Following the Digital Assets Call for Evidence in 2021, the UK Law Commission has published a consultation on proposals to reform English and Welsh law to recognize and protect the rights of users of digital assets. The Law Commission believes that the law of England and Wales is resilient, flexible and iterative enough to adapt to digital assets, including crypto-assets and stablecoins. However, the Law Commission believes that legislative reforms are needed to ensure that digital assets receive consistent legal recognition and protection. Responses to the consultation can be submitted until November 4, 2022.
Among other things, the Law Commission proposes:
- Explicit recognition of a new category of personal assets, which they call “data objects,” including the conditions that must be met for an asset to fall within the scope.
- The law could be implemented either through common law reform or through limited legislative intervention – advice is sought on the preferred method.
- The concept of control best describes the relationship between people and data objects, rather than the concept of possession.
- By tentatively concluding that crypto-tokens satisfy the proposed criteria and are appropriate objects of ownership rights, the derivative ownership transfer rules can be applied to such transfers.
- Explicit clarification that the special bona fide buyer defense for value without notice should apply to crypto token transactions.
- Statutory law reforms to clarify the scope and application of the Property Act 1925, including the exclusion of certain eligible transfers of equitable rights in crypto-tokens represented by recorded entries in electronic formalities registers, such as the need for an instrument to be in writing and signed, required for equitable interests or trust provisions.
- This reform is necessary to clarify the allocation of lost profits resulting from commingled holdings of crypto tokens held in trust by an insolvent custodian.
The Law Commission is also considering whether a bespoke legislative framework should be developed for collateral agreements for crypto-token transactions and suggests that there is an arguable case for giving courts discretion to award relief worded in certain crypto tokens.