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Authored by: Simon Deane and Ruby Hui
The Law Commission published its Report on digital assets on 28 June 2023. It covers discussions on crypto-token collateral arrangements and apportionment of shortfall losses on the insolvency of a custodial holding intermediary.
To summarise, the Law Commission has made various recommendations in the Report, including that:
Further, the Law Commission examined the structure of the collateral arrangements in respect of crypto-tokens and crypto-assets. Although a control-based security interest in respect of crypto-tokens may be of limited use, it will still be a viable development of the common law to recognise such an interest.
Relating to the insolvency of a custodial holding intermediary (as described in paragraph 7.26(1) of the Report), the Law Commission still supports a general pro rata shortfall allocation rule in respect of commingled unallocated holdings of crypto-tokens or crypto-token entitlements instead of a targeted rule. Nonetheless, at this stage, no detailed recommendations for an express statutory rule or application have been set out. Instead, there is a general statement that shortfalls arising on the insolvency of a custodial holding intermediary must be taken into account within wider regulatory and policy frameworks.
The Report is available here.
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