Introduction
The new Digital Assets Law No 2 of 2024 (the Digital Assets Law) was enacted in the Dubai International Financial Centre (DIFC) on 8 March 2024, alongside significant supporting amendments to existing legislation.
The Digital Assets Law sets out the legal characteristics of digital assets for the purposes of property law, and specifies how digital assets may be controlled, transferred and dealt with by parties.
The changes follow a public consultation by way of Consultation Paper No. 4 in September 2023 and an extensive benchmarking by the DIFC of the legal approaches taken to digital assets in multiple jurisdictions. The legislation significantly enhances the DIFC's securities regime and brings greater clarity, certainty and security for digital asset investors and users.
Digital Assets
Digital Assets are a growing asset class with a considerable scope for future innovation and new market opportunities, particularly in asset tokenisation. However, there has been a lack of certainty regarding the precise legal nature of Digital Assets as far as legislation is concerned. Of course, courts across the common law world have, to some extent, recognised Digital Assets as property – but these judgments are not binding in the DIFC. This is the problem that the DIFC has set out to solve through the Digital Assets Law.
Section 8 of the Digital Assets Law sets out to solve this problem by clearly defining a Digital Asset as a thing that:
"(a) 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;
(b) exists independently of any particular person and legal system; and
(c)is not capable of duplication and use or consumption of the thing by one person or specific group of persons necessarily prejudices the use or consumption of that thing by one or more other persons."
Section 9 of the Digital Assets Law further provides that a Digital Asset is intangible property, something that is neither a thing in possession nor a thing in action. The Digital Assets law also sets out the conditions required for a person to be considered to have control of a Digital Asset, and how title can pass.
These changes are significant and represent the first time that clarity as to the legal nature of Digital Assets has been provided in the form of legislation. The changes will serve to make the DIFC a more attractive jurisdiction for those in the blockchain infrastructure sector.
Other Notable Changes
- The Digital Assets law provides consequential amendments to the Contract Law of the DIFC to introduce the concept of "Coded Contracts" which are essentially self-executing contracts commonly used as an application of blockchain technology.
- The Digital Assets Law also provides consequential amendments to the Law of Obligations. These amendments introduce a variety of novel concepts such as an "Electronic Trade Document" particularly when such documents are in the form of a Digital Asset. This will have an impact on entities in the international trade and shipping sectors.
- The law also contains general rules regarding title, transfer of title and the exercise of rights over digital assets in the event of death, incapacity or insolvency.
- The Digital Assets Law includes provisions on the control of a digital asset where there is an impairment, and provisions on how control of a digital asset can be recovered. This may have an impact on the asset recovery space and may open an avenue to opportunities for litigation through a new cause of action.
- The Law of Security enacted in 2005 has been repealed and will be replaced by a new Law of Security. This regime will be more aligned with the UNCITRAL's Model Law on Secured Transaction and introduces the concept of Digital Assets.
Legislative Amendments
Numerous laws have been amended to cater to specific issues arising in relation to Digital Assets, including:
- Contracts Law;
- Implied Terms in Contracts and Unfair Terms Law;
- Insolvency Law;
- Law of Obligations;
- Law of Security;
- Law of Damages and Remedies;
- Personal Property Law;
- Trust Law; and
- Foundations Law.
Summary
The new laws reflect the DIFC's commitment to maintaining a transparent and robust legal and regulatory framework aligned with global best practice. The legislation is designed to keep pace with the rapid developments in the digital asset space and international trade and financial markets and reflects the DIFC's desire to support growth in these areas by providing greater legal certainty for investors and users.
The new Digital Assets Law can be accessed via the DIFC's Legislative Database here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.