Security Tokens and the Future of EU Securities Law: Rethinking the Harmonisation Project

Abstract

This article investigates the missing legal dimension in European Commission’s digital finance strategy; namely, rules for holding, transferring, and collateralising digital financial assets known as security tokens, as well as their treatment in insolvency. The lack of EU rules would expose future token holders to a patchwork of unpredictable and inconsistent Member State laws and further fragment the private law underpinnings of EU capital markets. The article argues that digital transformation presents an opportunity for securities law harmonisation that the EU should not miss. At the same time, the EU needs to rethink its prevailing approach to harmonisation, which has ignored transparent holding systems. Three key issues for future EU securities law will be discussed: first, disintermediation fits poorly with the current conflict of laws acquis based on the so-called Place of the Relevant Intermediary (PRIMA) approach. The article nevertheless argues for preserving a modified PRIMA rule rule as an option in order to support market integration and competition. Second, future holding systems must be able to accommodate different market needs, including those of the securities financing market where liquidity is valued over control. This underlines the continuing relevance of intermediated securities law. Finally, as a first step towards more comprehensive harmonisation of substantive rights, the article presents a modest proposal for protecting the rights of token holders in insolvencies.