UK Taskforce: Virtual Currencies are Property Under UK Law
The United Kingdom’s (UK) jurisdiction taskforce of the LawTech Delivery Panel recently published a lengthy report concerning the legal classification of digital assets. According to the document, virtual currencies and smart contracts are both covered under existing UK law, and virtual currencies fall under the category of property.
Are Cryptocurrencies and Digital Assets Property in the UK?
A group of legal experts from the UK have published a 46-page legal document outlining the relation between digital assets and smart-contracts with existing English law. The document was produced after a six-month long consultation. The group was chaired by a senior member of the judiciary.
The document ultimately concludes that digital assets and blockchain encrypted smart contracts fall under existing English law. Certain digital assets — which include but are not limited to ‘virtual currencies’ — can be treated ‘in principle’ as property. In addition, smart-contracts were also identified as able to satisfy the existing contract requirements under English law.
In this case, smart-contracts are then enforceable by English courts. To take things a step further, private key encryption was found to satisfy the statutory requirements for a signature. According to Sir Geoffrey Vos, chancellor of the High Court, the news signifies “a watershed for English law and the UK’s jurisdictions. No other jurisdiction has attempted anything like it.”
The document did note that the treatment of every digital asset ultimately depends on several factors — suggesting analysis on a case by case basis. These factors can include the nature of the asset, the existing rules for that type of asset, and the relative purpose. The document did read however, that “cryptoassets have all of the indicia of property”.
In terms of existing laws covering smart contracts, the document says:
“There is a contract in English law when two or more parties have reached an agreement, intend to create a legal relationship by doing so, and have each given something of benefit. A smart contract is capable of satisfying those requirements just as well as a more traditional or natural language contract, and a smart contract is therefore capable of having contractual force. Whether the requirements are in fact met in any given case will depend on the parties’ words and conduct, just as it does with any other contract.”
The Financial Conduct Authority and Support for Digital Assets in the UK
The Financial Conduct Authority (FCA), the UK’s financial markets watchdog, has set itself apart by creating a proactive environment when it comes to regulating digital assets. The financial regulator has created a sandbox where companies have tested the operational capacity and investor demand for digital assets in the UK.
So far, a number of Security Token Offerings (STOs) have seen success in the UK. These include TokenMarket who raised £240,000 and a student residence located in Nottingham which was tokenized by UK-based platform Smartlands. In addition, security token platform Globacap received regulatory approval from the FCA.
Smartlands CMO Yaroslava Tkalich told The Tokenist in an email,
“As the first-ever UK-based platform specialising in tokenising the real economy assets on the Stellar blockchain, Smartlands enjoys substantial footing on the issue; with the clarification by a panel of judges and legal specialists, our almost two-year headstart turns into a major strategic advantage for years to come.”
A majority of financial regulators around the globe have been hesitant to issue clear guidelines when it comes to digital assets. Most, such as the US Securities and Exchange Commission (SEC) for example, argue that the use of digital assets as a means to raising capital results in a securities offering. In these cases, the offering is subject to existing regulatory requirements.
The FCA has been a bit different however, with its regulatory sandbox open to test digital assets and review potential changes to better facilitate emerging technology. Earlier this year for example, the FCA released new guidelines which outlined a variety of different types of crypto-assets, along with their corresponding legal classifications.
What do you think about the idea of ‘virtual currencies’ as property in the UK? How do you think digital assets should be treated in the UK? We want to know what you think in the comments section below.
Image courtesy of insure the box.