Official Report 380KB pdf
The next item of business is a debate on motion S6M- 20944, in the name of Richard Lochhead, on the Digital Assets (Scotland) Bill at stage 3. I invite those members who wish to speak in the debate to press their request-to-speak button, and I call the Minister for Business and Employment to speak to and move the motion. You have a generous seven minutes, minister.
14:27
Thank you for the far too generous seven minutes.
I welcome the members who have chosen to be present for the debate. I have moved lots of legislation over my 17 years in government. Although this is a short technical bill, it deals with a relatively complex area and those of us who have paid close attention to the bill over the past few months have had our vocabularies expanded—I certainly have.
Despite the fact that it is short and technical, the bill is an important foundation stone in ensuring that Scots law can deal with an area of technology that is constantly evolving and becoming increasingly commercially important. The value of Scotland’s blockchain technology market is projected to reach £4.48 billion by 2030. We have a blossoming financial technology sector in Scotland that has grown from just 26 companies in 2018 to more than 260 today, and many of them are directly involved in developing digital assets. The opportunities that initiatives such as distributed ledger technology offer to create wealth and high-quality jobs are enormous, and the bill is a way for this Parliament to play its role in creating the legal framework that Scotland needs to realise its full potential in this area.
As I said, this is a short bill—only three pages long—but it is an important one. To put it simply, its purpose is to ensure that Scots law can recognise certain digital things as objects of property, despite them being neither physical things nor intellectual property in the usual sense. The digital things that it covers are only those that are “rivalrous”—perhaps one of the new words that we have come to learn during the progress of the bill. Physical things, such as a coin, are rivalrous. If I give someone the coin, I no longer have it. If I give it to someone, I cannot give it to them again. That is in effect the definition of “rivalrous” in the bill. The same is true of, say, a bitcoin, because the system stops me spending it twice. That is another fundamental principle of the bill. It is not true of other types of digital things, such as a photograph on a phone, which we can share with any number of people without losing our own copy or our ability to share it with even more people. Digital things of that kind are therefore not rivalrous, and the bill does not include them in the definition of the types of digital assets that it covers.
Ultimately, it remains up to the courts to decide how to treat the digital things that the bill does not provide for. Under the bill, digital assets are incorporeal property, which is qualified by sections 3 and 4, which cause those assets to be treated in certain ways as corporeal or physical property as opposed to incorporeal property, because that more closely reflects how people who deal with digital assets tend to think about them. Of course, digital assets are not physical things, so the bill accommodates that by saying that having control of a digital asset in the way that section 5 describes is the equivalent to having physical possession of it.
In a leading text on the possession of corporeal moveables in Scots law, Dr Craig Anderson explains, in the context of physical things, that
“to possess, one must establish control over the property”.
In essence, the bill provides the courts with a proxy for physical possession to overcome the difficulty that digital assets cannot be physically possessed. That done, it leaves the courts with the necessary space to develop the law, just as they have developed the law to reflect practical and commercial realities in relation to things of every other kind. That means that legal principles that are developed in the context of corporeal moveables can be applied and developed in relation to digital assets, too. For instance, that includes the idea of civil possession, by which an agent’s possession of a thing on behalf of a principal allows the principal to become the owner of the thing. In a novel area such as this, it is right that the courts should have the same latitude to develop the law in response to new technologies that they have historically enjoyed when dealing with physical things of all kinds.
During the passage of the bill, we touched on the possibility that there may be a need for further legislation in relation to digital assets—for example, to deal with their treatment as a matter of private international law. The bill will not be the last legislative work on digital assets. As was discussed with the committee at stage 1 and reiterated at stage 2, there will be a need for legislation in the future to deal with a number of issues on the wider area of law, given how fast the world is changing around us and how fast technology is developing. We will continue to legislate in the future. We have to ensure that our legal system adapts in due course. However, the bill provides a necessary foundation and it does what the expert reference group recommended to the Parliament, which is now being implemented.
I move,
That the Parliament agrees that the Digital Assets (Scotland) Bill be passed.
14:32
Like the minister, I commend the members who have joined us in the chamber. I am sorry that the public gallery cleared as the minister got up to speak—I am sure that that had nothing to do with the content of his speech.
I do not intend to say a great deal about the bill, as my comments in the stage 1 debate a few weeks ago covered all the key points that I would be making. No substantial amendments to the bill have been lodged, either at stage 2 or at stage 3, but some significant technical changes have been made that are welcome. I reiterate the thanks that I expressed at stage 1 to members of the Economy and Fair Work Committee and to the committee clerks and the Scottish Parliament information centre for their assistance in helping members to understand the legislation and scrutinise it. I do not know whether this will be the last bill that the Minister for Business and Employment will bring to the Parliament—I expect that it may well be—but I commend him for the way in which he has approached the bill and the co-operative approach that he has led. As I have done previously, I wish him all the best for the future as he looks to pursue other avenues beyond the Parliament in a few weeks’ time.
The bill is significant but is not in any way politically controversial. It represents a significant step forward in modernising Scots law to deal with changing circumstances—in this case, the creation of digital assets. Those assets did not exist at all two decades ago, but changes in technology have led to their creation, and it is important that the law is adapted to take account of those changes. As I said during the stage 1 debate, the bill is necessary because Scots law, as it previously existed, did not recognise digital assets as property—or, at least, it did not properly define them. The bill will classify them as incorporeal, moveable property, which is property that is not attached to land and which does not have a physical existence.
The bill will allow the trading of digital assets and provide a legal framework for those who transact with them. It will also provide protection to someone who acquires a digital asset for value and in good faith.
That is important because, without that reassurance, those seeking to purchase a digital asset in Scotland would be unclear on what their legal remedies might be. There was some discussion during stage 1 scrutiny about what exactly purchasing in good faith would mean in practice. At the time, I raised concerns about drafting that had been brought to us by the Faculty of Advocates.
It is important to note that the bill is just a first step. Further changes to the law will be needed to take account of the growth of digital assets. Changes will need to cover, for example, areas of private international law and insolvency. Where digital assets are traded between individuals living in different jurisdictions, which law should apply in relation to the death of an individual who holds digital assets? What laws of succession should apply to them? Where a digital asset forms part of an insolvency, how should that be treated? Those will all be matters for a future Parliament to consider. I am sure that the Scottish Law Commission, which does such good work in keeping our law abreast of developments in society, will continue to do good work in researching those areas.
We will, no doubt, return to those points in future but, in the meantime, on behalf of the Scottish Conservatives, I am pleased to confirm our support for the bill at stage 3.
14:36
I am pleased to speak in this stage 3 debate as a member of the Economy and Fair Work Committee, which has scrutinised the bill over recent months. I thank everyone who has provided evidence, as well as my fellow committee members and our clerks for their thoughtful work throughout the process.
Although it is a relatively short bill and the number of amendments was limited, it is vital that legislation in such a fast-moving and technical area receives careful scrutiny. As we move further into a digital age, clarity in the law becomes increasingly important. For that reason, Scottish Labour will support the bill today.
I start off in an unusual position, having agreed with the previous two speakers—one from the Government and one from the Conservatives.
Digital assets are becoming an essential part of Scotland’s economic landscape, as has been mentioned in the debate. Their importance and the opportunities that they bring will only continue to grow.
The Economy and Fair Work Committee supported the Scottish Government’s property law approach for defining digital assets as the best way of future proofing the definition. However, several stakeholders noted that the terminology and approach would not be familiar to those who work in the sector, which could make it difficult for those working with digital assets to ensure that the law applies to them in the way that they expected. That summarises the concerns that we discussed about the implementation and understanding of digital assets. When the bill is passed, we need to reflect on how to communicate it so that people understand how the law will work.
The stage 3 amendments that the minister lodged are particularly important in relation to the removal of the requirement for “exclusive control”. Those sensible amendments have improved the clarity of the bill. The concept of exclusivity is not necessary for establishing ownership, and removing it brings the law on digital assets more in line with how we treat physical property.
For legislation of this nature, it is crucial that the legal framework is understandable and workable. As Dr Alisdair MacPherson and Professor Burcu Yüksel Ripley have highlighted, Scotland has very limited legislation in relation to new forms of digital assets, so reform is needed to provide certainty for individuals, businesses and our courts.
The committee noted that the environmental impact of digital assets has not yet been fully considered. The minister acknowledged that that sits within a wider discussion about energy consumption and sustainable power sources, which are issues that apply to many emerging technologies, including artificial intelligence. As Scotland has significant renewable energy capacity, we should ensure that the development of digital assets aligns with our ambitions for net zero. Continued research into the environmental implications of such technologies is essential.
Digital assets have the potential to support our transition to net zero in practical ways. For example, the Scottish Government’s energy skills passport—launched as a digital platform to help workers to move from the oil and gas sector to the renewables sector—shows how digital tools can support workforce transition, but delays and limited uptake demonstrate the need for clearer systems and better integration. Our agreeing to a stronger legal framework for digital assets today might help to ensure that such initiatives are more effective in the future.
Ultimately, the bill’s purpose is to clarify the status of digital assets as property in Scots private law. Doing so will provide greater certainty for individuals, businesses, investors and the legal sector.
As new technologies emerge, new risks will inevitably follow. It will be the Parliament’s responsibility in future years to ensure that the law keeps pace. We need to use digital technologies in ways that are fair, transparent and beneficial for Scotland. Let us agree to pass the bill, because it will reflect progress.
14:40
The Digital Assets (Scotland) Bill is a narrow bill that defines the existence of digital assets in Scottish law. That is necessary because of the absence of a body of case law that covers the matter. The bill clarifies that digital assets are capable of being treated as property and owned within our legal framework.
The bill responds to expert recommendations from the digital assets in Scots private law expert reference group and others. Their work has highlighted the gaps, risks and practical challenges that arise with attempts to categorise digital assets in our long-standing legal framework. The bill draws directly on several of their recommendations, especially those on defining digital assets and clarifying the principles of ownership and control. Their expertise has shaped much of the bill’s structure and rationale.
The bill seeks to be technology neutral and future proof. It establishes a legal baseline that will need to have frameworks of regulation and guidance built on top of it.
I recognise that “digital assets” is a very broad category in relation to what the bill will now allow us to legally consider as things. Some can have positive and constructive impacts on our society, whereas some might be harmful or at least risky. I am sure that colleagues share my distress at the energy-intensive nature of bitcoin mining, for example. At a time when we are racing to electrify our industry and transport to try to keep ahead of a collapsing climate, the fact that so much energy is being used to generate speculative assets that can be used to avoid taxation, bypass legislative safeguards and otherwise undermine the reliable and transparent operation of our economy is clearly a cause for concern.
Digital assets are evolving rapidly, and our legislative response will need to be sufficiently dynamic to manage the risks that increased use and legitimacy of digital assets, such as blockchain-based currencies, bring. As I said in the stage 1 debate on the bill, I believe that such currencies, if unregulated, present a significant risk to individual investors and to the structure of our banking system, and that robust regulation will be required to mitigate those risks. The Scottish Government, like other Governments around the world, will need to be informed and proactive to keep ahead of those risks. They are too great and too closely linked with fundamental elements of our economy and banking system for us to wait for a crisis before acting.
Members of the Economy and Fair Work Committee enjoyed taking evidence on the bill and attempting to get our heads around the technical and legal challenges and opportunities that digital assets present.
The Scottish Greens will support the bill at stage 3, but we expect the Scottish Government to move quickly to provide guidance and further legislation to address the broader risks that digital assets present.
14:43
Clearly, this has been a short debate, but we have gone over some of the reasons why it is an important debate, and I will turn to that issue shortly.
First, I thank Murdo Fraser for his kind comments. The great news for him is that this is not my farewell speech—that is still to come—so he will have the joy of hearing that, as will all 128 other members of the Parliament, on the day before we break up for the election. I am sure that he will look forward to that with bated breath.
However, this is my last speech on legislation. Over my 17 years in government, I have brought to the Parliament proposals for a plastic bag levy, tenant farming legislation, legislation to help Scotland to prepare for flood risk, marine legislation and various other legislation. All those pieces of legislation were a lot longer and more time consuming than this bill—or, indeed, the UEFA European Championship (Scotland) Bill, which I led on a couple of weeks ago and was also quite short—but they have all been about preparing Scotland for the future and responding to the challenges and opportunities that our nation faces.
When I became a member of the Cabinet for the first time in 2007, just after the Scottish National Party had been elected as the Government for the first time, with about five other members of the Scottish Cabinet, it was, if I recall rightly, the month before the iPhone was launched. I ask members to think about that for a second. Nowadays, our lives depend on our smartphones and we carry out all our lives on them. I ask members to think how the world has changed in that short space of time.
That is at the heart of what the bill is about. Despite the fact that it is legalistic and technical, it is important. It is about the world that is changing around us.
Will the minister give way?
With trepidation.
When that tremendous technology of the iPhone was invented, did the minister think that the world would spend most of its time watching cat videos?
I suspect that that is the case only in Murdo Fraser’s household. The rest of us are watching Aberdeen Football Club and more worthy causes on our mobile phones. I suspect that we all spend far too much time on our smartphones.
When I learned during the progress of the bill—as, I am sure, other members of the Parliament did—that hundreds of thousands of Scots own crypto assets, it brought home to me just how quickly the world is changing. Perhaps I have a lot more to do to keep up, as do others. That was a startling statistic, and there were others.
All that changing technology has implications for commerce, which the bill will help to address. It also has consequences for the environment in energy use and water use, as Lorna Slater and Sarah Boyack mentioned. We do not understand the consequences of all that yet, but we have to start thinking through and preparing for them. The more technology we use, the more processing power is required. That, of course, means more energy and electricity, so we must get the balance right by protecting our planet while taking advantage of new technologies as they come along.
I listened to the comments that members made about the need to keep all those issues under review and ensure that our law is kept up to date with fast-changing technologies. That was also discussed at stages 1 and 2, as we touched on some of the areas that we need to return to. Work is also taking place in the rest of the United Kingdom on some of those issues, and we will listen to what the expert groups elsewhere in the UK say about what needs to be done in future legislation.
I put on the record my thanks to members of the expert reference group for giving so generously of their time. That applies particularly to the group’s chair, the Rt Hon Lord Hodge, and Professor David Fox of the University of Edinburgh, who continued throughout the project to be most generous in sharing their enormous intellects with my officials, the committee and everyone else who was involved in the process. That is very much appreciated.
I also thank the Economy and Fair Work Committee for its thorough scrutiny of the bill. It is a short bill, as we have all said many times, but it is not simple. It is better for the careful attention to the technology and legal issues with which it grapples that it got from the committee, which was most ably assisted by its clerking team, whom we thank, SPICe and the committee’s expert advisers from the University of Aberdeen: Professor Burcu Ripley, Dr Alisdair MacPherson and Mrs Donna McKenzie Skene.
I thank all the stakeholders from the areas of law and technology in Scotland who submitted their views to the various consultations and responded to the Scottish Government’s consultation as well as the committee’s call for evidence.
I say a special thank you to members of my policy team, who are sitting at the back of the chamber, and members of the Scottish Government’s legal team, who are also here. More than with any of the other bills that I have worked on that I mentioned earlier, I had to depend a lot on their advice—even for pronunciation. They helped me out greatly throughout the process.
This is not my farewell speech, but, as I look to my post-politics life, I now feel partially qualified as a Scottish lawyer. I do not know whether that profession is morally upstanding enough compared with politics, but we will find out in due course—perhaps Murdo Fraser can give us some advice on that.
I thank all members for their contributions, and I commend the motion in my name to the Parliament.
I note that there are quite a few years involved in becoming a qualified lawyer, but that could lie ahead of the minister.
That concludes the debate on the Digital Assets (Scotland) Bill at stage 3.