Certainty, Finality and Recourse

 

Note: This post was originally published on LinkedIn in Feb 2024

Certainty, Finality and Recourse.

All things we take for granted in TradFi. But can we be so sure of these TradFi comforts when we explore services from other jurisdictions and unfamiliar regulators? (if they are even regulated at all!)

Last week FATF reaffirmed their unwavering commitment to combat financial crime (1).
[Please note, all links in comments].
“Depriving criminals of their ill-gotten gains is crucial to fighting the scourge of money laundering and financial crime,” said FATF President T. Raja Kumar.

So how do you deprive someone of their ill gotten gains? In the UK, we would jump to the Proceeds of Crime Act (POCA) (2). As the CPS likes to say – crime doesn’t pay!(3). To reinforce this message, last week also saw the National Crime Agency get their new powers to seize and freeze digital assets. (4)

But before you jump to any conclusions, let’s not forget certainty, finality and recourse. To have this, you need a legal framework. And the UK has been busy putting this in place too.

Last year the UK law commission published their findings on Digital Assets. (5) which resulted in a short consultation earlier this year “Digital assets as personal property” (6).

The crux of the issue is defining what is this digital thing, this crypto asset? First of all there is the important recognition that these digital things are property. Property rights are powerful because, in principle, they are recognised against the whole world, whereas other — personal — rights (such as contractual rights) are recognised only against someone who has assumed a relevant legal duty.

Since the 19th Century, the law of England and Wales traditionally recognised two distinct categories of personal property rights: (i) rights relating to “things in possession” (tangible things, e.g. bag of gold, bike, laptop); and (ii) rights relating to “things in action” (legal rights or claims enforceable by action e.g. IoU, debts, shares).

However, in an increasingly digital world, common law has had to deal with things like milk quotas, carbon emissions…and other ‘things’ such as crypto-tokens which are created through software. The UK has come to the conclusion that there is such a third type of personal property - right relating to a “third thing”.

And guess what, the UK is not alone.
Courts in other jurisdictions have reached the same (or a similar) conclusion. Courts across the common law world, including in Australia, Canada, Hong Kong, New Zealand, Singapore, and the United States, now consistently proceed on the basis that crypto-tokens are capable of being objects of personal property rights. Examples of this can also be seen in some civil law-based systems, including Japan, Liechtenstein, and Switzerland. (5) & (7)

So trade with certainty. You have finality. And recourse?...it’s a third thing.

P.S.
For those that are in London at the DigiAssets event next week, please do stop by and say Hi.

hashtag#BTC hashtag#Futures hashtag#Options hashtag#Derivatives

1. FATF Ministers commit to stepping up efforts to fight money laundering, terrorist and proliferation financing (fatf-gafi.org)
2. Proceeds of Crime Act 2002 (legislation.gov.uk)
3. Proceeds of crime | The Crown Prosecution Service (cps.gov.uk)
4. New powers to seize cryptoassets used by criminals go live - GOV.UK (www.gov.uk)
5. Law Commission Documents Template (cloud-platform-e218f50a4812967ba1215eaecede923f.s3.amazonaws.com)
6. Feb-2024-digital-assets-and-personal-property-CP.pdf (cloud-platform-e218f50a4812967ba1215eaecede923f.s3.amazonaws.com)
7. The Singapore High Court rules that Crypto Assets are “things in action” capable of being held on trust: ByBit Fintech Ltd v Ho Kai Xin and others [2023] SGHC 199 | Inside FinTech | Global law firm | Norton Rose Fulbright