Law Commission Publishes Recommendations for Digital Assets Reform

On 28 June 2023, the UK’s Law Commission (“Commission”) published its final report (“Report”) setting out its recommendations to UK Parliament on proposed changes to UK law to ensure it better recognises and protects digital assets, particularly crypto-tokens and cryptoassets. This follows the Commission’s “Digital Assets: Consultation paper” from July 2022, which included a detailed consideration of private law issues relating to digital assets. The Commission’s Report and accompanying summary are available here and here respectively.

The Report’s recommendations and conclusions for the reform and development of UK law(s) on digital assets cover:

• Common law emphasis. The common law system in England and Wales is well-placed to provide a coherent and globally relevant regime for existing and new types of digital assets. Nevertheless, the Commission recommends targeted statutory reform to reinforce common law development and support the existing common law position.
• Third category of personal property. The flexibility of the common law allows for the recognition of a distinct category of personal property, known as “digital objects”, which can better recognise, accommodate and protect the unique features of digital assets such as crypto-tokens. However, the Commission recommends legislation to confirm the existence of this category and remove any uncertainty.
• Technical expert group. The Commission recommends that the Government establish a panel of industry-specific technical experts to provide non-binding guidance on complex legal issues relating to digital assets.
• Future work on securitisation and collateralisation of crypto-tokenisation. The Commission recommends that the Government provide market participants with new legal tools that do not yet exist in England and Wales, such as taking security over crypto-tokens and tokenised securities.

Following the Report, the Government will now decide whether to take the Commission’s recommendations forward.