The UK Law Commission has released a report in which it proposes legal reforms to better protect the unique features of digital assets. The Law Commission, an independent body responsible for reviewing and recommending legal reforms in England and Wales, released a supplemental report on 30 July 2024.

The report underscores the shortcomings of the existing personal property categorisation and its legal impact on crypto assets. Therefore, it urged the United Kingdom government to categorise all crypto assets as a new form of personal property in its final report on digital assets. Proposing a new property category for digital assets English law categorises personal property into two main types: things in possession (tangible property) and things in action (intangible property, such as debts or rights).

The commission argued that digital assets, including cryptocurrencies and non-fungible tokens, can possess both qualities and hinder dispute resolution in court proceedings. As a result, it recommended the creation of a ‘third category’ that ensures property rights related to crypto assets are clear and enforceable. The commission found that common law can accommodate a new category of personal property specifically for digital assets, such as crypto-tokens and cryptocurrencies.

It has proposed a draft bill to establish this category, aiming to create a strong legal framework and support the growth of the digital assets sector in England and Wales. England and Wales regulators to review the draft bill The draft bill leaves it to the courts to develop the third category for crypto assets, which could be amended in the future without disrupting the legal proceedings of other forms of personal property. The UK Law Commission said that the government is currently considering the recommendation and the draft legislation.

The Bank of England and the Financial Conduct Authority, the UK’s financial regulator, recently issued a consultation on the draft guidance for their Digital Securities Sandbox. According to the joint consultation and draft guidance released on 3 April 2024, the sandbox is designed to allow participants to test distributed ledger technology for trading and settlement of digital securities such as shares and bonds. .