Update: I've covered the UK regulatory developments on stablecoins here; and I've covered the developments on the wider cryptoassets regulation here.
If you need legal advice, please let me know.
The Commission has found that English law has recognised "certain digital assets as things to which personal property rights can relate" as a distinct legal category, but that certain complex areas of legal uncertainty remain that law reform could reduce. For instance, there are "difficult boundary issues" in distinguishing between digital 'assets' such as crypto-tokens; private, permissioned blockchain systems; voluntary carbon credits; in-game digital assets; and digital files. These assets may be based on very different technologies and whether they can or should attract personal property rights may depend on particular sets of facts.
Overall, the Commission recommends that this uncertainty would be best met through the evolution of case law and some targeted legislation, with support from a panel of industry-specific technical experts, legal practitioners, academics and judges.
More specifically (but by no means exhaustively), the Commission concludes that, under the law of England & Wales ("English law"):
Again, the consultation and report represent a colossal and momentous achievement by the Professor Sarah Green and her team, who should be commended for their efforts. I'm sure their work will form the basis of a great deal of legal evolution in the coming years.
If you have queries about the regulatory implications of cryptoassets or related activities, please let me know.
The key recommendation is the recognition of "data objects" as an additional form of personal property to "things in possession" and "things in action". The criteria for a digital asset to qualify as a data object would be:
Among digital assets such as files, records, email accounts, in-game digital assets, domain names, carbon credits, the Commission considers that only crypto-tokens (as distinct from the broader concept of a cryptoasset) would qualify as "data objects".
The Commission stops short of recommending possessory rights in data objects, but recommends developing the concept of "control" through the courts, since a person in "control" of a data object can exclude others from it, use it, transfer it and identify themselves as the person able to do these things.
The paper includes an extensive discussion of the consequences of expanding the law of personal property in this way; and how existing law would apply to data objects.
Update:
Interesting to consider in this context the government's Bill to include "digital settlement assets" and related service providers within the scope of existing financial services regulation.
The UK's Financial Conduct Authority is often charged with an apparent failure to act amidst a 'scandal' of some description. Its usual defence is that the activity in question lay outside the scope or 'perimeter' of what the FCA is empowered to supervise. The FCA also publishes a "Perimeter Report" pointing out issues that it sees outside the perimeter that it considers it should be given powers to address. Needless to say, that's a lot like having your cake and eating it, but so it goes. Anyhow, aside from the usual suspect of dodgy financial advice through appointed representatives, two areas leapt out at me among those identified in the latest Perimeter Report:
Financial promotions/marketing: The FCA believes that the exemptions for unauthorised persons to market investments to 'high net worth' and 'sophisticated' investors under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) (FPO) are no longer fit for purpose, so there need to be significant changes - including the nature of the thresholds for consumers to qualify and self-certify that they qualify as either high net worth or sophisticated.
Cryptoassets: The FCA is seeing the evolution of 'complex business models' presented as ways for customers to generate returns from cryptoasset holdings, which its believes may need further regulatory or legislative action to address. I'd say that's the understatement of the century, given the recent shriek of alarm from the Bank of England about the threat to financial stability from cryptoassets. I'd say investors are more likely to understand that 'unbacked' cryptoassets (e.g. bitcoin) are very high risk investments, but vulnerable to being misled to believe that a cryptoasset is somehow "backed" by other assets (i.e. 'stablecoins') or somehow include rights to other assets or income.
The problems identified here are likely to have arisen from investigations or complaints where the FCA would particularly like to have acted but didn't immediately have all the powers it would have liked. Therefore, it also seems likely that these areas will be the subject of future enforcement if those powers are forthcoming...
