The UK Law Commission recommends a tailored legal framework to accommodate crypto as collateral and boost digital asset growth.
In a landmark move, the Law Commission in the UK, a body constituted of legal scholars and funded by the Ministry of Justice, proposes an innovative framework aimed at incorporating crypto into the legal structure. They suggest a specific mechanism for using digital assets as collateral, recognising the unique attributes of crypto in the UK landscape.
This latest proposal by the commission is a direct result of the first-ever governmental analysis in the UK exploring the ability of existing legal frameworks to incorporate cryptocurrencies and non-fungible tokens (NFTs).
Commission Calls for Crypto Experts
One of the primary recommendations put forth by the Law Commission involves establishing a specialised panel. Moreover, this group, consisting of technical experts, academics, legal professionals, and judges, would be tasked with advising the court system on the complex legal challenges related to digital assets. Though the Commission’s suggestions currently only apply to England and Wales due to separate legal jurisdictions for Scotland and Northern Ireland, the importance of such proposals cannot be undermined considering the increasing recognition of cryptocurrencies worldwide.
Digital Assets within the UK’s Legal Landscape
Many have praised the common law systems of England and Wales for their flexibility and adaptability. This trait places them in an advantageous position to embrace the introduction of cryptocurrencies into existing legal frameworks.
Despite this readiness, the Law Commission emphasises the need for tailored laws in certain areas to fully encompass and support digital assets. The central idea behind these recommendations is to create a robust legal foundation for digital assets, promoting their growth and legitimacy.
The report by the Law Commission identifies a clear inadequacy in the current laws regarding the use of cryptocurrencies as collateral. Therefore, it advocates the urgent need for a bespoke regulatory framework to effectively oversee and enforce crypto collateral arrangements.
The proposed framework should be reflective of the distinct nature of digital assets and must account for unique characteristics such as the ways people hold, transfer, and control them.
The present Financial Collateral Arrangement Regulations (FCAR), which define financial collateral as “cash, financial instruments or monetary claims of certain types,” don’t fully account for the specifics of cryptocurrencies. Additionally, these regulations fail to apply if any party involved is an individual, thus overlooking a significant demographic actively participating in the crypto market.
Going beyond the scope of mere crypto lending, the Law Commission envisions a broader framework for utilising digital assets as collateral across various arrangements. Their proposal signifies an expansive reshaping of regulations, rather than a mere extension of what FCAR.
Digital Asset Growth and UK’s Economic Prospects
The Law Commission’s strategic recommendations align perfectly with the government’s aim to develop the UK into a global epicentre for digital assets, as envisioned by Prime Minister Rishi Sunak.
The UK’s reputation for fair dealing, flexible common law, and the extensive use of the English language positions it as an attractive destination for global businesses. Moreover, a clear-cut approach towards regulating cryptocurrencies can thrust the UK to the forefront of digital assets innovation, providing a significant boost to its economy.
Andrew Griffith, the economic secretary to the Treasury, has shown commitment towards this initiative by vowing to give serious consideration to the Commission’s recommendations.