The Law Commission of the United Kingdom has presented a set of recommendations aimed at reforming laws governing the use and ownership of cryptocurrencies and digital assets. The key proposal put forward by the Commission is the establishment of a distinct legal category that recognises the unique characteristics of these digital assets and provides them with appropriate legal protection.
The review conducted by the Law Commission, in response to a government mandate, involved a thorough analysis of the existing legal frameworks in England and Wales to assess their compatibility with cryptocurrencies and non-fungible tokens (NFTs). In addition to the proposal for a new legal category, the Commission has made three other significant recommendations that address the challenges posed by digital assets.
The primary recommendation is the creation of a specific personal property category for digital assets. Notably, the Commission deliberately refrained from defining clear boundaries for this category, suggesting that the determination of which assets fall within it should be left to the common law system in the UK.
The Law Commission believes that establishing this new category would allow for a more nuanced approach to recognizing and classifying digital assets, including cryptocurrencies and digitized instruments such as carbon emission credits or export quotas.
Another significant recommendation is the formation of an industry-specific panel comprising technical experts, legal professionals, academics, and judges. This panel would provide non-binding advice to courts on various legal issues and considerations related to cryptocurrencies, offering specialized insights and expertise.
Additionally, the Commission proposes the development of a customised legal framework to facilitate the operation and enforcement of collateral arrangements involving cryptocurrencies and digital assets. This framework aims to address the specific needs and complexities of the crypto industry.
Lastly, the Law Commission calls for statutory law reforms to clarify whether certain digital assets fall under the scope of the UK’s Financial Collateral Arrangements Regulations of 2003. Such clarification would provide market participants with greater regulatory clarity and certainty.
The Law Commission initiated its review of the legal challenges surrounding cryptocurrencies in October 2022, following a request from the Ministry of Justice. In March 2023, the UK Treasury and Home Office announced plans to implement robust regulations on the crypto sector to combat potential criminal activities associated with cryptocurrencies.
The proposed recommendations by the Law Commission demonstrate the UK’s commitment to adapting its legal frameworks to the evolving landscape of digital assets. By establishing a distinct legal category and an industry panel, the UK aims to provide adequate protection, foster innovation, and create a conducive environment for the use and growth of cryptocurrencies and digital assets.
