The preliminary draft of the #Blockchain/DLT legislation and in particular the concept of introducing #Token as instruments similar to securities is altogether well done and target-oriented.
There is, however, a need for improvement in legal technical and systematic terms, in particular with regard to the designation of the new uncertificated securities (Wertrechte) and the requirements for the new uncertificated securities register (Wertrechteregister) and the conditions for the application of the new provisions.
The scientific review and concrete proposals for adaptation can be found in our Jusletter IT article of 23 May 2019 (in german, here).
Description of the new uncertificated security (Wertrecht)
Although distributed ledger systems are at the forefront of the digitisation of securities, the use of terms such as “distributed electronic register” or “distributed ledger technology” (DLT) must be avoided in order to create technology-neutral regulation.
The uncertificated securities referred to in the preliminary draft as “DLT-Wertrechte” are to have the same effects as instruments to order or bearer securities (Ordre- oder Inhaberpapiere), which in conventional securities law doctrine are referred to as “securities of public faith” (Wertpapiere öffentlichen Glaubens). In contrast, uncertificated securities under Art. 973c OR correspond to securities in the broader sense, which can only be transferred by assignment.
Accordingly, a distinction could be made between ” uncertificated securities ” (Wertrechte; Art. 973c OR) and ” uncertificated securities with public faith ” (Wertrechte mit öffentlichem Glauben; Art. 973d ff. VE).
Requirements for the new register of uncertificated securities (Wertrechteregister)
The register of uncertificated securities must satisfy qualified requirements regarding the accuracy of the entry in order to justify the far-reaching legal effects of the public faith. These requirements can and must be derived from the fact that the register of uncertificated securities as an information carrier must be equivalent to the physical certificate. This logic (under securities law) gives rise to the following two mandatory conditions of application, which must be reflected in the law:
Resistance to manipulation: The register of uncertificated securities must be technically designed in such a way that no unauthorised intervention is possible, in particular by the debtor or system operator.
Publicity: Because the register of uncertificated securities records absolute rights and dispositions on absolute rights, it must guarantee a minimum of publicity. The object of publicity is the creditor’s legal position. Similar to the presentation of a certificated security (Wertpapier), creditors must be able to prove their legal position independently to any third party. Conversely, it is not necessary that the identity of the subject is directly apparent from the entry in the register; it can also result from interaction with other sources of information. Similarly, from a securities law point of view, it is not necessary for the general public to have access to the register. It is sufficient if this applies to the current holder of the uncertificated security as well as potential purchasers. Furthermore, it is also not mandatory that every order be represented in the register, especially since indirect methods of transfer (e.g. via a sub-register) are also likely to be used on a regular basis in view of further technical developments.
Further requirements (giving rise to liability)
Only the two requirements described above should be defined by the law as preconditions for the application of Art. 973d et seq. of the Swiss Code of Obligations, i.e. decisive for qualification as an uncertificated security with public faith. All other requirements, on the other hand, should be defined as obligations of the person obliged under the uncertificated security right (issuer, debtor) whose non-compliance may give rise to liability. The following two aspects, for example, can be defined as such “only” requirements that give rise to liability:
Functional reliability: Guarantee that the system used (platform, application, etc.) is suitable to perform the functions promised by the issuer.
Transparency: the issuer’s obligation to provide potential purchasers of uncertificated securities with essential information on the functioning of the register and any associated risks.
Further requirements for a register of uncertificated securities may result from financial market law (or other supervisory legal acts), which in any case allow more precise and agile regulation than through codification in the Swiss Code of Obligations.
Read the corresponding Statement of the SFTI working group Regulations in German
Entwicklungen der Technik verteilter elektronischer Register_SFTI Stellungnahme