Law reforms designed to accommodate the growing importance of digital assets in society will provide much-needed clarity to a complex area of law which is currently a “legal minefield” and not widely understood, according to CILEX (the Chartered Institute of Legal Executives).
The Law Commission’s consultation paper on digital assets recommends law reforms that recognise and protect the rights of users of both crypto-tokens and other digital assets and maximise their potential. The key proposal is to establish a third category of personal property to cover these assets, to be known as “data objects”.
In its response, CILEX says digital assets currently sit between personal property laws or fall outside them, causing difficulties for practitioners who lack clarity on how to handle them. they state many have limited exposure to digital assets and there is a “widely held perception that crypto-tokens and currencies were utilised for potentially illegal means, due to the way in which they work and their traceability”.
Therefore, CILEX welcomes the Law Commission’s proposed approach. Reform would, CILEX hopes, go some way to tackling both the knowledge gap and the negative perceptions around this evolving asset class.
Its response highlights the need to establish a panel of professionals tasked with drawing up non-binding guidance for practitioners. CILEX argues for the inclusion of knowledgeable lay members as well as legal experts and says there should be robust guidance to ensure that legal professionals and the public are aware of “why certain data objects do or do not match criteria to fall within the proposed third personal property category”.
CILEX claims any reforms to the law must seek to ensure consistency. In private client work, for example, practitioners report that different approaches across the market to dealing with inheritable digital assets can “cause further emotional distress to families when handling a loved one’s affairs”.
CILEX also expressed their agreement with the use of statute to provide “the initial shaping and fundamental principles of digital assets”, but also considers that common law should “establish effective rules regarding title and/or priority for disputes involving multiple persons with control of a crypto-token”.
Its response says that it would not be appropriate for it to be at a court’s discretion to award crypto-tokens as remedy similar to current money denominations. While CILEX appreciates the Law Commission’s evidence on the use of discretion, it advises against the use of crypto-tokens at the current time given their lack of stability, with “peaks and troughs within the digital currency market proving less predictable than current established monetary exchange rates”.
CILEX president Matthew Huggett said:
“The rapid rise in the use and ownership of digital assets means that reform of the law to accommodate them and clarify this often-complex area is much needed.
This is a young technology and there are disparities in existing guidance as well as a lack of knowledge amongst practitioners. Whilst the work of the Law Commission in this area presents considerable challenges, we hope that reform will provide legal certainty for lawyers, better protections for asset owners and lay strong foundations for the development and adoption of digital assets.”