UCC to Amend Model Commercial Code to Reflect Emerging Technologies

The Uniform Commercial Code (“UCC”) is a model code which most states have adopted at least some portion or variation thereof.

In July of 2021, the UCC Committee (“Committee”), appointed by the American Law Institute ("ALI") and the Uniform Law Commission ("Commission") presented an initial draft of amendments to the Commission at the Commission's annual meeting. These amendments have been reviewed, amended, and approved by ALI Members Consultative Group (“MCG”) in January 2022.

The amendments must still obtain ALI and Commission approval their annual meetings in May and July of 2022, respectively. If approved at both meetings, the amendments would need to be offered for enactment by the states.

The proposed amendments are as follows:

• Consideration and implementation of rules relating to commercial transactions involving “digital assets”—defined as controllable electronic records, such as:

  • negotiability for virtual (non-fiat) currencies,

  • certain electronic payment rights,

  • secured lending against virtual (non-fiat) currencies, and

  • security interests in electronic (fiat) money, such as central bank digital currencies.

• A “controllable electronic record” ("CER") is defined as a record in electronic form that can be “controlled” if:

  • The person has “substantially all the benefit” of owning the CER;

  • The exclusive power to prevent all others from reaping “substantially all the benefits” of using the CER;

  • The exclusive power to control or transfer the CER.

• A security interest in a CER will be perfected by “control” or by filing a UCC-1 Financing Statement.

• Negotiability of the CER would enable the CER to be transferred free of all other competing property claims, including security interests.