The Dubai International Financial Centre (DIFC) introduced the new Digital Assets Law No. 2 of 2024 (the Digital Assets Law), along with significant amendments to existing legislation. This law defines digital assets in the context of property law and outlines how these assets can be controlled, transferred, and managed.
Background and Purpose
The enactment of the Digital Assets Law follows a public consultation initiated by Consultation Paper No. 4 of September 2023 and a thorough benchmarking exercise by the DIFC, comparing legal approaches to digital assets across various jurisdictions. The new legislation substantially enhances the DIFC’s securities regime, providing greater clarity, certainty, and security for digital asset investors and users.
Defining Digital Assets
Digital assets represent a rapidly growing asset class with significant potential for future innovation and market opportunities, particularly in asset tokenization, previously covered by United Advocates. However, legal uncertainty has surrounded the precise nature of digital assets. While courts in common law jurisdictions have recognized digital assets as property to some extent, these judgments are not binding in the DIFC. The Digital Assets Law addresses this issue by providing a clear legal definition.
Legal Definition and Characteristics
The Digital Assets Law defines a digital asset as an entity that:
- Exists as a notional quantity unit created by the active operation of software by a network of participants and network-instantiated data.
- Exists independently of any specific person and legal system.
- Cannot be duplicated, and its use or consumption by one person necessarily affects its use or consumption by others.
Section 9 further categorizes digital assets as intangible property, which is neither a thing in possession nor a thing in action. The law also specifies the conditions under which a person is considered to have control over a digital asset and how ownership can be transferred.
Impact on the DIFC and Blockchain Sector
These legislative changes are groundbreaking, providing the first clear legal definition of digital assets in the form of legislation. This development positions the DIFC as a more attractive jurisdiction for participants in the blockchain infrastructure sector.
Other Significant Amendments
The Digital Assets Law introduces several notable changes to existing DIFC legislation:
- Contracts Law Incorporates the concept of “Coded Contracts,” which are self-executing contracts commonly used in blockchain technology.
- Law of Obligations Introduces “Electronic Trade Documents” when such documents are digital assets, impacting international trade and shipping sectors.
- General Rules Establishes rules regarding title, transfer of title, and the exercise of rights over digital assets in events such as death, incapacity, or insolvency.
- Control and Recovery Includes provisions for controlling digital assets in cases of impairment and recovering control, impacting the asset recovery space and potentially opening new avenues for litigation.
Replacement of Law of Security
The existing Law of Security enacted in 2005 has been repealed and will be replaced by a new Law of Security aligned with UNCITRAL’s Model Law on Secured Transactions, incorporating the concept of digital assets.
Legislative Amendments
Various laws have been amended to address specific issues related 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
- Foundations Law
Summary
The new Digital Assets Law reflects the DIFC’s commitment to maintaining a transparent and robust legal and regulatory framework aligned with the best global practices. This legislation aims to keep pace with rapid developments in the digital asset space and international trade and financial markets, offering greater legal certainty for investors and users.