The Law Commission of England and Wales has published its long-awaited recommendations for reform and development of the law relating to digital assets, including crypto-tokens.
Over the past 15 years, personal property law in England and Wales has proven sufficiently flexible to accommodate digital assets. However, the changes in technology mean that there is legal uncertainty and complexity (no surprise!. As a result, the UK government asked the Law Commission to analyse the law of England and Wales to show how it can respond to this kind of emerging technology.
The Commission’s recommendations for reform and development of 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. It also makes clear that it uses the term “digital asset” as a broad catch all to cover various subsets, whereas the term “crypto-token” is used to describe digital tokens that can be traded, used to record, embody, link to another asset or legal right, or used as a store of value.
The recommendations are as follows:
- New laws to confirm the existence of a distinct third category of personal property which can better recognise, accommodate and protect the unique features of digital assets. The report does not set out 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 the entering into, 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.
It is now for the UK government to decide if it wants to progress the recommendations. Interestingly, the Law Commission has not yet considered IP issues (or the transfer of digital assets after death), although these were considered in its consultation. The Commission says that it will consider the issues relating to transfer after death as part of its 14th programme of reform.
Our recommendations for reform and development of the law therefore seek to solidify the legal foundation for digital assets. We also aim to ensure that the private law in England and Wales remains a dynamic, globally competitive and flexible tool that enables further technological innovation