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Matthew Huggett

President and Partner, CILEX and Carbon Law Partners

Quotation Marks
Any reform in this area would need to be accompanied by the establishment of a panel of professionals, tasked with drawing up non-binding guidance for practitioners.

Reforms to digital asset laws needed to tackle legal minefield

Reforms to digital asset laws needed to tackle legal minefield


Matthew Huggett assesses the Law Commission’s recommended reforms

The rapid rise in the use and ownership of digital assets means that reform of the law to accommodate them and clarify this often complex area is much needed. Alive to this issue, the Law Commission recently consulted the profession on the law surrounding digital assets, proposing reforms designed to accommodate their growing importance in society.

The Commission recommended reforms that it contends will recognise and protect the rights of users of both crypto-tokens and other digital assets, as well as maximising their potential. The key proposal was to establish a third category of personal property to cover these assets, to be known as ‘data objects’.

If implemented, these changes will address an area of law which at present is a legal minefield and not widely understood. Digital assets currently sit between personal property laws or fall outside them, causing difficulties for practitioners who lack clarity on how to handle them. Many have limited exposure to digital assets and there is a widely held perception that crypto-tokens and currencies are used for potentially illegal means, due to the way in which they work and their traceability.

Reform is welcome and would, it is hoped, go some way to tackling both the knowledge gap and the negative perceptions around this evolving asset class.

Robust guidance

Any reform in this area would need to be accompanied by the establishment of a panel of professionals, tasked with drawing up non-binding guidance for practitioners. CILEX would like to see that panel include knowledgeable lay members as well as legal experts, providing robust guidance to ensure that both legal professionals and the public are aware of why certain data objects do or do not match the criteria to fall within the proposed third personal property category.

Any reforms to the law must also seek to ensure consistency, something the Law Commission hopes to achieve through this body of work. In private client work, for example, CILEX practitioners report that different approaches across the market to dealing with inheritable digital assets can cause further emotional distress to families when handling a loved one’s affairs. This needs to be resolved to secure the safety of those digital assets with monetary value attached.

Whilst we agree with the Commission’s suggested use of statute to provide the initial shaping and fundamental principles of digital assets, we consider that common law should establish effective rules regarding title and/or priority for disputes involving multiple persons with control of a crypto-token.

Crypto-tokens as remedy

The Law Commission’s consultation paper considers that much of the current law concerning causes of action and remedies can be applied to data objects such as crypto-tokens in the same way as they are to other types of non-monetary objects of property rights. It provisionally concludes that there is no need for bespoke rules or reform and that instead the courts should recognise the nuances and idiosyncrasies of data objects, applying existing legal principles to such objects as far as possible.

It is CILEX’s view that it would not be appropriate for it to be at a court’s discretion to award crypto-tokens as remedy similar to current money denominations. While we appreciate the Law Commission’s evidence on the use of discretion, the use of crypto-tokens at the current time is not advisable given their lack of stability, with peaks and troughs within the digital currency market proving less predictable than current established monetary exchange rates.

Early days

This is a young technology and there are disparities in the existing guidance, as well as a lack of knowledge among practitioners. The Law Commission’s work in this area presents considerable challenges, with multiple areas of the law under consideration. The expertise of both legal and technical experts, as well as involvement from industry will be needed to draw up appropriate reforms and accompanying guidance.

We hope that taking these reforms forward will provide legal certainty for lawyers, better protections for asset owners and lay strong foundations for the development and adoption of digital assets in the future.

Matthew Huggett is president of CILEX (Chartered Institute of Legal Executives)