New UK bill resets rules for digital assets as a property class

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The cyber-legal landscape in the UK is evolving rapidly with the introduction of the new Property (Digital Assets etc) Bill (“Bill”). On 11 September, the UK government introduced the Bill to clarify the legal status of digital assets including cryptocurrencies, non-fungible tokens (NFTs), digital IP and carbon credits. This transformative legislation is designed to address the complexities that previously existed surrounding ownership and control of digital assets in an increasingly digitised economy. 

The Bill’s impact spans various sectors and presents opportunities and challenges for businesses operating within the UK and globally. CyXcel Partner Sean Crotty and Paralegal Lucy Mulligan unpack the new law and provide actionable guidance.

Historically, property law has centred upon physical assets, with well-established rules governing their ownership. However, the advent of cryptocurrencies, NFTs, digital IP, and virtual real estate in the metaverse has outpaced existing legal frameworks.

 

The Bill seeks to address this by formally recognising digitals assets as a separate class of property, accompanied by distinct legal rights and responsibilities.

 

It addresses two major areas.

 

Ownership of digital assets


It establishes a legal framework for businesses to more easily assert ownership, transfer, and safeguard their digital assets, including cryptocurrencies, digital wallets, and IP related to the digital products and services.

Transfer and security


It sets out regulations for the transfer of digital assets and introduces provisions allowing these assets to be used as collateral in financial transactions. Additionally, the Bill outlines measures to secure digital assets from cyber risks, ensuring businesses can safeguard their investments in the digital environment.

 

Key goals of the Bill


One of the primary goals of the Bill is to create legal certainty in an area that has been largely unregulated to-date. Digital assets have often been treated as intangible, and courts have been left to interpret how they fit into traditional property law. This uncertainty has created challenges including insolvency and the contractual enforcement involving digital assets. 

By formally recognising digital assets as property, the UK government is providing much-needed clarity for businesses. Hopefully, this will provide organisations with a clearer legal framework to manage disputes, settle ownership claims and determine succession planning related to digital assets.

For example, the classification of digital assets as property may have a substantial impact on intellectual property rights, particularly for organisations involved in creating, utilising or licencing software, digital content or other digital products. This legal recognition could simplify the process of protecting proprietary digital content from unauthorised use or theft and streamline the licensing of digital products and services.

 

Impact on businesses

 
The Bill will impact businesses in the field of digital asset valuation and collateralisation. 

 

Digital assets as collateral

One key feature of the Bill is that it allows businesses to use digital assets as collateral, creating new financing opportunities and revenue streams. Organisations holding large amounts of cryptocurrency or other digital assets can now use such holdings as security for loans or other transactions. 

This change could boost market liquidity by removing the need to liquidate digital assets to obtain fiat currency. However, this path requires caution given the volatility of cryptocurrencies, as determining a stable legal value for these assets is challenging. 

 

Cybersecurity of digital assets


Another important consideration is cybersecurity and compliance. With digital assets receiving legal recognition, the demand for robust cybersecurity measures will increase. 

The Bill introduces provisions to safeguard digital assets, such as enabling freezing injunctions during disputes. Therefore, businesses will need to ensure that they have adequate security measures in place to protect against theft or unauthorised access. 
For organisations in sectors where customer data and digital payments are integral, this means that greater emphasis on compliance with data protection laws and cybersecurity requirements will be required. 

As digital assets become more valuable, the financial impact of data breaches or cyberattacks is likely to increase, escalating the risks and potential losses for businesses. For multinational organisations, the Bill also adds a layer of complexity regarding jurisdictions. 

 

Businesses can prepare in 4 easy steps:


 1. Audit and inventory digital assets

Businesses should start by conducting a thorough audit of their digital assets, ensuring they have a clear understanding of what assets they own, where these assets are stored, and how they are managed. This audit should encompass assets ranging from cryptocurrencies to proprietary software to customer data.


 
2. Review and update contracts

Businesses may need to update their contracts to reflect the new legal classification of digital assets. This includes revising terms related to the transfer of digital assets, licensing agreements, and intellectual property protections.

 

3. Enhance cybersecurity

With digital assets now recognised as property under UK law, businesses must ensure that their cybersecurity measures are up to date and capable of addressing the added risk. This involves protecting against external threats and establishing clear internal policies for managing and securing digital assets.

 

4. Seek professional advice 

Given the complexities of the new legislation, businesses should consult legal and technical professionals now to ensure compliance.

 

(Photo by Mark Stuckey on Unsplash)

We can help


Our team of experts regularly assists clients to ensure they stay ahead of evolving data protection laws, helping them establish secure and compliant data processing practices. We also provide comprehensive advice on meeting broader regulatory obligations, ensuring full compliance with the latest legislative changes.

For more information, or to speak with one of our team about how we can help your business, contact us today.