With the Property (Digital Assets etc) Act receiving Royal Assent, Syed Rahman and Ulrich Schmidt outline how notable this is for the crypto sector.
In what is a significant development for the crypto sector, the law in England, Wales and Northern Ireland now recognises digital assets as personal property.
The move, which is the result of the passing of the Property (Digital Assets etc) Act, gives the owners of such assets greater legal protections. The Act enables them, among other things, to seek remedies for the theft or misappropriation of their assets and allows them to use their crypto assets as collateral. More broadly, the Act could also boost the UK’s standing in the crypto world.
Sarah Sackman KC MP, the Minister for Courts and Legal Services, hailed the Act’s clarification of the legal status, saying it will “remove uncertainty, simplify disputes, and cement the UK’s position as the centre for fintech innovation’’. She also claimed it will be a boost to the UK’s legal services sector. Importantly, the Act adopts a principles-based approach rather than solely providing descriptive definitions – this allows the flexibility required by the legal sector to deal with the fast-evolving cryptoasset sector.
Departure
The classification of digital assets as property is a departure from the traditional legal notions of property in the UK.
Until now, the law has recognised two categories of property:
- Things in possession – physical items, such as cars, houses or jewellery.
- Things in action – intangible legal rights, such as company shares or rights under a contract.
The passing of the Act means that a further category has been created – one which recognises the unique characteristics of digital assets. Digital assets cannot be physically possessed, nor are they connected to any legal rights under a legal framework because they exist independently of any country’s legal system. However, digital assets still possess many characteristics that have traditionally been used to identify property. These include the fact that they are “definable”; meaning an asset can be clearly defined and identified. They are transferable, can be assumed by third parties and can be exclusively and permanently controlled by a particular individual.
The Act provides protection to digital assets. It states in section 1 that: "A thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither (a) a thing in possession, nor (b) a thing in action."
Therefore, as a result of the Act, those possessing digital assets will have greater protection against scams and clearer legal rights if such assets are stolen. Such assets will now be able to be passed down through inheritance and recovered by creditors during bankruptcy proceedings, as is the case with traditional assets. The legal clarification of the status of digital assets also means that they are less likely to be the subject of costly legal disputes.
Final
The Act’s passing can be viewed as the final step in crypto’s progress towards being considered property in the UK.
In the UK’s 2019 landmark cryptocurrency case of AA v Persons Unknown, the High Court stated - for the first time since the UK Jurisdiction Taskforce’s Legal Statement on Cryptoassets and Smart Contracts - that cryptocurrency could be considered property. This was confirmed two years later, in DPP V Briedis and Reskajs, in which the court found that cryptocurrencies fell within the definition of “property” in section 316(4) of the Proceeds of Crime Act 2002.
These two cases showed a willingness by the English courts to recognise digital assets as property, yet they left uncertainty as there was a lack of statutory guidance. The judiciary’s view has now become law with the Act’s passing.
One positive outcome of this could be that financial institutions and lenders may now be more willing to accept crypto as security for financial arrangements such as mortgages. This may create new opportunities for many businesses and individuals. Yet the large amount of flexibility provided by the Act does leave room for uncertainty until judicial decisions fill this void. But this was necessary to allow the courts to deal with the ever-developing crypto world.
