Property rights in digital assets provided for in ‘landmark’ Bill

Forensic accountant Hinesh Shah and commercial litigation expert Sara Esfandyari, both of Pinsent Masons, were commenting after the Property (Digital Assets etc) Bill was introduced into the UK parliament.

The Bill is designed to formally recognise the potential for property rights to subsist in ‘things’ – including those in digital or electronic form – even if those ‘things’ do not neatly fall into the two existing categories of property rights recognised in English law: ‘things in possession’ – such as tangible assets – and ‘things in action’ – like shares in a company.

In introducing the Bill, the UK government has acted on a recommendation by the Law Commission of England and Wales, which explored the extent to which the law currently enables personal property rights to attach to digital assets – and the case for extending the law if it does not.

The Bill does not provide definitely that all ‘things’ constitute property – it just provides that  they are not prevented from being the object of personal property rights merely because they are neither a thing in possession, nor a thing in action. It will for the courts of England and Wales to further define what ‘things’ qualify for this third new category of property over time.

Shah said: “The introduction of the Property (Digital Assets etc) Bill marks a landmark moment for digital assets in the UK. By recognising that cryptocurrencies, non-fungible tokens (NFTs), and other digital holdings can constitute personal property, this legislation not only provides much-needed legal clarity but also positions the UK as a global leader in the rapidly evolving crypto industry. This move will likely attract more investment and innovation, ensuring the UK remains at the forefront of technological advancements."

Shah said the Bill also represents “a significant step forward in protecting consumers and businesses involved in the digital asset space”.

“By offering legal protection against fraud and scams, and clarifying the status of digital assets in legal disputes, the UK is setting a precedent for other nations to follow,” Shah said. “This legislation will enhance consumer confidence and provide a framework for the growth of the digital assets economy."

Esfandyari added: “By recognising property rights in digital assets, the law has made it easier for claimants to recover stolen or misappropriated funds which can be traced back to digital assets held by defendants. In the context of cryptocurrency fraud, we have already seen the English courts adopt a pragmatic approach to protect victims by accepting that digital assets held by defendants in custodial wallets are held on constructive trust for the claimant. We have also seen judges recognise a claimant’s property rights in digital assets for the purposes of enforcing foreign judgments against cryptoassets held in wallets in England and Wales. This new bill provides reassurance to victims seeking redress in the English courts by enshrining these protections in law.”