A lawyer who led the UK Law Commission’s review of the application of UK laws to digital assets has highlighted the need for more clarity on cryptocurrency lending.
In an interview with Cointelegraph, Laura Burgoyne unpacked the details of the organization’s four main recommendations to the UK government. This comes after a lengthy process of reviewing existing legal frameworks in the country and how they have been used so far in the digital asset sector.
As Cointelegraph reported On July 3, the Law Commission calls for the creation of a separate category of personal property for cryptocurrencies and digital assets. In addition, the authority recommended the establishment of a sector-specific panel and legal framework for cryptocurrency-related assets, as well as legal reforms to clarify whether this asset class falls within the scope of the UK’s Financial Assurance Regulations (FCAR).
Burgoyne emphasized the importance of the FCAR in that it allows traditional financial intermediaries to take over asset collateral “without the many restrictions and formalities” that would traditionally apply.
In connection with finances, the law gives a lien Claim over the asset that the borrower has delivered to the lender in the event that the borrower cannot meet his repayment obligations. Burgoyne told Cointelegraph that the purpose of these provisions is to make asset protection more effective in the event that an investor defaults or becomes insolvent.
“They are an important tool in the use and regulation of collateral arrangements and for the smooth functioning of the cryptocurrency market and market certainty it is essential to know whether the FCAR applies in the context of collateral arrangements in respect of certain digital assets. .”
Whether cryptocurrencies, digital assets and other tokens can be used as collateral in a qualified financial security arrangement depends on whether the assets can constitute “cash”, “financial instruments” or “credit receivables” under the FCAR.
Burgoyne added that the scope of “the FCARs regime is largely a matter of legal interpretation” and whether the policy applies to new asset classes including crypto tokens, CBDCs and stablecoins requires an evaluation of existing law:
“For this reason, we think there is a need to review the situation and clarify the matter.”
Personal property law works, but a new category is needed
The Law Commission’s main recommendation focused on existing personal property laws in the UK and how they have been applied to court proceedings involving cryptocurrencies and digital assets to date.
As Burgoyne explains, the law of personal property has traditionally been a matter of common law rather than statute law. The common law, which is developed by the court system and not by Parliament, was considered “flexible” enough to respond to an “infinite variety” of circumstances and disputes:
“For the past decade, courts have had to deal with disputes involving digital assets and have largely been able to find appropriate common law solutions.”
The need for a “distinct” third category of personal property law relating to digital assets is due to the fact that digital assets do not fit easily into existing categories of personal property.
Existing types of personal property law in the UK include ‘things in possession’, such as a vehicle or personal computer, and ‘things in action’, which can be legal rights or debts owed.
“Digital assets cannot be easily placed into any category, and applying the legal rules of one category or another to digital assets does not always achieve what seems obvious, fair, or even feasible.”
Burgoyne added that the Law Commission’s recommendations were deliberately short and to the point. The government’s intention is to introduce the recommendation with limited delay in establishing an expert task force and targeting law reform only where the common law is unable to settle disputes.