Knowledge

As digital assets, including cryptocurrencies and tokens, continue to reshape financial services, Guernsey's legal system is adapting to address the unique complexities these assets introduce. Although Guernsey does not yet have specific digital asset legislation, its courts are accustomed to applying general principles of property and financial services law and are able to draw on an increasingly rich UK and wider common law jurisprudence for guidance. Recent English cases, such as AA v Persons Unknown [2019] EWHC 3556 (Comm) and Tulip Trading Ltd v Bitcoin Association for BSV & Ors [2022] EWHC 667 (Ch), provide valuable insights into the classification of digital assets and available remedies, shaping how Guernsey is likely to approach these issues when they arise in litigation. This briefing explores Guernsey's attitude to digital assets, focusing on the key legal, regulatory and compliance considerations for financial services professionals and investors alike.

Current legal framework and classification of digital assets

Legal status of digital assets in Guernsey

Guernsey currently lacks any specific legislation to define or classify digital assets as legal objects. However, based on general legal principles, specific digital assets (such as Bitcoin) have already been recognised as a form of property rather than mere contractual rights.  This important classification opens the door to traditional judicial remedies, such as asset-freezing orders, which Guernsey courts are well able to impose when presented with evidence that digital assets have been involved in fraud or misappropriation cases.

Jurisdictional and cross-border complexities

Due to the decentralised nature of digital assets, jurisdictional issues present a unique challenge. Guernsey's courts can assert jurisdiction over assets managed locally or by parties domiciled on the island, but cross-border disputes require careful navigation of private international law principles. The English decision in Ion Science Ltd v Persons Unknown (unreported, 21 December 2020) illustrates how jurisdiction may be asserted based on the location in which harm is suffered as well as a defendant's connection to the forum.  This modern legal thinking is highly likely to influence Guernsey's own approach to asserting jurisdiction in cross-border digital asset disputes going forward.

Digital asset recovery and fraud remedies

Asset tracing and freezing orders

Guernsey's courts will undoubtedly derive great assistance from decisions of the senior UK courts when dealing with freezing orders to secure digital assets. For example, Fetch.ai Ltd v Persons Unknown [2021] EWHC 2254 (Comm) illustrates how courts may apply property injunctions to cryptoassets. Guernsey courts would also consider these principles, though tracing and securing assets on distributed ledgers present unique challenges.

Disclosure orders and third-party cooperation

Although there are currently no exchanges based in Guernsey, courts may issue disclosure orders to Guernsey-based custodians or financial institutions facilitating digital asset services. There is ample precedent for this in the UK, in cases such as AA v Persons Unknown, where third-party cooperation was essential for asset recovery. The practical effect of such orders does depend on jurisdictional reach however, particularly in cases involving parties across multiple locations.

Recognition and enforcement of foreign judgments

Guernsey's approach to recognising foreign judgments depends on reciprocity and public policy considerations. Tulip Trading provides critical insight into fiduciary duties and the enforceability of digital asset claims. Whilst not binding, Tulip Trading may well shape Guernsey's interpretation of fiduciary responsibilities related to digital assets, particularly in cases involving multi-jurisdictional recovery.

Regulatory and compliance considerations

Guernsey's financial services sector adheres to rigorous anti-money laundering ("AML") and client due diligence requirements, which are equally applicable to digital assets. Financial services providers are required to report suspicious digital asset transactions, maintaining transparency and enabling regulatory oversight. Guernsey legislation mandates detailed records of digital asset transactions, which are maintained primarily as a matter of regulatory compliance, but which could also be available to support legal positions in potential disputes further down the line.

Adopting international standards, such as those promulgated by the Financial Action Task Force (FATF), reinforces Guernsey's commitment to global best practices. Guernsey regulators continue to align local rules with evolving international standards, particularly those focused on AML and digital assets. Staying informed on these standards is essential to managing risks and ensuring compliance in an ever-changing regulatory landscape.

Practical implications for financial services professionals and investors

Guernsey's approach to digital assets reflects a practical application of existing legal principles, with UK case law serving as a valuable guide. Cases like AA v Persons Unknown, Tulip Trading and Fetch.ai suggest a framework for treating digital assets as property and establishing asset recovery and litigation strategies. Financial services professionals and investors must maintain high compliance standards and conduct thorough due diligence to navigate Guernsey's developing digital asset landscape.

This evolving area of law calls for a forward-looking approach, ensuring Guernsey remains a relevant and responsive jurisdiction for digital assets as the sector matures.

If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.