The rapid evolution of technology has given rise to the proliferation of digital assets, leading to a need for comprehensive legal frameworks to govern these assets. Recognizing this, the Law Commission, an independent body in charge of reviewing and recommending reforms in the legal system, has recently published its final report on digital assets. The report addresses various legal and regulatory challenges surrounding digital assets, providing valuable insights and recommendations for policymakers, businesses, and individuals operating in this dynamic landscape.
Understanding Digital Assets:
Digital assets encompass a wide range of intangible assets that exist in a digital or electronic form. They include cryptocurrencies, virtual currencies, digital tokens, non-fungible tokens (NFTs), digital securities, and other types of digital representations of value or ownership. The unique characteristics of digital assets, such as their decentralized nature and cryptographic security, present both opportunities and challenges for regulators and legal systems worldwide.
Looking at digital assets through the lens of a will writing professional also poses unique challenges in defining what is “property” and how they are capable of passing on death.
The Law Commission’s final report delves into various aspects of digital assets and presents key findings and recommendations. Some of the notable highlights include:
- Introducing a third category of property: While it is recognised that cryptoassets and some other forms of digital asset have all of the legal characteristics of property they are not things “in possession” or things “in action” on account of their virtual status. Although concluding that the common law is flexible enough to recognise a distinct category of personal property relating to digital assets, the Law Commission proposes a third category of property is set out in legislation to confirm a digital asset has property rights despite being neither a chose in possession or a chose in action.
- Coordinated guidance on digital assets: The report emphasizes the importance of clear and adaptable regulations to foster innovation while addressing potential risks associated with digital assets. It recommends that the Government organise a panel of industry-specific technical experts, legal practitioners, academics, and judges to provide non-binding guidance on the issues of control of different types of digital assets, ensuring compliance with existing laws and regulations.
- Amendments to FCARs: The Law Commission recommends statutory amendments to clarify whether certain digital assets fall under the Financial Collateral Arrangements (No 2) Regulation 2003 (2003/3226) and if so under which holding arrangements.
- Collateral arrangements: The Government should set up a multi-disciplinary project to design a bespoke statutory legal framework that better facilitates the entering into, operation and enforcement of crypto-token and cryoptoasset collateral arrangements.
The Law Commission’s final report on digital assets serves as a significant milestone towards shaping the legal and regulatory landscape for this emerging asset class.
As the digital asset ecosystem continues to evolve, it is essential for lawmakers, regulators, and industry stakeholders to work together to ensure a balanced and conducive legal framework, which is largely what the Law Commission’s report is recommending. By doing so they may be paving the way for a more secure and efficient digital economy and towards making the UK a global hub for cryptoasset technology and investment, in keeping with the Government’s ambitions. For now though it rests upon the Government to decide if any recommendations will be taken forward.
The full report and the Law Commission’s recommendations and conclusions can be read here: https://www.lawcom.gov.uk/project/digital-assets/