The Law Commission Report on Digital Assets suggests a revolutionary third category for certain Digital Assets

The inextricable rise of cryptocurrency since its arrival in 2009 has presented a problem as to how to regulate and define it. There is no global consensus as to whether it should be warmly embraced or banned, with some countries opposed to its use and will not permit it to be used. Others see a future and welcome the innovations of blockchain and decentralised finance. The world authorities and legal systems are still trying to define and regulate cryptocurrency as a unique concept. 

However, England and Wales is both flexible, resilient and open to new concepts. The Law Commission has produced a report on digital assets and how they can be regarded as things to which personal property rights can relate. Whilst the report focuses on a particular subset of digital assets, it shows the way that current digital assets, as well as future technical advances in all the variant forms can be held. This, in turn, is an effective way to bring the current law into line with the expectations of all parties that have significant dealings with these assets.

Joanna Bailey a partner, commented “The existing laws of England and Wales have been flexible enough to provide a framework for several types of crypto assets. Notwithstanding the common law's adaptability, certain digital assets seem to not exactly fit within the traditional categories of property, i.e. tangible and intangible. They are not tangible and they sometimes differ from rights-based assets such as securities”. Joanna further pointed out that “a “third” category to which personal property rights can relate will be introduced. The Law Commission concludes that some digital assets are neither things in possession nor things in action, but that nonetheless the law of England and Wales treats them as capable of being things to which personal property rights can relate. The Courts are required to determine which objects (specific tokens etc.) will fall into this new category of personal property”

Personal property rights form an extremely important aspect to legal systems and also to the economic stability of society and must be clearly defined to form legal relationships involving commercial and private transactions, succession and the provision of collateral arrangements. Also, in the event of fraud or theft the establishment of personal property rights over an asset enhances the possibility to restore lost assets. There is a considerable amount of legal certainty in the current securities framework, however, the law may need to evolve to incorporate the different features seen in crypto-tokens and digital assets.

The Law Commission report concludes that in the development of a new regime particularly related to digital assets and collateral arrangements could give the markets a robust set of laws sufficient legal certainty and considers that the Government should regard this as a matter of some urgency and takes measures to put in place a bespoke statutory legal framework that offers clarity to the way in which the assets enter into operation and provides enforcement to the designated crypto- tokens and crypto-assets collateral arrangements. 

Giambrone & Partners’ financial fraud litigation department leads the way with regard to crypto sector with cutting edge expertise. Our lawyers in the financial fraud litigation team have considerable success in recovering funds for our defrauded clients.

Joanna Bailey heads our banking and financial fraud litigation department.

Joanna frequently leads the litigation against financial institutions involved in cryptocurrency trading disputes, as well as Forex investment issues and regulatory investigations and has some considerable success in retrieving our clients' funds lost in fraud.

She has developed a range of strategies both to find the assets of the individuals perpetrating the fraudulent schemes and restore the funds to our clients. As well as recognising culpability in the organisations facilitating (but not associated with the fraud), by failing to undertake adequate due diligence.

Joanna led the first case in Europe where proceedings were served on Persons Unknown connected with two digital wallets over the blockchain by non-fungible token or ‘NFT’ in a cryptocurrency fraud. Following this ground-breaking case Joanna was named as Lawyer of the Week in the Financial Times.

Joanna is highly experienced in high-value out-of-court settlement negotiations and has in-depth knowledge of the Civil Procedure Rules as well as English common law.

If you would like to know more about how you can recover money lost to fraud please contact us at clientservices@giambronelaw.com or click here.