Crypto News – Law Commission – Digital Assets
On 24 November 2021, the Law Commission published its interim update as the Government requested recommendations for reform to ensure that cryptocurrency and other digital assets will be able to flourish within the English and Welsh legal system.
Digital assets are becoming increasingly important in our modern society and seem to inevitably be used for ever-expanding purposes. Crypto assets, cryptocurrency, smart contracts, and distributed ledger technology have broadened the way in which digital assets can be created, accessed, used, and transferred. Whilst digital assets are considered as property since AA v Persons Unknown there are certain aspects of law that need to be reformed to ensure their recognition and protection.
One area under consideration is the ability for a crypto asset to be in “possession”, which is currently limited to physical things and is a concept not only yet to be determined but also of particular importance to the cryptocurrency market.
An update on crypto & digital assets
The Law Commission’s call for evidence ended on 30 July 2021 and the next phase of work will be to distinguish between and provide definitions for the different types of sub-categories of digital assets. This will include digital files, digital records, domain names, “intangible things that might be the object of property rights” and crypto assets.
The Law Commission’s consultation paper will apply underlying legal principles of private law and any proposals for law reform to different broad sub-categories, given the wide interpretation of cryptocurrency and digital assets.
A significant consideration for the Law Commission and financial institutions operating in this area is the categorisation of certain digital assets and whether or not it will be legal to classify them as things in action, in possession, or as a third category personal property (neither a thing in action or possession).
The key principle areas being addressed are:
- Acquisition, disposition, derivative transfer of title, and competing claims in relation to digital assets;
- The taking of security over digital assets;
- Custody relationships in respect of digital assets; and
- How legal remedies or actions can protect digital assets.
Another key consideration of any suggested law reform will be with a view of being as consistent as possible with international legal developments given the global nature of many digital assets.
The future of cryptocurrency & digital assets
The Law Commission’s publication and report are anticipated to be published in mid-2022, but the issues surrounding crypto assets are ongoing and advice should be sought at an early stage.
This includes any fraud investigations, tracing of crypto assets, wills trust and probate advice, Financial Conduct Authority investigations/law enforcement and other regulatory investigations, and any family-related matters on the distribution of assets on divorce being a few areas that overlap with crypto assets, personal and business dealings.
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