The UK needs to reform legislation to specifically account for cryptocurrencies and nonfungible tokens, the country’s Law Commission said, arguing that existing laws aren’t robust enough to govern the fledgling sector.
Laws regarding personal property should be changed to include a distinct category for so-called “data objects”, which would encompass intangible, and sometimes unique, assets like crypto tokens, the commission said. The organization, an independent agency, makes recommendations to the government.
If implemented, the reforms would make it easier for courts to decide ownership claims over tokens, and to identify risks that are unique to crypto. It could also put the UK at the forefront of establishing where crypto and decentralized finance fits into private law globally, establishing a precedent that other international legal regimes could follow.
The commission floated the possibility that courts should be allowed to award damages denominated in cryptocurrencies but stopped short of formally recommending the proposal. It would enable courts to sidestep the issue of exactly when a cryptocurrency needs to be converted into fiat for settlement, a topic that is particularly timely as billions of dollars are tied up in the bankruptcy proceedings of major crypto companies like Celsius and Three Arrows Capital.
The proposals come in the wake of a speech by one of the country’s most senior judges, Geoffrey Vos, who said the UK had a chance to provide the international legal and regulatory foundations for using cryptoassets and distributed ledger technology, if it could be bold enough to take the first step.
“We are in a period of very significant opportunity,” Vos said. “If English law and the UK’s jurisdictions can provide the legal backdrop of choice to DLT systems, a big economic prize will follow.”
Matthew Kimber, a lawyer for the commission who contributed to the proposals, said the new category could be used for additional areas of financial market infrastructure such as voluntary carbon credits, a move that could give non-crypto sectors the confidence to adopt blockchain-esque global liquidity structures.
The UK is exploring legislation and regulation for digital assets in several areas, recently cementing plans to provide the Financial Conduct Authority with more powers over cryptocurrency companies and bring so-called stablecoins under existing banking regimes. The Law Commission’s proposals are provisional while it gains feedback from market participants, but its recommendations are typically implemented by UK government once finalized.