UK Law Commission’s Clarity on Crypto Lending Regulations

Laura Burgoyne, a lawyer leading the United Kingdom’s Law Commission’s review of the application of British laws towards digital assets, has highlighted the need for further clarity around cryptocurrency lending. After a lengthy analysis of existing legal frameworks in the U.K. and their application to the crypto sector, the Law Commission made four major recommendations to the government.

As reported by Cointelegraph on July 3, the Law Commission is proposing the creation of a distinct category of personal property for crypto assets, an industry-specific panel, and a legal framework for crypto-related assets. In addition, the body is pushing for legal reforms to clarify whether the asset class falls under the scope of the U.K.’s Financial Collateral Arrangements Regulations (FCAR).

Burgoyne explained that FCAR allows traditional finance intermediaries to take security over assets “free from a number of restrictions and formalities”, which would normally apply. In the context of finance, security interest gives a legal claim over an asset that a borrower has supplied to a lender in the event that the loanee cannot meet their repayment obligations.

Whether crypto currencies, digital assets, and other tokens can be used as collateral under a qualifying financial collateral arrangement is dependent on whether the assets in question can constitute “cash”, “financial instruments”, or “credit claims” in accordance with FCARs. Burgoyne added that the scope of the “FCARs regime is largely a question of legal interpretation”, and whether the policy applies to new asset classes, including Voyager Crypto, Crypto.com, crypto currency and stablecoins, requires an evaluation of the existing law.

Personal property law works, but new category needed

The Law Commission’s main proposal focused on the current personal property laws in the U.K. and how they are applied to crypto and digital asset cases.

As Burgoyne explains, personal property law is usually a common law issue rather than a statutory law issue. Common law, which is created by the court system, not parliament, is deemed to be “flexible” enough to address an “infinite variety” of conditions and conflicts:

The necessity for a “distinct” third classification of personal property law pertaining to digital assets is driven by the fact that digital assets do not easily fit into the existing personal property categories.

The existing types of personal property law in the U.K. include “things in possession” such as a car or computer, and “things in action” like legal rights or debts owed.

Burgoyne added that the Law Commission’s suggestions were intentionally concise and focused. Establishing an expert working group and targeting statutory reform only when common law cannot resolve disputes is intended by the government to implement the proposals with minimal delay.