The Law Commission of England and Wales, responsible for reviewing and advising the UK government on legal reforms, has stated that it does not recommend establishing a new legal framework specifically for DAOs. The commission suggests that existing regulations may already cover these organizations, and if a company operates in the UK, it would need authorization according to current rules.
In a report published on Thursday, the Law Commission pointed out that DAOs engaged in “specific activities” related to “specific investments” could potentially be regulated under the Financial Services and Markets Act 2000. According to this law, when governance tokens resemble stocks and grant voting rights, and when they are issued as investments in DAOs, they may be considered “specific investments.” “Specific activities” refer to the specific behaviors or actions related to these investments, such as issuance, sales, and promotion.
The legal status of DAOs has recently received significant attention, and US courts are also exploring how to handle these organizations. The Law Commission believes that due to differences among different DAOs, each DAO may be subject to different laws, and a uniform legislative approach may not be appropriate.
The commission states that it does not recommend establishing a specific legal framework for DAOs at this relatively early stage of their development, primarily because there is currently no consensus. The report indicates 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 third-party civil suits, enforcement actions by regulatory agencies, or criminal prosecutions. The report’s summary states that “smart contracts can constitute legal contracts.”
The Law Commission of England and Wales previously helped draft regulations to promote the digitization of documents, which 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 suggests that institutions like the Jurisdictional Working Group should conduct more in-depth analysis and recommend when fiduciary security should be applied to cryptocurrency developers, involving judicial institutions, the Law Commission, regulatory agencies, and other legal professionals.
DAOs
special legislation
UK