In a report published on Wednesday, the Law Commission of the Ministry of Justice recommended that the U.K. create a customized framework for using cryptocurrency as collateral.

According to CoinDesk, the scope of a new regime would be beyond current U.K. regulations on collateral arrangements in traditional finance.

The commission has also reaffirmed its earlier call for the U.K. To treat crypto assets like a new kind of property. The commission also calls for the U.K. to create a “panel of industry-specific experts, legal practitioners and academics” to provide advice to courts on complex legal questions relating to digital asset.

The report was the result of what the Law Commission of England and Wales claimed was the first ever government-commissioned analysis in the U.K. on how existing legal frameworks can accommodate crypto and non-fungible tokens (NFTs). Independent body made up of judges, professors and lawyers makes law reform recommendations that the government can decide to implement. The proposals of the commission do not apply to Scotland and Northern Ireland because they have their own legal system.

The Commission stated in a statement to CoinDesk that while the legal systems of England & Wales are well placed to support the U.K. Government’s efforts to bring crypto within the scope of the existing legal frameworks some areas may require specialized treatment for digital assets.

In a statement, Professor Sarah Green said that due to the flexibility of common law, the legal system in England & Wales was well positioned to adapt to the rapid growth. Our recommendations for reforming and developing the law seek to strengthen the legal basis for digital assets.

Collateral arrangements

The commission stated that the existing laws in England, Wales and Scotland provide options to use crypto as collateral. However, they are “inadequate.”

The commission stated that “as a matter of urgency, we recommend the Government set up a multidisciplinary project in order to formulate and implement a bespoke legal framework which better and more clearly facilitates entering into, operating and enforcing” certain crypto collateral agreements.

The body said that such a framework should be tailored for the crypto world, including how assets are stored, transferred, and controlled.

Financial Collateral Arrangement Regulations do not apply if one or both parties are individuals. The commission stated that this limitation would need to be taken into consideration “given the amount of individual participation” on crypto markets.

Financial collateral is defined by the FCAR as “cash or financial instruments of certain types”, while collateral arrangements are typically made up of charges on deposits, stock lending, and repo agreements.

The Law Commission’s proposal goes beyond crypto-lending, as it involves using crypto as collateral in a variety of arrangements,” the report added. The FCARs outline a range of arrangements that can use collateral, but we do not limit ourselves to the FCARs.

Our reputation for straightforward dealing, the use of English and the flexibility of common law attracts businesses from around the world. The U.K. is at the forefront of innovation in the digital asset sector, thanks to our simple approach to regulation.

Griffith said that he will “carefully consider” the findings and recommendations of the commission.

Nikhilesh De.