New York legislators have taken an important step towards digitalising trade in the state, adopting reforms that provide a legal basis for electronic records and digital assets.
Adopted by the Assembly and Senate on June 11, the reforms bring New York in line with the Uniform Commercial Code (UCC), a model law amended in 2022 to incorporate digital trade documents and other emerging technologies. They will become law once the amending bill is signed by Governor Kathy Hochul.
Electronic bills of lading have been recognised as title documents in New York since 2014, but the latest reforms are broader in scope, applying to electronic versions of negotiable instruments and digital assets.
GTR speaks to Tod Burwell, president and chief executive of Baft (Bankers Association for Finance and Trade), about the background to the reforms, the role of the association in bringing about change, and what the new-look legal framework means for US digital trade.
GTR: What is the background to these reforms, and Baft’s role in helping bring them about?
Burwell: The broader effort to provide a legal framework for digital trade originated around seven years ago, and we wrote a paper on the subject in 2018 called Code Is Not Law. At that time, there was a lot of energy around the use of blockchain as a vehicle to transform how trade could happen in the future. The paper essentially said that you need to adjust the legal framework and not just the technological capability to do trade digitally.
Interestingly, the UNCITRAL Model Law on Electronic Transferable Records (MLETR) was published around that same time, and what we then started to see was the socialisation of that model law, and countries trying to incorporate those elements into their legal frameworks. There were a few early adopters, but the really large trade jurisdictions were a bit further behind in getting that going.
In terms of Baft’s engagement, the International Chamber of Commerce convened a variety of stakeholders across the globe to structure a group called the Legal Reform Advisory Board. We would meet periodically to target jurisdictions where we feel we can move the needle, and for Baft, it was natural for us to be designated to drive efforts in the US.
GTR: What is different about the US market compared to jurisdictions that have already fully adopted digital trade laws?
Burwell: In some jurisdictions, it is easier to take a national approach, but the complication with the UCC is that changes have to be adopted state by state. There is no single step the federal government can take to switch from analogue today to digital tomorrow.
Also, because legal frameworks are different across jurisdictions, you couldn’t just take MLETR and slot it into US law. The way it worked in the US was the Uniform Law Commission passed amendments in 2022, and from there the process started to drive this through the individual states.
On Baft’s side, we have been highly engaged with the Uniform Law Commission and the bar associations that drafted the amendments to the UCC that would, in effect, accomplish what the MLETR framework was intending to do.
GTR: What is state-by-state adoption like looking now, and how significant is it that New York has reached this milestone?
Burwell: So far, there are 30 states that have adopted the changes to the UCC into law, and there are eight states – technically including New York, as we still have to wait for the Governor to put her signature on the bill – that are somewhere in the process.
We still have some work to do in the major land port border states, like Texas and Michigan. But nine of the 10 largest seaports in the US are now governed by laws that support digital trade, and most of the international trade traffic tends to come through West Coast ports that are in states that have already adopted the UCC amendments.
In that context, the big one from the US perspective was to get New York across the finish line. Within the US, the volume of trade that is subject to New York law is pretty substantive.
One of the nuances with the UCC is that one state’s version will not be the same as the others. To give an example, the electronic bill of lading has been in place in New York for some time, but other forms of negotiable instruments still require paper evidence of ownership.
One of the other nuances with the New York structure and framework is that it is a little more forward-looking in that it incorporates elements of how digital assets should be treated. The MLETR framework doesn’t really get into that, but in the UCC amendments, we’re trying to account for more than just digital documents.
GTR: Has there been much impact so far in states that have introduced these changes, or is it still too early to see the benefits?
Burwell: It’s still very early days. Getting the legal framework in place is an important milestone because that enables commercial parties to move forward more assertively with digitalising their processes. If you know that a digital version of an instrument is not legally enforceable, you might not make the investment necessary to be able to transact in that form.
Now, this opens the window for organisations to push forward on some of those investments, and for the ones that have already done that, it enables them to progress with live electronic end-to-end transactions.
