Technical Corner, 5th August 2022 – Emily Deane TEP, STEP Technical Counsel & Head of Government Affairs
The Law Commission of England and Wales published a new consultation paper on 28th July. It seeks views from legal and technology experts in order to examine how existing personal property law should apply to digital assets.
The UK Government has asked the Law Commission to make recommendations for reform to ensure that the law is capable of accommodating both “crypto-tokens” (the term favoured by the Law Commission) and other digital assets in a way that enables them to evolve.
The Law Commission seeks to deliver “wider recognition and legal protections for digital assets” to give a broader range of people, businesses and institutions access to the flourishing sector.
The proposal highlights the multi-faceted and wide spread use of cryptocurrencies, non-fungible tokens (NFTs) and other digital assets.
Cryptocurrencies are used as a means of payment, store of value and as a digital representation of ownership or rights to equities and debt securities. NFTs are becoming increasingly popular and mainstream particularly in relation to the acquisition of digital art.
Therefore, the Law Commission recognises that the law needs to adapt and develop alongside the evolution of digital assets to provide legal certainty for the consumer.
Legal support and clarification would also incentivise the use of English and Welsh law, and its appeal as a legal jurisdiction, which would ultimately help to support and uphold the UK’s status as a competitive economy and an international financial centre.
The Law Commission’s four key proposals are:
- Explicitly recognising a distinct category of personal property under the law which is better able to accommodate the unique features of digital assets. The distinct category is provisionally called “data objects”.
- Options for how this distinct category of personal property could be developed and implemented under current law.
- Clarifying the law around ownership and control of digital assets.
- Clarifying the law around transfers and transactions involving digital assets.
The main crux of the consultation paper is to examine how personal property laws apply to digital assets and whether they should fall into a unique category called “data objects” which would recognise the nuanced features of those digital assets.
STEP’s UK Technical Committee produced a guidance note in September 2021, which was shared with HMRC, and examines the location of cryptocurrency for tax purposes in the absence of statutory rules in England & Wales.
We are pleased that the government has recognised that digital assets could benefit from enhanced legal recognition and protection and this will be a significant project and undertaking for the Law Commission to tackle.
STEP welcomes the Law Commission’s call for evidence from the legal sector to clarify these ambiguities and will be submitting a formal response in due course.