Introduction of digital rights and amendments to the requirements to the form of transactions

Introduction of digital rights and amendments to the requirements to the form of transactions

09 April 2019

This is to inform you that, on March 18 2019, the Federal Law of the Russian Federation on “Introduction of amendments to the first, second part and Article 1124 of the third part of the Civil Code of the Russian Federation” (the “Law”) was adopted.

The Law edits the list of objects of civil rights and introduces a new concept “Digital rights”, andalsoamends the requirements to the form of transactions to the Civil Code of the Russian Federation (“СС RF”). The Law comes into force on October 01, 2019.

Asthe Law provides for amendments relevant to conducting business using information technology, including the Internet, we would like to inform you on key provisions of the Law.

1. Digitalrights

Pursuant to the Law, the Digital rights are property rights. As such, the content and conditions for their exercise are determined by the rules of information system, where such rights exist.

The authors of the Law comment that, in the first instance, the Law is aimed at regulating crypto-currency, anti-money laundering and terrorist financing. It also introducesthe possibility of including the Digital rights to estate, or bankruptcy estates.

Execution and disposal of the Digital rights areonly possible within the information system and through making relevant entries into the information system. A person who can dispose of such right, by the rules of the information system, is deemed to have the respective Digital right. At the same time, the transfer of a Digital right, under a transaction, does not require consent of theperson bound by such Digital right.

The Law does not provide for any specific characteristics, or classification, of the Digital rights and does not define,norstate, the features of types of information systems. The relevant rules will be specified in other regulations, including the law on “Digital financial assets”, the enactment of which is expected soon.

2. Formoftransactions

The Law supplements Article 160 of the CC RF with a provision on compliance with the written form of transaction, when such a transaction is made using such electronicor technical means that allow unchangeablereproduction ofthe transaction content on physical media.

The Law also simplifies the rule for signing such transactions and states that the signature requirement is fulfilled if the signing method allows reliable identification of the person agreeing to the transaction. However, either the law, or anagreement between the parties, may provide for a different (e.g., more complicated) procedure foridentification of the person.

These amendments reflect the existing practical aspects of contracting in electronic form through determining parties, e.g., by using SMS or biometric identification, without threatening their validity and avoid the need to enter into a separate agreement on signing of such transactions.

3. Smartcontracts

In addition to that, the Law establishes the possibility of executing a transaction, using information technology upon the occurrence of the circumstances specified in such transaction, without making a performance request to the counterparty. This provision of the Law allows the parties, for example, to agree on the automatic execution of transactions, including so-called “smart contracts”.

Therefore, in general, the Law expands the legal regulation of the use of information technologies by in-troducing the concept of “Digital rights” and the rules for performing “smart contracts”, as well as simplifies signing of transactions in electronic form.

ALRUD specialists are ready to provide any necessary legal assistance in all matters related to use of these mechanisms and new provisions of CC RF.

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Practices: Commercial, Financial technology

Note: Please be aware that all information provided in this letter was taken from open sources. Neither ALRUD Law Firm, nor the author of this letter bear any liability for consequences of any decisions made in reliance upon this information.

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