The Law Commission of England and Wales has recently released a report outlining recommendations for the reform and development of the law surrounding digital assets and personal property.
What is the current situation?
Digital assets, which encompass cryptocurrencies (also referred to as crypto-tokens) and non-fungible tokens (NFTs), have become increasingly prevalent in various aspects of modern society. While the existing personal property law has proven adaptable to accommodate digital assets over the past 15 years, there are still areas of legal uncertainty and complexity that need to be addressed as the digital asset market and technology continue to evolve.
What is being done to change this?
To tackle these challenges, the Law Commission was tasked by the Government to conduct a comprehensive common law analysis, exploring how the legal framework in England and Wales can effectively respond to emerging digital technologies.
The aim of the Commission’s recommendations is to establish a robust legal foundation that fosters the growth of digital assets, enabling many to engage with and benefit from these technologies.
What do the Commission suggest?
A unique category of personal property
The report emphasises that digital assets, being intangible and distinct from physical assets and rights-based assets like debts and financial securities, do not neatly fit into traditional categories of personal property.
However, the Commission argues that the flexible nature of common law provides an opportunity to create a unique category of personal property that recognises and safeguards the distinct features of digital assets.
The Commission suggests enacting legislation to confirm the existence of this category, ensuring clarity and removing any remaining uncertainties.
A panel of industry experts
To ensure that courts can effectively navigate the complexities of emerging technologies, the Commission calls upon the Government to establish a panel of industry experts. This panel would comprise individuals with expertise in technical and legal matters pertaining to the control of digital assets and would provide non-binding advice to the courts on intricate legal issues in this field.
Bespoke legal framework
In addition to addressing legal uncertainties, the Commission also proposes the creation of a bespoke legal framework that facilitates the establishment, operation, and enforcement of collateral arrangements concerning crypto-tokens and crypto-assets. This recommendation aims to provide market participants with legal tools that currently do not exist in England and Wales, thereby enhancing the overall security and efficiency of transactions involving digital assets.
Statutory law reform
Furthermore, the Commission suggests statutory law reform to clarify whether specific digital assets fall within the scope of the Financial Collateral Arrangements (No 2) Regulations 2003. This regulatory clarity would provide further guidance and ensure compliance within the financial sector when dealing with digital assets.
Does this align with the Government’s goals?
It aligns with the Government’s goal of positioning England and Wales as a global hub for crypto-tokens and crypto-assets while attracting technological development to the region.
The Government now have to decide whether to move forward with these recommendations. Should the recommendations be adopted, they have the potential to revolutionise the legal landscape surrounding digital assets, providing a solid foundation for their continued growth and integration into various sectors of the economy.
The Law Commission’s recommendations for reform and development of the law regarding digital assets represent a significant step forward in providing a comprehensive legal framework for these emerging technologies.
By recognising the unique nature of digital assets and proposing the creation of a distinct category of personal property, along with other necessary legal reforms, the Commission aims to ensure clarity, security, and efficiency in transactions involving digital assets.
As per HM Treasury-Financial Conduct Authority-Bank of England Cryptoassets Taskforce the Cryptoassets Taskforce final report in October 2018, “the Government has set out an ambition for the UK to be the world’s most innovative economy, and to maintain its position as one of the leading financial centres globally.“ This includes ensuring both the UK domestic laws and UK taxation of digital assets/crypto go forward together in harmony. It is now up to the Government to carefully consider these recommendations and determine the path forward.
This article was written by Nikita Cooper, a Tax Director at Price Bailey. Nikita advises high-net worth individuals on their UK personal tax affairs, estate and succession planning. She also works with UK-resident non-domiciled clients with multi-jurisdictional personal interests. If you have a question relating to how the proposed suggestions mentioned in this article may impact you, then you can contact Nikita using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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