The United Kingdom’s Law Commission has emphasized the need for greater clarity regarding cryptocurrency lending and its classification within existing financial collateral regulations. In an interview with Cointelegraph, Laura Burgoyne, the lawyer leading the Law Commission’s review on British laws pertaining to digital assets, shared the organization’s four major recommendations to the UK government. These recommendations come after a comprehensive evaluation of the current legal frameworks and their application to the digital asset sector.
One of the Law Commission’s key proposals is the creation of a distinct category of personal property specifically for cryptocurrencies and digital assets. Additionally, the commission suggests establishing an industry-specific panel, developing a legal framework for crypto-related assets, and implementing legal reforms to determine whether these assets fall under the scope of the UK’s Financial Collateral Arrangements Regulations (FCAR). The FCAR enables traditional finance intermediaries to secure assets without certain restrictions and formalities typically imposed.
Burgoyne highlights the importance of FCAR in streamlining asset security and ensuring the smooth operation of the crypto market. Understanding the applicability of FCAR to collateral arrangements involving digital assets is crucial for market certainty. The classification of cryptocurrencies, digital assets, and tokens as eligible collateral depends on whether they can be considered “cash,” “financial instruments,” or “credit claims” according to FCAR.
To address the ambiguities surrounding digital assets, Burgoyne emphasizes the need to review the FCARs’ application to new asset classes, including crypto-tokens, central bank digital currencies (CBDCs), and stablecoins. Clarifying the situation would provide much-needed certainty in the market.
The Law Commission’s primary recommendation revolves around adapting existing personal property laws in the UK to encompass cryptocurrency and digital asset legal proceedings effectively. While personal property law traditionally falls under common law rather than statutory law, the courts have grappled with disputes related to digital assets and have generally found solutions within the common law framework. However, digital assets do not easily fit into the existing personal property categories, such as “things in possession” or “things in action,” resulting in inconsistent outcomes.
To address this issue, the Law Commission proposes the creation of a distinct third category of personal property law tailored for digital assets. This new category would account for the unique nature of digital assets that do not align neatly with the existing classifications.
The Law Commission’s recommendations are concise and focused. The proposal suggests establishing an expert working group and implementing statutory reforms promptly when common law fails to resolve disputes. By adopting these suggestions, the UK government aims to implement the recommendations swiftly and effectively.
In conclusion, the need for clarity in crypto lending regulations in the UK is evident. The Law Commission’s comprehensive review underscores the importance of defining the legal status of digital assets within existing frameworks. Establishing clear regulations and creating specific categories for digital assets will provide market certainty and facilitate the smooth operation of the crypto industry in the United Kingdom.