Law commission

UK Law Commission launches consultation on digital assets | Morgan Lewis – Technology and Procurement

The UK Law Commission (the Commission) published a consultation paper on July 28, 2022, proposing certain private property law reforms in relation to digital assets, in response to the UK government asking the Commission to ensure so that the law can adapt to digital. assets as they evolve and develop. The Commission has recognized the increasingly important role that digital assets play and that property rights are essential for the proper characterization of new and complex legal relationships involving digital assets.

The Commission agreed that it should avoid creating a new legal and regulatory regime that discourages the use of new technologies rather than providing them with the basis for their development. Although the Commission considers that the legislation in England and Wales is flexible enough to accommodate digital assets, it believes that certain aspects of the law need to be reformed to ensure that digital assets are given recognition. and consistent legal protection. As such, it proposes fundamental law reforms that seek to build on existing principles of private property law and that will allow the court to continue to iterate and innovate.

One of the main proposals (and consultation points) of the Commission concerns the categories of movable property. The Commission is of the view that digital assets (e.g. crypto tokens) cannot be properly classified into either of the traditionally recognized categories of “things in possession” or “things in action”, and proposes instead a third category of personal property called “data objects.” This new category aims to allow a more nuanced consideration of these emerging objects of property rights.

The Commission has proposed the following criteria that an item must meet to be a data object:

  • It must consist of data represented in an electronic medium, including in the form of computer code, electronic signals, digital or analog.
  • It must exist independently of people and legal systems.
  • He must be a rival.

The consultation continues with the analysis of the application of this criterion to cryptographic tokens, concluding on a preliminary basis that cryptographic tokens meet the criteria and are therefore appropriate objects of property rights that fall under this new category of objects of data. The Commission is further considering other related areas that could benefit from legislative reform, typically by referring to existing market practice regarding crypto tokens, including non-fungible tokens.

The reforms proposed by the Commission reflect the ever-changing environment for digital assets and are designed to ensure that the law remains dynamic, competitive and flexible to support transactions and other agreements involving digital assets. They also aim to help deliver the government’s recently announced intention to make the UK a global hub for crypto-assets. Providing wider recognition and legal protections for digital assets in this area would undoubtedly help accelerate further investment in UK crypto-asset technology and businesses.

As always, the devil is in the details, but implementing some of the key proposals put forward by the Commission would bring welcome certainty and additional robustness to an emerging asset class within what is already a legal and regulatory framework ( relatively) accommodating that the UK offers to stakeholders. Private funds and other space investors should welcome the added certainty that the proposals largely represent. Whether they help introduce the tools that can later be used to stifle innovation and growth remains to be seen, but the intentions displayed are certainly positive.

The consultation ends on November 4, 2022. For more information, read the full consultation document.

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