on the treatment of digital assets.
It is proposed that the DAL will adopt the principle that control is at the root of title to digital assets, and that a transfer of title requires a change of control and an intention to transfer title. The draft DAL further sets out the conditions for a person to have control of a digital asset, which include the exclusive ability to prevent others from obtaining substantially all the benefit from the digital asset, the ability to obtain substantially all the benefit from the digital asset, the exclusive ability to transfer those abilities to another person, and the ability to identify oneself as having those abilities. The draft DAL accommodates exceptions to the change of control requirement in situations involving death, insolvency, or incapacity, where the applicable law may provide for a transfer of title without a change of control.
Once issued, the DAL will establish a regime for the protection of digital asset owners against wrongful interference or impairment of use by third parties, which is based on the notion of an impairment of use that causes loss to the owner. The draft DAL provides for defences to an impairment claim, such as consent or the likelihood of consent by a reasonable person in the owner’s position. The draft DAL also allows an owner to recover control of a digital asset from a person who has no knowledge of the owner’s title.