Fintech, digitalization, and the law applicable to proprietary effects of transactions in securities (tokens): a European perspective

Abstract

Digitalization changes all kind of sectors of the economy—in particular, financial industry, which is probably one of the first to undergo fundamental changes. As money and financial transactions are immaterial, it is evident that financial industry has been one of the first economic sectors to be digitalized. Digitalization of the financial industry started already at the beginning of the 1980s, when large banking networks were introduced across the globe. With the rise of the Internet, online banking and all kinds of Internet-based services that allow a direct contact with clients and real-time transactions were established. The next step is now ahead, based upon the new technology of blockchain and on the use of artificial intelligence. It is obvious that the so-called fintech are already challenging the traditional financial industry; however, the notion of fintech remains opaque and is used to describe different phenomena. From the international private law perspective, it is of particular interest how traditional paradigms, such as location of a transaction (loci actus), can change. While contracts concluded by using fintechs will not raise specific choice-of-law problems as the principles of law applicable to contracts would not change, the situation is different for proprietary effects of transactions in securities. Even though securities were immaterialized long before the existence of fintechs or blockchain, the use of decentralized networks based on distributed ledger technology (DLT) raises new problems as to the assessment of the location of the transaction. The article discusses different approaches to solve the location problem, with specific regard of DLT. The issue discussed is embedded in a more general debate about the chances and limits to regulate a decentralized DLT; thus, conflict of laws for securities transactions is just a part of the overall problem. I will show that there are some important parallels to the intellectual property law that have been disregarded in the discussion so far. However, this approach also reveals some flaws, so that it will be the lex fori, in the end, that should govern the proprietary effects of transactions on a decentralized DLT network. Concerning the legal base of analysis, I have to concentrate—unfortunately—upon national law (in this case, German law) as European regulations such as the Rome Regulations do not deal with proprietary effects of securities transactions.