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06 May 2021
A look of dis­ap­prov­al: the FCA’s new dis­cus­sion pa­per on fin­an­cial pro­mo­tions...
On 29 April 2021, the Fin­an­cial Con­duct Au­thor­ity (“FCA”) pub­lished a Dis­cus­sion Pa­per DP21/1 con­cern­ing the pro­posed strength­en­ing of the fin­an­cial pro­mo­tion rules for high-risk in­vest­ments and firms...
06 May 2021
A look of dis­ap­prov­al: the FCA’s new dis­cus­sion pa­per on fin­an­cial pro­mo­tions...
On 29 April 2021, the Fin­an­cial Con­duct Au­thor­ity (“FCA”) pub­lished a Dis­cus­sion Pa­per DP21/1 con­cern­ing the pro­posed strength­en­ing of the fin­an­cial pro­mo­tion rules for high-risk in­vest­ments and firms...
5 May 2021
CMS named CEE Law Firm of the Year at Cham­bers Europe Awards 2021
In­ter­na­tion­al law firm CMS has been named CEE Law Firm of the Year at the Cham­bers Europe Awards, where CMS has once again been re­cog­nised as the lead­ing law firm in Cent­ral and East­ern Europe.The Cham­bers...
05 May 2021
SNP pledge to sim­pli­fy the con­sent­ing pro­cess for sal­mon farms
The Pledge The SNP Mani­festo has out­lined pro­pos­als for how they aim to bring “great­er clar­ity, trans­par­ency and speed to the pro­cess” should they form the next Scot­tish Gov­ern­ment. So far the pro­posed...
05 May 2021
Con­sumer cred­it firms: changes to SECCI im­min­ent
As pre­vi­ously re­por­ted, con­sumer cred­it firms must make changes to their pre-con­tract con­sumer cred­it in­form­a­tion forms. These changes are now im­min­ent and must be made from 1 June 2021. Which firms are...
05 May 2021
Con­sumer cred­it firms: changes to SECCI im­min­ent
As pre­vi­ously re­por­ted, con­sumer cred­it firms must make changes to their pre-con­tract con­sumer cred­it in­form­a­tion forms. These changes are now im­min­ent and must be made from 1 June 2021. Which firms are...
05 May 2021
EU Com­mis­sion pro­poses new in­vest­ig­at­ive re­view tools to tackle mar­ket...
On 5 May 2021, the European Com­mis­sion pro­posed the Reg­u­la­tion of the European Par­lia­ment and of the Coun­cil on for­eign sub­sidies dis­tort­ing the in­tern­al mar­ket (For­eign Sub­sidies Reg­u­la­tion or FSR) to...
May 2021
CMS we­binars on de­mand
Catch up on the latest leg­al changes with re­cord­ings from our re­cent we­binars To help you stay up to date with changes in law and reg­u­la­tion, CMS hosts reg­u­lar we­binars and pod­casts on a range of top­ic...
4 May 2021
Brexit brief­ing: What is the im­pact on elec­tron­ic sig­na­ture laws in the...
Con­sumers and busi­nesses in the UK routinely use EU-based e-sign­ing plat­forms to sign elec­tron­ic doc­u­ments. Plat­forms have grown in im­port­ance as so­cial dis­tan­cing re­stric­tions to com­bat COV­ID-19 have...
04 May 2021
Lim­it­a­tion of li­ab­il­ity in con­struc­tion con­tracts: the rel­ev­ance of in­ten­tion­al...
A re­cent TCC de­cision has con­sidered the in­ter­pret­a­tion of gen­er­al ex­clu­sions and lim­it­a­tions of li­ab­il­ity and seeks to re­solve con­flict­ing case law as to wheth­er any in­ter­pret­at­ive pre­sump­tion ex­ists...
04 May 2021
With Il­lu­mina ac­tion, court to test EU Com­mis­sion's new mer­ger re­fer­ral...
On 29 April 2021, the US life sci­ences com­pany Il­lu­mina con­firmed that it filed an ac­tion be­fore the EU courts ask­ing for an an­nul­ment of the European Com­mis­sion’s de­cision of 19 April 2021 to ac­cept...
30 April 2021
The guide to NFTs – sold as an NFT
What is an NFT? We sus­pect that if you’re read­ing this, then you’ve prob­ably at least heard of Bit­coin or Eth­er be­fore.What about tokens? Some­where across the in­ter­net (or life, but prob­ably the in­ter­net) people may have used the term ‘token’ to de­scribe crypto­cur­ren­cies like Bit­coin and Eth­er. It’s un­der­stand­able — but it’s not strictly true as there are some dif­fer­ences between tokens and crypto­cur­ren­cies like BTC and ETH.Pop­u­lar cryp­tos such as BTC and ETH run on their own block­chain. Con­versely, tokens are nat­ive cur­ren­cies which are cre­ated/dis­trib­uted as part of pro­jects which piggy­back off an­oth­er block­chain. Those pro­jects ef­fect­ively use that par­tic­u­lar block­chain as a host in­stead of run­ning off its own main­net. Oh, and it’s im­port­ant to re­mem­ber that tokens is­sued on the block­chain are di­git­al rep­res­ent­a­tions of a wide range of as­sets — you can’t phys­ic­ally touch these as­sets be­cause they live in the di­git­al world. In fact, cryp­tos like BTC and ETH are ex­actly the same. But you already knew that.The Eth­ereum block­chain is a real hot­spot for these types of pro­jects: Dapps (or if you’re really mad at it you can call it by its full name, dis­trib­uted apps).You may have heard this one really cool fea­ture of block­chain tech — that it provides real trans­par­ency over the pro­cess of re­cord­ing trans­ac­tions. We say real trans­par­ency, be­cause once you up­load in­form­a­tion on the block­chain, it’s there un­til the end of time for every­one to see and gives some ser­i­ous mean­ing to #no­fil­ter. But there’s an­oth­er cool thing that the Eth­ereum block­chain is known for: smart con­tracts. Without smart con­tracts, there are no Dapps, and hon­estly, what’s a world without Dapps?Here’s an­oth­er piece to the Eth­ereum/Dapps puzzle — there are a bunch of dif­fer­ent com­puters around the world called val­id­at­ors which are giv­en the job of val­id­at­ing all trans­ac­tions that go through the block­chain. This job is very en­ergy in­tens­ive so any­one who par­ti­cip­ates in keep­ing the (block­chain) com­munity thriv­ing is giv­en an in­cent­ive to do so. Enter tokens.When a val­id­at­or — let’s call it Bob — val­id­ates a trans­ac­tion, Bob gets giv­en a re­ward for car­ry­ing out that task. This re­ward is in the form of the nat­ive cryp­to­graph­ic token of a par­tic­u­lar pro­ject. If, for ex­ample, Bob par­ti­cip­ates in val­id­at­ing a trans­ac­tion for the Uniswap pro­tocol, it’ll re­ceive UNI tokens in re­turn. Like­wise, if it does the same thing for an­oth­er pro­ject, say Chain­Link, then it gets LINK as a re­ward. Both UNI and LINK are fun­gible tokens — tokens which are in­ter­change­able with oth­er as­sets of a sim­il­ar type. Say, for in­stance, you’re hanging out with a friend at a res­taur­ant, you both have some din­ner and a few bevs, and the wait­ing staff wants to kick you out be­cause it’s clos­ing time so they subtly hint at you by com­ing over with the card ma­chine. To make things sim­pler, you pay for the bill us­ing your card, but then straight after, you ping over a ‘split the bill’ re­quest on Monzo to your friend. Your friend could de­cide to trans­fer the money to you in one go — but they could equally de­cide to pay you in 2 sep­ar­ate pay­ments. The value of what they send to you to pay for their half of the bill doesn’t di­min­ish be­cause of the sep­ar­ate pay­ments. In fact, they could, in the­ory, pay you in 10 sep­ar­ate pay­ments and the value would still be the same. This is what we mean by fun­gib­il­ity.There is an­oth­er set of tokens how­ever, which don’t quite work in the same way: the non-fun­gible token or ‘NFTs’. These tokens de­rive their value from their unique­ness, or as they’re widely known by the main­stream press, their ca­pa­city to be­come a sought-after col­lect­ible — think Faber­gé egg; think Poké­mon cards; think old school com­ic book col­lect­ibles… but di­git­al. You can’t split these as­sets in­to dif­fer­ent parts, nor can you ex­change it for an­oth­er type of as­set. If you did, it just wouldn’t have the same value. It would be like claim­ing that the pristine 1938 Ac­tion Com­ics №1 copy that sold in 2014 for $3.2mil­lion is the same as a non-pristine copy, or is the same as a copy of Ac­tion Com­ics №2… just, no.Col­lect­ibles can be fun, ex­cit­ing, and own­ing a rare item on a very ba­sic level, does things to hu­man psy­cho­logy. But there are oth­er use cases for NFTs too, which is ex­plored be­low — don’t worry though, as we’ll briefly touch on some oth­er fun ex­amples in the col­lect­ibles space too. Ap­plic­a­tions Non-col­lect­ible use case­s­Cer­ti­fied Doc­u­ments. Cer­ti­fic­ates can be faked, and some­times they’re so good that you can’t even tell they’re coun­ter­feit. Up­load­ing cer­ti­fic­a­tion de­tails on the block­chain and check­ing the NFT dis­trib­uted against that in­form­a­tion is a great way to en­sure a cer­ti­fic­ate’s eli­gib­il­ity.Sports. Sim­il­ar to cer­ti­fic­ates, fraud­u­lent sports tick­et sales have been an is­sue for some time. Tick­et sales by way of NFTs helps to make sure that fans are get­ting genu­ine tick­ets, which they can veri­fy on the block­chain. Ad­di­tion­ally, there are also col­lect­ible use cases for sports from di­git­al col­lect­ibles to NFT-backed sports fantasy games.Loy­alty Points. The concept of re­ward tokens isn’t new — Mc­Don­ald’s, for in­stance, gives you a loy­alty card for hot drinks. 6 stick­ers on your loy­alty card and you can go get your­self a hot drink on the house. These cards can be eas­ily mis­placed though. The loy­alty points NFT use case isn’t par­tic­u­larly look­ing to do any­thing nov­el — it just means that if your loy­alty points are dis­trib­uted by way of NFTs, you can’t mis­place your points be­cause it’s already on the block­chain, which you just can’t really lose.Art. And Memes. Do Memes count as art? A self-por­trait of Sophia the Ro­bot cre­ated in col­lab­or­a­tion with Itali­an artist An­drea Bon­aceto re­cently sold for nearly $700,000. Plus, the Overly At­tached Girl­friend meme re­cently sold for $411,000. Yup, you read both cor­rectly. A ro­bot and a meme. Lit­er­ally.Mu­sic. Lind­sey Lo­han re­cently partnered with Tron to re­lease her new single “Lul­laby” by auc­tion. Not long be­fore that, Kings of Le­on re­leased their al­bum “When You See Your­self” as NFTs. They re­leased three types: one which rep­res­ents a spe­cial al­bum pack­age, one which of­fers ad­vant­ages dur­ing live shows such as front-row seats, and an­oth­er which rep­res­ents ex­clus­ive au­di­ovisu­al art.Fine Wine. OpenSea, a mar­ket­place for di­git­al col­lect­ibles, has brought fine wine trad­ing to its plat­form. It al­lows par­ti­cipants to trade fine wine via NFTs and re­deem the phys­ic­al bottles at the end of each sale. In­tel­lec­tu­al Prop­erty When you buy a book, you do not ex­pect to own the copy­right in the lit­er­ary work which is between the cov­ers. All you have is the phys­ic­al copy and, un­der a copy­right concept called “ex­haus­tion”, you can sell that copy without any need to ob­tain the cre­at­or’s ap­prov­al.Even be­fore you move in­to the world of NFTs, buy­ing a piece of di­git­al con­tent is dif­fer­ent. What you are ac­tu­ally buy­ing is a li­cence to down­load/stream the con­tent and use it in the ways defined by the li­cence. So, I may be able to share e-books I buy with oth­er mem­bers of my fam­ily, if that is how the e-book sys­tem is con­figured but I can’t re-sell them once I have read them.So buy­ing an NFT is, in IP terms, like buy­ing any oth­er piece of di­git­al con­tent, in that my right to any copy­right ma­ter­i­al in the NFT is defined by the li­cence; the dif­fer­ence be­ing that with an NFT, the li­cence is also locked in­to the token and val­id­ated through the block­chain.From the per­spect­ive of the NFT cre­at­or, it is there­fore im­port­ant to en­sure that you own whatever you are pur­port­ing to grant a li­cence for. And own­er­ship of con­tent is not al­ways straight­for­ward — for ex­ample, take a mu­sic col­lect­ible NFT fea­tur­ing some art­work and a sound re­cord­ing. The art­work is likely owned by the cre­at­or of that art (or the per­son who com­mis­sioned it, if they drew up a suit­able con­tract). The sound re­cord­ing will typ­ic­ally be owned by the re­cord la­bel and the copy­right in the songs which are re­cor­ded for the sound re­cord­ing will be owned by the mu­sic pub­lish­ers (of­ten a song will have mul­tiple song­writers, each rep­res­en­ted by a dif­fer­ent pub­lish­er). So, in or­der to launch the NFT, you will need deals with all of these people, all of whom will want both a com­mer­cial be­ne­fit and they may also want to en­sure their cre­at­ive in­teg­rity is re­spec­ted.At the oth­er end of the spec­trum, there is no reas­on why an NFT could not be used to sell frac­tion­al own­er­ship of some IP rights — a form of se­cur­it­isa­tion, which will no doubt be ex­plored in the com­ing weeks and months. Fin­an­cial Reg­u­la­tion Al­though the reg­u­la­tion of crypto is very new, it was de­veloped be­fore the re­cent ex­plo­sion in pop­ular­ity of NFTs. As a res­ult, NFTs are not spe­cific­ally ad­dressed in the cur­rent laws or policies. However, this does not mean that they are not reg­u­lated. But it also does not mean that they are reg­u­lated. #Con­fused? You should be!The non-fun­gible char­ac­ter of a token will not af­fect its reg­u­lat­ory status. It is the oth­er char­ac­ter­ist­ics and func­tion of the token that will de­term­ine if and how it is reg­u­lated.If a token has char­ac­ter­ist­ics sim­il­ar to those of tra­di­tion­al se­cur­it­ies, like shares, deben­tures or units in a col­lect­ive in­vest­ment scheme, it will be con­sidered a “se­cur­ity token”. A token which func­tions as elec­tron­ic money will be con­sidered an “e-money token”. Busi­nesses con­duct­ing activ­it­ies con­nec­ted to these “reg­u­lated tokens”, such as is­sue, sale or mar­ket­ing, will be reg­u­lated by the Fin­an­cial Con­duct Au­thor­ity (FCA) in the same way as tra­di­tion­al fin­an­cial ser­vices pro­viders.If the token does not con­fer any rights on the own­er, oth­er than the abil­ity to hold, buy or sell, then it will be con­sidered an “ex­change token” and will not be reg­u­lated. If the token con­fers rights to ob­tain goods or ser­vices, in­clud­ing rights to oth­er tokens, it will be con­sidered a “util­ity token” and will not be reg­u­lated. If a token com­bines the char­ac­ter­ist­ics of an “ex­change token” and a “util­ity token”, it will also be un­reg­u­lated.Most com­mon crypto­cur­ren­cies, in­clud­ing BTC and ETH, are con­sidered to be ex­change and/or util­ity tokens and as such they are un­reg­u­lated.So where do NFTs fit in? The NFTs in the use cases dis­cussed above (col­lect­ibles and non-col­lect­ibles) will fall in­to the ex­change and/or util­ity token cat­egor­ies and so will be un­reg­u­lated. But in the­ory an NFT could have char­ac­ter­ist­ics sim­il­ar to those of tra­di­tion­al se­cur­it­ies, in which case it would be reg­u­lated as a se­cur­ity. It is very un­likely that an NFT could have the char­ac­ter­ist­ics of e-money, as fun­gib­il­ity is an es­sen­tial char­ac­ter­ist­ic of money. AML Reg­u­la­tion In gen­er­al, if a busi­ness provides the ser­vices of ex­change or cus­tody of crypto, it will be sub­ject to the Money Laun­der­ing Reg­u­la­tions (MLRs). Such a busi­ness must be re­gistered with the FCA, per­form KYC checks on its cus­tom­ers and mon­it­or their trans­ac­tions, along with oth­er AML re­quire­ments. “Ex­change” ap­pears to cov­er any busi­ness that sells cryp­tos to cus­tom­ers in re­turn for fi­at or crypto, in­clud­ing where the busi­ness also cre­ates or is­sues the crypto. “Cus­tody” in­cludes a busi­ness hold­ing crypto on be­half of cus­tom­ers or hold­ing their private keys. Busi­nesses that only provide un­hos­ted (non-cus­todi­al) wal­lets or soft­ware are not sub­ject to AML re­quire­ments.As with the fin­an­cial reg­u­la­tion dis­cussed above, NFTs are not ex­pli­citly in­cluded or ex­cluded from the MLRs. The defin­i­tion of “cryptoasset” in the MLRs is “a cryp­to­graph­ic­ally se­cured di­git­al rep­res­ent­a­tion of value or con­trac­tu­al rights that uses a form of dis­trib­uted ledger tech­no­logy and can be trans­ferred, stored or traded elec­tron­ic­ally”. An NFT could fit in­to this defin­i­tion or not, de­pend­ing on its char­ac­ter­ist­ics, and it ap­pears the de­term­in­ing factor would be wheth­er it is a “rep­res­ent­a­tion of value or con­trac­tu­al rights”. For ex­ample, a sports tick­et would rep­res­ent­a­tion of the con­trac­tu­al right to at­tend the event. A di­git­al art­work, like a meme, might not ne­ces­sar­ily rep­res­ent any value or con­trac­tu­al rights.However, a re­cent con­sulta­tion from HM Treas­ury on crypto reg­u­la­tion sug­gests that it views the MLRs defin­i­tion as in­clud­ing NFTs in prin­ciple. Hope­fully the po­s­i­tion will be cla­ri­fied by the reg­u­lat­ors soon. For now, wheth­er a par­tic­u­lar NFT is sub­ject to the MLRs will need to be de­term­ined on a case-by-case basis, look­ing at both the token it­self and the busi­ness that is provid­ing ex­change or cus­tody for it. NFTs and Emtech Trans­ac­tions Many fea­tures of Emtech trans­ac­tions that law­yers work on are fea­tures of NFTs. For ex­ample, NFTs:can be pro­gram­mable con­tracts (also known as smart con­tracts). They can be set up to deal neatly with the as­pir­a­tion of cre­at­ors to con­tin­ue to be­ne­fit from the com­mer­cial life of their work. For ex­ample, the token can have terms that will auto­mat­ic­ally pay a share of fu­ture sale pro­ceeds to the ori­gin­al cre­at­or. Leg­al takeaway — smart con­tracts are cap­able of giv­ing rise to bind­ing leg­al ob­lig­a­tions un­der Eng­lish (and oth­er jur­is­dic­tions’) law. But, they still need to sat­is­fy the tra­di­tion­al rules on form­a­tion of con­tracts (parties, en­ter­ing in­to a bar­gain, in­ten­ded to be en­force­able against them, with terms that are clear enough to an out­sider, and not of­fend­ing against any man­dat­ory rules of pub­lic policy). And, this re­quires some leg­al ana­lys­is of smart con­tracts (how they: split between nat­ur­al lan­guage and code, deal with mar­ket­ing rep­res­ent­a­tions, in­ter­act with laws on sale of goods, are in­ter­preted, are signed, deal with gov­ern­ing law and jur­is­dic­tion).over­come the ques­tion of rem­ed­ies and smart con­tracts. Pro­gram­mable con­tracts in­cor­por­ate the trans­fer of value. They there­fore don’t need to be “en­forced” in prac­tice through court ac­tion. Leg­al takeaway — rem­ed­ies for deals gone south will rely less on con­trac­tu­al dam­ages and more on rem­ed­ies from pre-con­tract deal­ings, torts, in­solv­ency rules and equity.can be used as col­lat­er­al. They there­fore ex­tend the mar­ket for al­tern­at­ive as­set lend­ing. There is a small but ex­pert group of lenders already provid­ing li­quid­ity against (il­li­quid) fine art as­sets. NFTs are prop­erty, they can se­cure loans and, if they trade more fre­quently than phys­ic­al fine art, valu­ations will be more pre­dict­able than in a mar­ket where few pieces are sold each year. Leg­al takeaway — tak­ing se­cur­ity in­terests over in­tan­gible di­git­al prop­erty is dif­fer­ent to tak­ing se­cur­ity in­terests over tan­gible phys­ic­al prop­erty so deal doc­u­ments need to be re­written­are an entry point to De­Fi. They can be traded and used as col­lat­er­al on De­Fi plat­forms and this will bring new par­ti­cipants rep­res­ent­ing dif­fer­ent in­terests to sit along­side those cur­rently deal­ing with fun­gible tokens on the plat­forms. Leg­al takeaway — this is likely to boost AML in De­Fi as the art world has been through a sim­il­ar pro­cess of en­sur­ing that reg­u­la­tions on source of wealth are fol­lowed. We cre­ated an NFT We jumped on the NFT band­wag­on and made an NFT out of this note on NFTs (chal­lenge: how many times can you get ‘NFT’ in­to one sen­tence…). You can take a look at it here: That-NFT-o… NFT for sale at Mint­able.app The NFT is a di­git­al rep­res­ent­a­tion of this note. What the pur­chaser gets is the ori­gin­al form doc­u­ment that this note came in. We should prob­ably also men­tion that there’s only one of these NFTs in ex­ist­ence, so once one per­son buys it, it’s gone! How to make NFTs (for non-tech­ies) Step 1: Check out your plat­form op­tions in terms of mint­ing your NFT. There are plenty of great ones out there like Rarible, Mint­able, Opensea and Found­a­tion. Step 2: For our NFT, we used Mint­able as our chosen plat­form, and we chose the ver­sion which is powered by our friends at Zil­li­qa. Here’s Zil­li­qa’s web­site too, for good meas­ure.Step 3: Cre­ate and list your NFT. Mint­able has a very easy to fol­low set-up, and it auto-gen­er­ates the NFT for you — no need to be a total tech­ie!Step 4: Re­lease an NFT about the fact you’ve just re­leased an NFT to pro­mote the fact that you’ve re­leased an NFT. #NFT­cep­tion­NB: We also worked with our oth­er friends in the space, NFT42 about how best to launch this pro­ject, and they gave us plenty of use­ful ad­vice. PSA This pro­ject was a col­lab­or­a­tion between CMS (Lon­don) and the Crypto Curry Club — a huge thanks to Erica Stan­ford for her valu­able in­put in this. If you’d like to get in touch with the team, you can con­tact us by send­ing an email to: [email protected] for CMS, or [email protected]­curry­c­lub.com to say hello to Erica.