The Private Law Paradigm in the Digital Age: The Innovative Potential of Youth

In her opening remarks, moderator Tatiana Yatsenko, Head of the Department of Private Law, Faculty of Law, National Research University Higher School of Economics, asked the speakers to express their views during the session on what they thought would happen to private law in relation to developments in digital technology. Many new terms have emerged: digital law, nano law, and one wonders how this might affect traditional private law?

Elena Kozlova, Professor of the Department of Private Law, National Research University Higher School of Economics; Professor of the Department of Civil and Business Law, All-Russian State University of Justice (RPA of the Ministry of Justice of Russia), noted that “global changes are taking place in all areas of public life. There have even been claims that digitalization is leading digital law to displace traditional civil law.

The general forum motto is ‘Staying within the Law’, but I would like to be even more specific and say ‘Staying within the Traditional Law’. Let us call to mind Occam’s basic methodological principle ‘Do not multiply entities unnecessarily’”. From this perspective, the speaker shared her vision of the impact of digitalization processes on contract law as the most responsive to the development of a system of objects of civil rights and the emergence of new, special subjects of civil relations, and to the development of a doctrine of transactions.

She used artificial intelligence as an example. “Currently, there are at least three theories about the legal standing of artificial intelligence. It has been proposed that it should be regarded as a subject of legal relations, as a quasi-subject, and as a special kind of object. The issue is a matter of principle. And fundamental, first and foremost, in terms of intellectual property law. As a result, we are inevitably faced with the need for interdisciplinary research, and in this case, we have to take medical science into account, given that the simulation of human cognitive functions is included in the national strategy as a qualifying feature of artificial intelligence as an object of law.”

Kozlova also believes that “treaties that regulate the circulation of the results of intellectual activity need to be singled out as a separate group; in the case of crowdfunding, the legal regulation of these contractual models is defective because the actions of the investment platform operator are not activities in principle, and the information services provided for in Article 783 of the Civil Code are in a privileged position compared to other contracts. We must look at them from a purely interdisciplinary point of view, and we cannot study them without taking into account the economic nature of the relationship, the action of sciences such as jurisprudence, economics, and generally the relationship between economics and law. I call for interdisciplinary research using digitalization,” Kozlova said in conclusion.

Alexey Volos, Associate Professor, Department of Private Law, National Research University Higher School of Economics, spoke of several challenges facing the contemporary private law paradigm. “The first is terminology, and ‘smart contracts’ in particular. The existing traditional definition of a smart contract as a computer programme that automatically enforces obligations doesn’t suit anyone. 

The second is that modern principles of civil law are outdated. When computers enforce obligations, and say as much in court, we will be forced to abandon Article 1 of the Civil Code. In terms of the principle of ‘freedom of contract’, it is clear that this may be provided for by the terms of the contract. One way or another, the suggestion will be made to include smart contracts in the Civil Code and regulate them in a special way,” Volos said.

Dmitry Kozlov, Head of Derivatives and Client Operations Support Center, Legal Department, Sberbank, said that “this market received its legal basis in 2019 with the amendment of the Civil Code. In 2019, the so-called Crowdfunding Act, Federal Law 259, was passed and introduced a specific type of digital rights into civil law. Federal Law 259 of 2020 introduced the concept of digital financial assets. Unfortunately, there are still no digital asset projects in practice. It’s a type of asset that is allowed to be produced by investment platforms called crowdfunding platforms. There are currently more than 60 companies registered. However, none of them are even close to implementing the projects yet. Therefore, it is very important now to create some equivalent issuing standard like in the securities market. The equivalent of a disclosure clause and the regulation of the rules of the game is very important now.

Regarding the outlook for regulation, the focus now is on regulating cryptocurrencies because digital rights cannot be called cryptocurrencies. In this regard, the Ministry of Finance has now drafted a bill on digital currency, which introduces new financial market entities – analogous to crypto-exchanges, and regulates mining activities. We are waiting for this law because in terms of qualification instruments, it is very important to understand the difference between cryptocurrencies and digital financial assets and digital rights in general.

In my opinion, it would be promising to enshrine certain characteristics of the digital marketplace in law because it would allow for a more flexible response to changes in the environment,” Kozlov said in conclusion.

Yuriy Kolesnikov, Head of the Department of Financial Law, Faculty of Law, Southern Federal University; Director of the Central Research Institute of the Southern Federal University “Instrumental, Mathematical and Intellectual Means in the Economy”; Co-founder, Managing Partner, Money Friends Investment Platform, noted that “the digital age has really given us a huge number of new areas. It has opened up and spawned a new branch of the financial market – the crowd industry, or fintech projects. Crowdlending or crowdfunding is a new industry that poses a huge number of challenges and tasks to lawyers, legislators, and enforcers, and we are actively working on them today”.

He also informed participants that since 2020, the Russian dictionary had adopted the word ‘crowdfunding’, officially recognizing it as a Russian word of English origin, so words like ‘cashback’ and ‘crowdfunding’ are now Russian words. As of today, the Central Bank of Russia registry lists 160 operators of investment platforms or crowdfunding platforms that provide services under 259 of the Federal Law on Crowdlending.

“The law has been in force for a year and a half, and it must be said that everyone has benefited from it, including the state, for whom the industry has been transformed from a grey area to a completely transparent, regulated, and accountable operator. The operators themselves, clients, investors, and borrowers have benefited from this, because for them the involvement of the state in regulation, in control and supervision by the Central Bank is a guarantee that there will be no fraudsters or individuals doing something illegal in the market. Crowdfunding and crowdlending give us enormous scope for interdisciplinary, cross-sectoral research,” Kolesnikov concluded.

Kirill Kosminsky, Executive Director, Association of Investment Platform Operators, drew attention to gaps in legislation concerning the activities of digital investment platforms “that don’t need a specialized, traditional, classical heavyweight financial intermediary like a bank, with a million regulations and an endless list of clarifications and refinements”.

The speaker believes that “voluntary supervision and proportional regulation would be preferable for digital and sharing platforms. Private platforms develop until the state starts to pay attention to them, and the Bank of Russia does not know how to apply the regulation properly, because it does not know the real business”.

Moderator

Tatiana Yatsenko

Head of the Department of Private Law, Faculty of Law, National Research University Higher School of Economics

Speakers

Alexey Volos

Associate Professor, Department of Private Law, National Research University Higher School of Economics

Dmitry Kozlov

Head of Derivatives and Client Operations Support Center, Legal Department, Sberbank

Elena Kozlova

Professor of the Department of Private Law, National Research University Higher School of Economics; Professor of the Department of Civil and Business Law, All-Russian State University of Justice (RPA of the Ministry of Justice of Russia)

Yuriy Kolesnikov

Head of the Department of Financial Law, Faculty of Law, Southern Federal University; Director of the Central Research Institute of the Southern Federal University “Instrumental, Mathematical and Intellectual Means in the Economy”; Co-founder, Managing Partner, Money Friends Investment Platform

Kirill Kosminsky

Executive Director, Association of Investment Platform Operators

• The use of platform technologies in the financial market, crowdsourcing and commoditization of financial services.

• Digital assets and hybrid financial instruments as a new object of civil law.

• The development of modern contract law in the context of the digital transformation of the economy: new contractual models and constructions.

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