UCC Article 12 Coming to a State Near You? In 2022, the Uniform Law Commission (ULC) introduced amendments to the Uniform Commercial Code (UCC), including a new Article 12 (UCC-12). Already introduced in over 29 states, this new Article seeks to govern certain transfers of Controllable Electronic Records (CERs). The 2022 amendments also updated Article 9 to contemplate the perfection of security interests for digital assets. So far, these amendments have been enacted in seven states: Alabama, Colorado, Indiana, Nevada, New Mexico, North Dakota and Washington. The federal government has not yet created a legal framework for digital assets, although the Basel Committee on Banking Supervision (BCBS) did introduce its Prudential Treatment of Cryptoasset Exposure guidance late last year. It may be many years before banks see legislation enacted by the federal government and potentially years longer until a regulatory framework is in place (think of the substantial delays in promulgating regulations associated with Dodd-Frank, e.g., 1033 and 1071). States have begun to fill in these gaps to address market concerns about the lack of structure and guidance for commercial transactions involving digital assets. New provisions under UCC-12 include rules for transactions involving new types of digital assets like cryptocurrency and non-fungible tokens (NFTs). The Article calls these assets “controllable electronic records” or CERs. CERs are defined as, “a record stored in an electronic medium that can be subjected to control under Section 12-105. The term does not include a controllable account, a controllable payment intangible, a deposit account, an electronic copy of a record evidencing chattel paper, an electronic document of title, electronic money, investment property or a transferable record.” (UCC 12-102(a)(1)). The UCC now defines “controllable account” and “controllable payment intangible” under Article 9 (UCC9). These are representative of tethered assets akin to an electronic promissory note. “Controllable account” means those that are “evidenced by a controllable electronic record that provides that the account debtor undertakes to pay the person that has control under Section 12-105 of the controllable electronic record.” (UCC 9-102(a)(27A)). And “controllable payment intangible” means “a payment intangible evidenced by a controllable electronic record that provides that the account debtor undertakes to pay the person that has control under Section 12-105 of the controllable electronic record.” (UCC 9-102(a)(27B)). One of the biggest concerns for lenders in dealing with CERs, controllable accounts and controllable payment intangibles is undoubtedly the method of attachment and perfection, as well Theo Kelly, Associate General Counsel Compliance Alliance 15 Nebraska Banker
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