The U.K. government has introduced a new bill to Parliament that proposes new legal protections for digital assets such as cryptocurrency, non-fungible tokens (NFTs), and carbon credits.
The bill comes as the crypto sector contends with a range of regulatory headwinds: In the U.S., the Securities and Exchange Commission (SEC) has ruled that certain crypto assets are securities, and earlier this year, the SEC approved the first U.S.-listed exchange traded fund (ETF) to track Bitcoin. The European Union (EU), meanwhile, is also introducing new laws to regulate cryptocurrency and make transactions easier to trace.
The U.K. is working on similar regulations, but the new Property (Digital Assets etc) Bill is more about legitimizing digital assets as “personal property,” bringing them to a similar footing as traditional assets.
The proposed law comes in response to a 2023 report from the Law Commission that laid out the need to update current legal provisions around personal property rights. The report noted:
As technology advances and humans spend increasing amounts of time online, our relationships with digital assets will become ever more important…our recommendations also aim to ensure that the private law of England and Wales remains a dynamic, globally competitive and flexible tool for market participants in the digital asset space.
Law Commission: Digital Assets — Summary of final report
The concept of “personal property” is important in law, as it plays a central role in legal cases relating to bankruptcy, insolvencies, theft, inheritance, divorce proceedings and more. At present, the law in England and Wales (Scotland and Northern Ireland have distinct legal systems) legislate around two categories of property: Tangible goods such as cars, jewelry, and cash, known as “things in possession.” Separately, “things in action” is all about protecting intangible assets such as shares, debts and intellectual property.
This leaves a giant gap for “digital” assets such as Bitcoin and similar cryptocurrencies, as well as NFTs like digital art (which have changed hands for considerable sums in recent years). This new, third category, if passed into law, would bring greater clarity to what constitutes personal property and would make it easier for courts to adjudicate on disputes.
For example, a court could issue a freezing injunction to prevent someone from dissipating a digital asset before a dispute is resolved, similar to how the court already does for tangible products. Or, if someone has their digital asset stolen as part of a scam, they could avail greater legal remedies.
Moreover, such a law would mean that digital assets could form part of a person’s estate for the purpose of inheritance or bankruptcy proceedings.
What’s next?
The bill was first published in draft form in July, but now it has reached the first reading stage in the House of Lords, where it will have to go through various debates and iterations before it progresses to the House of Commons.
There is still some distance to go before the bill becomes law, but the U.K. currently counts a majority Labour Government, so there is a good likelihood it will eventually be passed — in what form and with what provisions, however, is not clear.
For example, what will count as a “digital asset” under the new legislation? In theory, that term covers a broad gamut such as email accounts and files, carbon credits, and in-game digital assets. The Law Commission acknowledges this, noting there will likely be “boundary issues” across the digital asset spectrum. It also recommends a so-called “common law” approach, indicating the law may have to be tested in a court with the presiding judge ruling on a case-by-case basis to set precedents on whether an asset in a given case should be afforded personal property rights.
However, the Ministry of Justice and the Law Commission are clear that the “main” digital asset it sees the law protecting is that of crypto tokens, such as cryptocurrencies and NFTs.