UK Law Commission launches call for evidence on digital and crypto assets
How ready is English law to accommodate emerging technologies, in particular digital assets?
The key takeaway
By instigating the Law Commission’s consultations on digital assets and electronic trade documents, the UK government has shown a desire to support digital trade and the adoption of emerging technologies. The Commission’s call for evidence (published April 2021) includes considering the benefits of giving greater certainty around the legal status of digital documents and assets, which is good news for a variety of digital business stakeholders, such as those engaged in international trade and non-fungible tokens (NFTs).
The Commission was asked by the Ministry of Justice (MoJ) and the Department for Digital, Culture, Media and Sport to recommend law reforms that will ensure English law accommodates electronic trade documents and digital assets. In September 2020, the Commission announced it had started analysing English law in the context of digital assets and smart contracts. The Commission recognises that English law needs to evolve to support an increasingly digital world. For example, it notes that the current law does not adequately enable international trade using electronic documents; a digital document is not currently recognised as something that can be “possessed” and therefore it cannot be classified as a formal document of title. This issue can cause significant difficulties in the process of international trade and its financing. This digital assets project is intended to build on the Commission’s electronic trade documents consultation and considers other areas such as cryptoassets (which will draw on the conclusions of the UK Jurisdiction Taskforce’s significant Legal Statement on cryptoassets and smart contracts).
The MoJ asked the Commission to include the following points in its investigation into digital assets, namely: the current state of the law; recommended solutions to the problems caused by the lack of recognition of digital assets as “possessable”; recommendations to ensure the law provides legal certainty and predictability around digital assets; and areas of future consideration.
The Commission’s consultation asks for evidence and views on the following issues:
- possessability – the legal and practical implications if digital assets were possessable,
- transferability – analogies between the transfer of digital assets and other legal transfers (eg cash or bank transfers)
- the mechanics of cryptoasset transfers on the blockchain
- the distinction between ownership and possession and whether this distinction is helpful in the context of digital assets
- classification of digital assets as goods and practical consequences, also in the context of key legislations such as the Sale of Goods Act 1979, Supply of Goods and Services Act 1982 and the Consumer Rights Act 2015
- title transfer – whether it is possible to transfer good title to a digital asset
- transfer of tokenised assets and the relationship between a digital asset token and its underlying asset
- security and whether the difficulties of controlling a digital or crypto asset reduces the efficacy of a mortgage or charge
- bailment – whether it would be a practical or useful concept if digital assets were considered possessable
- conversion of digital assets and how it could arise in practice, and
- comparison with other jurisdictions.
Responses will be accepted until 30 July 2021. The Commission then intends to publish a consultation paper by the end of this year.
Why is this important?
The Commission’s project show the UK government is serious about supporting digital commerce and mining the benefits of emerging technologies. Responses to the call for evidence will help the Commission identify gaps in the law, determine whether English law can accommodate the use of digital assets, and help direct law reforms. Greater certainty about the legal status of digital assets would also create a strong foundation for increasing adoption.
Any practical tips?
Stakeholders and market participants who are well versed in the technical and practical aspects of digital asset dealing are encouraged to contribute their evidence and views to the consultation. Despite previous consultations, digital assets still exist in an area of major legal uncertainty; those at the coal face are best placed to help legislators navigate it and to enable the law to develop in the best way to support adoption of these technologies. Above all, the anticipated reforms should give confidence to stakeholders and market participants; so, watch this space as the Law Commission starts to grapple with the difficult questions relating to digital assets and processes, paving the way for greater adoption in the commercial world.