The Law Commission of the United Kingdom has emphasized the need for more clarity regarding cryptocurrency lending, according to Laura Burgoyne, the lawyer leading the commission’s review of British laws towards digital assets. In an interview with Cointelegraph, Burgoyne outlined the organization’s four recommendations to the U.K. government, following a thorough examination of existing legal frameworks in the country and their application to the digital asset sector.
As previously reported by Cointelegraph on July 3, the Law Commission has called for the creation of a distinct category of personal property for cryptocurrencies and digital assets. Additionally, the commission recommended the establishment of an industry-specific panel and a legal framework for crypto-related assets. They also suggested legal reforms to determine if the asset class falls under the scope of the U.K.’s Financial Collateral Arrangements Regulations (FCAR).
Burgoyne highlighted the significance of FCAR in allowing traditional finance intermediaries to secure assets without certain restrictions and formalities that would typically apply. In the context of finance, security interest provides a legal claim over an asset if the borrower fails to meet repayment obligations. Burgoyne explained that these provisions streamline asset security in the event of investor defaults or insolvency, making them crucial for the smooth operation of the crypto market.
Determining whether cryptocurrencies, digital assets, and other tokens can be used as collateral under a qualifying financial collateral arrangement depends on whether the assets in question meet the criteria of “cash,” “financial instruments,” or “credit claims” under FCARs. The application of FCARs to new asset classes, including crypto tokens, central bank digital currencies, and stablecoins, requires an evaluation of existing laws, as it is currently subject to legal interpretation.
To address this issue, the Law Commission’s main recommendation focuses on existing personal property laws in the U.K. and their application to cryptocurrency and digital asset legal proceedings. While personal property law is traditionally a common law matter, the commission believes there is a need for a distinct third category that specifically pertains to digital assets. Digital assets do not neatly fit into the existing categories of “things in possession” or “things in action,” which has led to difficulties applying current legal rules to digital asset cases.
The commission’s recommendations aim to establish an expert working group and target statutory reform only when common law is unable to resolve disputes. This approach ensures that the recommendations can be implemented swiftly by the government.
In conclusion, the Law Commission of the United Kingdom has called for further clarity in cryptocurrency lending and has provided recommendations to the U.K. government. These include the creation of a distinct category of personal property for digital assets, the establishment of an industry-specific panel, and legal reforms to determine the applicability of FCARs to the crypto market. The commission also highlights the need for a new category of personal property law that specifically addresses digital assets. By implementing these recommendations, the U.K. can better navigate the legal challenges associated with the digital asset sector.
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