Charles Marquand is a barrister at 3 New Square.
Crest, the paperless securities settlements system, went live on 15 July. The system allows shareholders to transfer shares electronically rather than having to use paper transfer forms and certificates.
Parties to a bargain can now send "dematerialised instructions" to the "operator" who, in turn, sends an instruction to the relevant company instructing it to register a transfer. Each instruction must identify the sender and meet certain technical standards.
The use of Crest is largely governed by contract and other common law principles. But when those remedies are insufficient, the Uncertificated Securities Regulations 1995 provide an ultimate backstop.
Regulation 30 places a no-fault liability on the operator in respect of loss arising from the alteration of an entry on a register of title. But a potential litigant must be careful to ensure his action is within the regulation.
The alteration to the register must have been caused by a "forged dematerialised instruction" or "an induced operator-instruction". A forged instruction is one which comes from outside the Crest system (for example, from a hacker), or one which does not give the true identity of the sender.
An induced operator-instruction is one which comes from the operator, having been "induced" by a forged instruc tion or some other unlawful ("causative") act.
If the perpetrator of the forged instruction or causative act can be identified, or if the loss results from a failing by the registrar, the operator is not liable under regulation 30. The loser must proceed against the person responsible or the registrar.
Even if the operator is liable under regulation 30, compensation is limited to £50,000 per forged instruction or induced operator-instruction, resulting in alteration to the register.
Regulation 30 also imposes certain discovery obligations. Once an application is made to the court, the operator must disclose information relating to the forged instruction or induced operator-instruction within one month of a request. Once complied with, the operator can require the plaintiff to disclose steps taken by him to prevent or mitigate his loss.
Although regulation 30 is a little complex, it provides additional comfort for those using Crest.