Written by: Andy Phillips, General Counsel
In July 2022, the Uniform Law Commission (ULC) and the American Law Institute (ALI) proposed a set of amendments to the Uniform Commercial Code (UCC) regarding digital assets and technologies. Fast forward to now and the state of New York, the financial capital of the world, is deciding whether it will adopt these important amendments before the end of the legislative session this June.
Historically, New York commercial and financial law has been preferred by businesses and financial institutions because of the way it supports freedom of contract and the negotiability of commercial instruments. New York is a prime location for paper-based commercial, financial and other business transactions, and LiquidX wants this to continue.
The amendments embrace the shift toward a digital-forward business world. They are designed to modernize the state’s commercial laws to account for the growing importance of digital assets.
LiquidX fully supports these amendments, as our focus is on digitizing the trade finance market. We have been moving in this direction since we know this will increase the efficiency of trade transactions, improve the value proposition to all parties and expand the availability to more companies. To that end, we have submitted our own letter to the NY legislature in the hopes that our expertise and unique market knowledge will help to show the real-life value of these changes.
“In embracing today’s digital age, these amendments will help New York continue to remain a competitive jurisdiction for businesses involved in digital asset transactions,” said LiquidX CEO Art Certosimo. “This would bring tremendous value to the market while allowing New York to maintain its prestigious position.”
What You Need to Know about the Changes Being Made
New York’s UCC sets forth a number of rules governing commercial business transactions, including the sale of goods between parties. Below is a breakdown of the amendments to New York’s UCC and their benefits:
Digital assets: The amendments introduce a new class of assets called controllable electronic records (CERs), which include digital assets such as electronic invoices. The amendments allow for the creation and use of electronic negotiable instruments (e.g., electronic promissory notes) and electronic documents of title (e.g., electronic bills of lading aka invoices). These electronic documents can be used in trade finance transactions, streamlining processes and reducing reliance on paper.
The amendments establish a structured set of guidelines for the transfer, acquisition and perfection of security interests in these digital assets, bringing greater legal clarity and making digital asset transactions more secure.
Jurisdiction and governance: The amendments allow for transactions involving digital assets to choose New York law to govern the applicable legal agreements and select New York as the venue for adjudicating disputes, reinforcing New York’s position as a leading commercial hub. This is particularly important since by aligning New York with other states with similar amendments, the amendments encourage businesses to prefer New York for their digital asset transactions.
When it comes to multinational and international market participants, the amendments will encourage participants to choose New York law over other jurisdictions. Other countries, such as England, are making changes to their commercial laws to account for emerging technologies and electronic transactions, while New York has yet to.
Choice of law: The amendments clarify the choice-of-law rules applicable to CERs. The jurisdiction governing a CER is determined by its location as stated within the record, the system in which it is recorded, or by default, Washington, D.C. if no jurisdiction is specified. This provision aims to reduce legal uncertainties in multi-jurisdictional digital transactions.
Technological and commercial advancements: These amendments will help New York lower transactional costs, enhance efficiency and provide greater certainty and security for commercial and financial transactions. This will attract more businesses to use New York as their jurisdiction for electronic commerce, encouraging the eventual technological and commercial advances in the market.
Adaptation period: The amendments accommodate a one-year adjustment period to ensure secured creditors can smoothly adapt to the new rules and all parties involved in existing transactions can renegotiate terms and ensure compliance with the new law.
As more states––currently almost two dozen and D.C.––enact the amendments, New York’s position as the global financial leader is threatened. LiquidX is in full support of the amendments and the benefits they can offer to the market.
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