The Law Commission of England and Wales has just published recommendations for reform and development of the law relating to digital assets.
Digital assets – which include crypto-tokens (sometimes referred to as ‘cryptocurrencies’) and non-fungible tokens (NFTs) – are used for an increasing variety of purposes in modern society, such as for investment, for making payments, and for linking to or embodying debt and equity securities.
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.
The Government therefore asked the Law Commission to carry out a first-ever rigorous common law analysis, showing how the law in England and Wales 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.
In its report, the Commission shows 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.
Because digital assets are not tangible and differ significantly from physical assets, and from rights-based assets like debts and financial securities, they do not fit within traditional categories of personal property. Nonetheless, the Commission argues that the flexibility of common law can accommodate a distinct category of personal property to better recognise and protect their unique features. The Commission also recommends legislation to confirm the existence of this category and remove any uncertainty.
To ensure that courts can respond sensitively to the complexity of emerging technology, the Commission calls on Government to create a panel of industry experts who can provide guidance on technical and legal issues relating to the control of digital assets.
The Commission also makes recommendations to provide market participants with legal tools that do not yet exist in England and Wales, such as new ways to take security over crypto-tokens and tokenised securities.
The Commission’s recommendations for reform and common law development aim to create a clear and consistent framework for digital assets that will provide greater clarity and security to users and market participants. The recommendations also support the Government’s goal of attracting technological development to cement the position of England and Wales as a global hub for crypto-tokens and crypto-assets.
Professor Sarah Green, Law Commissioner for Commercial and Common Law, said: “The use and importance of digital assets has grown significantly in the law few years. The flexibility of the common law means that the legal system in England and Wales is well placed to adapt to this rapid growth. 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.”
Justice Minister, Mike Freer, said: “The UK is a world leader in legal innovation and these findings demonstrate the strength of English and Welsh law in responding to the fast-paced changes caused by emerging technologies in the law sector. We must ensure our law remains equipped to meet the complexities of these technologies well into the future, and we will carefully consider these findings as we look to further strengthen the future of our globally-renowned legal system.”
Andrew Griffith, Economic Secretary to the Treasury, said: “Our reputation for straight dealing, use of the English language and flexible common law attracts business across the world. This, combined with our straightforward approach to regulating crypto-assets puts the UK at the vanguard of innovation to drive growth in digital assets and boost our economy. I firmly welcome the Law Commission’s Final Report on Digital Assets and the work done to meet the complexities of these technologies well into the future – and will carefully consider their findings and recommendations.”
It is now for the Government to decide whether it intends to take our recommendations forward.