The Law Commission of England and Wales has published recommendations for reform and development of the law relating to digital assets, including crypto-tokens (cryptocurrencies) and non-fungible tokens. They are increasingly used for an increasing variety of purposes, such as for investment, for making payments, and for linking or embodying debt and equity securities.
The Commission says that over the last 15 years, personal property law in England and Wales has proven sufficiently flexible to accommodate digital assets. However, as the digital asset market and related technology continue to change, there remains some residual legal uncertainty and complexity. Consequently, the UK government asked the Law Commission to investigate how the law in England and Wales can respond to this kind of emerging technology.
The Commission’s recommendations for reform and development pf the law aim to provide a comprehensive legal foundation for digital assets which will allow these new technologies to flourish, enabling a diverse range of market participants to interact with and benefit from them. It says that the common law of England and Wales is well placed to provide a coherent and globally relevant regime for existing and new types of digital asset.
The Law Commission’s recommendations for reform of the law on digital assets
The Law Commission has made the following recommendations:
- Legislation to confirm the existence of a distinct third category of personal property under the law which can better recognise, accommodate and protect the unique features of digital assets. The report does not set out clear boundaries for this third category, arguing instead that common law is the best vehicle to determine which objects can fit within it. This will allow for a nuanced approach to recognising that things such as crypto-tokens, export quotas or different types of carbon emissions allowance can be objects of personal property rights.
- Creation of a panel of industry-specific technical experts, legal practitioners, academics and judges to provide non-binding advice to courts on complex legal issues relating to digital assets.
- Creation of a bespoke legal framework that better facilitates entering into, the operation and enforcement of collateral arrangements relating to crypto-tokens and crypto-assets.
- Statutory law reform to clarify whether certain digital assets fall within the scope of the Financial Collateral Arrangements (No 2) Regulations 2003.
Next steps
It is now for the UK government to decide whether it intends to take the recommendations forward.
