Amendments to the US commercial code exclude crypto from electronic money category
The Union Law Commission prescribed all states to enact the new amendments to boost the growth of the digital economy
By Shashank Bhardwaj
The Uniform Commercial Code (UCC) was amended by a joint committee of the United States’ Uniform Law Commission (ULC) and the American Law Institute (ALI). The new amendments will address the peculiarities and nuances of digital asset transactions, as well as the regulation of crypto-as-collateral secured financings.
Prior to the amendments, secured creditors faced difficult perfection issues under UCC Article 9 in connection with liens in crypto, other digital assets, and electronic contract rights. It was primarily affecting contracts in which the secured creditor has exclusive electronic access and other rights in connection with its lien. Due to a lack of clarity and uniformity, the myriad of unresolved legal questions hampered the growth of the digital economy.
The new amendments include the introduction of ‘controllable electronic records’ (CERs). It will cover not only existing blockchain-backed assets but also all future types of digital assets. A controllable electronic record is a ‘record stored in an electronic medium.’ They will include crypto assets as well as nonfungible tokens (NFTs).
However, according to analysts, CERs, “…specifically excludes, among other things, “electronic money,” electronic records of promissory note debt (“controllable payment intangibles”), and electronic records of accounts receivable (“controllable accounts”).”
The ULC approved a final draft of the joint ULC-ALI Emerging Technologies Committee (ETC) amendments to the UCC at its annual meeting on July 8-13. The key updates for the crypto industry appeared in Articles 3 and 9, and the new Article 12 also includes a number of pertinent details. Article 12 defines various digital asset classes and establishes ground rules for crypto-backed secured financings. It proposes a number of changes to existing Article 9 and Article 3. Article 9 deals with secured transactions, while Article 3 deals with negotiable instruments. Article 12 describes controllable electronic records.
The amendments also include the revised category of money, ‘electronic money.’ It represents digital fiat currencies. Thus, despite the exclusion of crypto, central bank digital currencies (CBDCs) may be considered ‘electronic money’ under the new guidelines. Articles 9-107A and 12-105 are also specified in the amendments. According to these articles, in order to be first-priority perfected in crypto collateral, a lender must obtain its borrower’s private key and transfer the crypto to a wallet solely controlled by the lender or custodian.
The amendments are ‘recommended for enactment in all states.’ However, the final implementation may differ from one state to another. The UCC amendments come after a handful of states passed non-uniform statutes attempting to define and regulate interests in digital assets. These states include Wyoming, Kentucky, Idaho, and Tennessee. Most state legislatures are expected to adopt the ETC’s proposed amendments. However, the timelines will vary by state.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash