The British Law Commission Believes the Time is Not Ripe for DAOs to Require Special Legislation
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UK Law Commission: Existing Laws Are Sufficient
DAO May Be Regulated by the Financial Services and Markets Act 2000
UK Law Commission Believes Unified Legislation Is Not Appropriate
Legal Status of DAO Varies by Type, Full Decentralization Does Not Necessarily Mean Compliance
Law Commission Recommends Further Analysis
The Law Commission of England and Wales, responsible for reviewing and recommending legal changes to the UK government, has stated that it does not recommend establishing a new legal framework for DAOs. These organizations may already fall within existing regulatory frameworks, requiring authorization to operate in the UK under current regulations.
In a report released on Thursday, the Law Commission pointed out that if a DAO engages in “specified activities” related to “specific investments,” it may be subject to the Financial Services and Markets Act 2000. According to this law, when governance tokens that resemble stocks and grant voting rights are issued as a way to invest in a DAO, these tokens may be considered “specific investments.” “Specified activities” refer to specific behaviors or actions related to these investments, such as issuance, sale, promotion, etc.
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Recently, the legal status of DAOs has been under scrutiny, and US courts are also exploring how to handle these organizations. The UK Law Commission believes that due to differences between various DAOs, each DAO may be subject to different laws, and a unified legislative approach may not be suitable.
The Commission stated that at this relatively early stage of DAO development, it is not advisable to establish a specific legal framework for them mainly due to the lack of consensus.
The report points out that the public laws applicable to DAOs depend on their types. Some may be considered unincorporated associations, where participants interact based on rules and are only responsible for their own actions. In certain cases, DAOs may need to pay corporate taxes, and the Commission suggests considering international tax frameworks.
From a litigation perspective, fully decentralized DAOs may still face civil lawsuits from third parties, enforcement actions from regulatory authorities, or criminal prosecutions. The report’s summary notes that “Smart Contracts can constitute legal contracts.”
The Law Commission of England and Wales has previously helped draft regulations promoting the digitization of documents, which have facilitated the application of distributed ledger technology in trade.
Earlier this year, the Commission sought opinions on a legislative proposal to classify cryptocurrencies as property. The report also recommends that institutions like the Judicial Jurisdiction Working Group should conduct more in-depth analysis and recommend discussions among judicial institutions, law commissions, regulatory authorities, and other legal professionals to determine when fiduciary security should apply to cryptocurrency developers.
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