The Law Commission is an independent body that examines and recommends legal reforms in England and Wales. In the additional report published on July 30, 2024, the inadequacy of the current personal property classification was noted and the legal effects of this situation on crypto assets were discussed.

English law divides personal property into two main categories: tangible property (things in possession) and intangible property (things in action, for example debts or rights).

However, the commission noted that digital assets—such as cryptocurrencies and non-fungible tokens—can qualify as both. This makes it difficult to resolve disputes in court proceedings and makes the legal status of digital assets uncertain.

The Commission decided that a legal framework should be developed to better protect the special features of digital assets. In this context, he proposed the creation of a “third category” in addition to the two main existing categories of personal property. This new category will be designed to recognize and preserve the unique characteristics of digital assets.

The Commission stated that this new category will better reflect the characteristics of digital assets and ensure that legal property rights are clearer and more enforceable, taking advantage of the flexibility of common law.

The Commission submitted a draft bill to support its recommendations. By creating a separate legal category for crypto assets, the draft aims to promote the development of the digital assets sector and create a solid legal framework. It also leaves the development of this third category to the courts.

In this way, it is envisaged that future changes can be made without affecting the legal processes of existing personal property types. The Commission stated that the government is currently evaluating this proposal and draft legislation.

These recommendations and draft legislation aim to clarify the legal status of digital assets and eliminate uncertainties in the sector. In this context, the Bank of England and the UK’s financial regulator, the Financial Conduct Authority (FCA), have also launched a consultation process for digital securities.

The joint consultation and draft guidelines, published on April 3, 2024, cover a platform known as the Digital Securities Sandbox. This platform allows participants to test the trading and settlement of digital securities using distributed ledger technology (DLT).

The sandbox provides a space for the safe testing of new technologies and applications, thus supporting the safe introduction of financial innovations.

These developments offer important clues about how the legal and regulatory frameworks of digital assets will be shaped in the future. The recommendations of the Law Commission of England and Wales are considered a critical step for clarifying the legal status of digital assets and for the sector to develop in a more orderly manner.