The lawyer leading the United Kingdom’s Law Commission’s review of British laws concerning digital assets, Laura Burgoyne, has emphasized the need for further clarity regarding cryptocurrency lending. The Law Commission recently made four major recommendations to the U.K. government after conducting a thorough review of existing legal frameworks and their application to the digital asset sector.
One of the recommendations is the creation of a distinct category of personal property for cryptocurrencies and digital assets. Additionally, the commission proposed the establishment of an industry-specific panel, a legal framework for crypto-related assets, and legal reforms to determine whether digital assets fall under the U.K.’s Financial Collateral Arrangements Regulations (FCAR).
Burgoyne highlighted the importance of FCAR in enabling traditional financial intermediaries to take security over assets without certain restrictions and formalities. Security interest grants a legal claim over an asset provided by a borrower to a lender in case the borrower fails to meet repayment obligations. Burgoyne explained that evaluating whether cryptocurrencies, digital assets, and tokens can be used as collateral under FCAR depends on whether they qualify as “cash,” “financial instruments,” or “credit claims” under the regulations.
The scope of FCAR and its applicability to new asset classes like crypto tokens, central bank digital currencies, and stablecoins is a matter of legal interpretation. Burgoyne stressed the need to review the situation and provide clarity on the matter.
The Law Commission’s main recommendation focused on existing personal property laws in the U.K. and their application to cryptocurrency and digital asset legal proceedings. Digital assets do not easily fit into the existing personal property categories, such as “things in possession” or “things in action.” Burgoyne explained that applying existing legal rules to digital assets may not lead to fair or workable outcomes.
The Law Commission’s recommendations aim to establish a distinct third category of personal property law specific to digital assets. This recommendation addresses the challenges posed by digital assets not fitting neatly into existing categories. The government intends to implement the recommendations swiftly by setting up an expert working group and targeting statutory reform only where common law cannot resolve disputes.
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