UK Law Commission Recommends ‘Distinct’ Legal Category for Cryptocurrencies

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The UK Law Commission has taken a significant stride towards adapting legal frameworks to keep pace with the fast-evolving world of cryptocurrencies and digital assets. Recognizing the need for comprehensive reforms, the Commission has outlined four key recommendations to reshape laws governing the use and ownership of cryptocurrencies. 

UK Law Commission recommends ‘distinct’ legal category for crypto

The Law Commission of the United Kingdom is advocating for the development of a “distinct” class of personal property to accommodate and safeguard the special characteristics of cryptocurrencies and digital assets. This recommendation, alongside three others, follows a mandate from the British government to assess how legal frameworks in England and Wales can effectively accommodate cryptocurrencies, non-fungible tokens (NFTs), and other digital assets.

Notably, the Commission intentionally refrains from defining clear boundaries for this proposed category, emphasizing the importance of utilizing existing common law principles to determine the inclusion of specific digital assets.

The Commission’s Call for Nuanced Approach

In its pursuit of accommodating the diverse range of digital assets, the UK Law Commission proposes the establishment of a new personal property category that would enable a nuanced approach to recognizing cryptocurrencies, digitized instruments, and more. This inclusive framework would extend its coverage to assets like carbon emission credits and export quotas, reflecting the Commission’s recognition of the evolving nature of digital finance. 

Additionally, the Commission suggests creating a specialized group that includes experts in technology, lawyers, academics, and judges. This panel would provide non-binding advice to courts, addressing various legal considerations and issues relevant to the sector. The aim of these recommendations is to improve the effectiveness of collateral agreements and make the enforcement process more efficient.

The final recommendation suggests making changes to the existing laws to clearly determine if certain digital assets should be covered by the Financial Collateral Arrangements Regulations of 2003 in the United Kingdom.

Regulatory Measures to Address Cryptocurrency Challenges

In response to the growing concerns surrounding the cryptocurrency sector, the Law Commission commenced a thorough review of the legal complexities associated with cryptocurrencies on an international scale. The review, initiated in October 2022, was specifically requested by the Ministry of Justice to shed light on the legal challenges faced by various jurisdictions.

The U.K. Treasury and Home Office have recently unveiled their plans to implement robust regulations. The objective behind these measures, announced in March 2023, is to effectively tackle and curb the illicit use of cryptocurrencies, protecting the interests of individuals and the integrity of financial systems.