The U.K. Law Commission wants crypto and NFTs to attract property law rights (Reinaldo Sture/Unsplash)
The U.K. should create a tailored framework for using crypto as collateral, a Law Commission funded by the Ministry of Justice said in a Wednesdayreport.
The scope of such a regime would go beyond existing U.K. regulations for collateral arrangements for traditional finance, the commission told CoinDesk.
The commission also doubled down on itsprevious call for the U.K. to treat crypto assets as a new type of property. It also wants the government to set up âa panel of industry-specific technical experts, legal practitioners, academics and judgesâ to advise courts on complex legal issues relating to digital assets.
The report was the result of what the Law Commission of England and Wales claimed was the first ever government-commissioned analysis in the U.K. on how existing legal frameworks can accommodate crypto and non-fungible tokens (NFTs). The independent body is made up of lawyers, judges and professors, and makes recommendations for law reform that the government could decide to take forward. The commissionâs proposals donât apply in Scotland or Northern Ireland, which have their own legal systems.
While the legal systems of England and Wales are well-placed to support the U.K. governmentâs attempts to bring crypto into the scope of existing legal frameworks, some areas may need specialized treatment to accommodate digital assets, the Commission said in a press statement shared with CoinDesk.
âThe flexibility of the common law means that the legal system in England and Wales is well placed to adapt to this rapid growth,â said Professor Sarah Green, commissioner for commercial and common law in the statement. âOur recommendations for reform and development of the law therefore seek to solidify the legal foundation for digital assets.â
Although existing laws in England and Wales provide options for the use of crypto as collateral, the commission said those options are âinadequate.â
âAs such, we recommend that, as a matter of priority, the Government sets up a multi-disciplinary project to formulate and put in place a bespoke statutory legal framework that better and more clearly facilitates the entering into, operation and enforcementâ of certain crypto collateral arrangements, the commission said.
Such a framework would need to be tailored to the way crypto works, from how assets are held, transferred and controlled, the body added.
For one, existingFinancial Collateral Arrangement Regulations(FCAR), donât apply if either party is an individual. But this limitation will need to be considered âgiven the level of individual participationâ in crypto markets, the commission said.
The FCAR defines financial collateral as âcash, financial instruments or monetary claims of certain types,â while typical collateral arrangements include charges over deposits, lending of stocks andrepo arrangements.
âWhat the Law Commission is proposing goes beyond crypto lending as it relates to using crypto as collateral for a range of arrangements,â it added. âThe FCARs outlines a scope of arrangements where collateral can be used but we are not necessarily restricting as far as the FCARs.â
The Commission previously said its recommendations on cryptoalign with the Conservative administrationâs plans to turn the U.K. into a hub for digital assetsunder Prime Minister Rishi Sunakâs leadership.