A third legal category of personal property - alongside the existing 'things' (choses) of possession and action - should be formally recognised to cope with the world of cryptocurrencies and non-fungible tokens, the Law Commission recommends today. 

In a much-awaited final report of a government-commissioned study of the law relating to digital assets, the Law Commission states that England and Wales law is well placed to provide a coherent and globally relevant regime. This concurs with the findings of the UK Jurisdiction Taskforce, which in 2019 concluded that the common law recognised digital assets. However the commission today says that legislation is needed to confirm 'that a thing will not be deprived of legal status as an object of property rights merely by reason of the fact that it is neither 'a thing in action' nor 'a thing in possession'.

Significantly, the commission does not attempt to define this third category, arguing instead that common law is the best vehicle to determine which objects can fit within it. 'This will allow for a nuanced approach to recognising that things such as crypto-tokens, export quotas or different types of carbon emissions allowance can be objects of personal property rights,' the report states. Such third-category things might not even always be digital: they could include assets such as milk quotas, the report states.

Sarah Green

Green: Recommendations 'seek to solidify the legal foundation'

In other recommendations to clear up 'some residual legal uncertainty and complexity' the commission proposes the creation of: 

  • A panel of industry-specific technical experts, legal practitioners, academics and judges to provide non-binding advice to courts on complex legal issues relating to digital assets.
  • A bespoke legal framework that better facilitates the entering into, operation and enforcement of collateral arrangements relating to crypto-tokens and crypto-assets.

The report also proposes statutory law reform to clarify whether certain digital assets fall within the scope of the Financial Collateral Arrangements (No 2) Regulations 2003.

Professor Sarah Green, law commissioner for commercial and common law, said: 'Our recommendations for reform and development of the law seek to solidify the legal foundation for digital assets. We also aim to ensure that the private law in England and Wales remains a dynamic, globally competitive and flexible tool that enables further technological innovation.'

The recommendations will now go to the government, which could in theory implement the commission's legislation recommendation through an amendment to the Digital Markets, Competition and Communications Bill, currently at committee stage in the House of Commons.  

In a statement, justice minister Mike Freer MP said: 'We must ensure our law remains equipped to meet the complexities of these technologies well into the future, and we will carefully consider these findings as we look to further strengthen the future of our globally-renowned legal system.'