A lawyer leading the UK Law Commission’s review of the application of UK law to digital assets has highlighted the need for greater transparency around cryptocurrency lending.

In an interview with Cointelegraph, Laura Burgoyne outlined the details of the organization’s four main recommendations to the UK government. This follows a long process of reviewing the existing legal framework in the country and its application to date in the digital assets sector.

As Cointelegraph reported on July 3, the Law Commission is calling for the creation of a separate category of personal property for cryptocurrencies and digital assets. In addition, the body recommended the creation of an industry panel and regulatory framework for cryptocurrency assets, as well as legal reforms to clarify whether an asset class falls within the scope of the UK’s Financial Collateral Arrangements Regulations (FCAR).

Burgoyne stressed the importance of FCAR in enabling customary financial intermediaries to take security over assets “free from a number of restrictions and formalities” that would traditionally apply.

In the context of finance, security is legal in nature law over an asset that the borrower has provided to the lender in the event that the borrower is unable to meet its repayment obligations. Burgoyne told Cointelegraph that the purpose of these regulations is to improve asset security in the event that an investor defaults or becomes insolvent.

“They are an important instrument for applying and regulating security arrangements and are essential [the] the smooth functioning of the cryptocurrency market and for market certainty to know whether FCARs apply in the context of security arrangements for certain digital assets.”

Whether cryptocurrencies, digital assets and other tokens can be used as collateral under a qualifying financial security arrangement depends on whether the assets in question may constitute “cash”, “financial instruments” or “credit claims” under the FCAR.

Burgoyne added that the scope of “the FCAR regime is largely a matter of legal interpretation” and whether the policy applies to recent asset classes including crypto tokens, central bank digital currencies and stablecoins requires an assessment of existing law:

“For this reason, we believe it is appropriate to review the situation and clarify the matter.”

Personal property law works, but a recent category is needed

The Law Commission’s main recommendation focused on existing personal property laws in the UK and how they have been applied to existing legal proceedings relating to cryptocurrencies and digital assets.

As Burgoyne explains, personal property law has traditionally been a matter of common law, not statutory law. The common law, which is developed by the court system rather than parliament, has been deemed “flexible” enough to respond to an “infinite variety” of circumstances and disputes:

“Courts have had to grapple with digital asset disputes over the last decade and have, for the most part, been able to find appropriate common law solutions.”

The need for a “distinct” third category of personal property law for digital assets arises from the fact that digital assets do not easily fit into existing categories of personal property.

Related: UK Financial Regulator Reminds Crypto Firms of October Marketing Compliance Deadline

Existing types of personal property law in the UK include ‘things in possession’, such as a vehicle or a personal computer, and ‘things in action’, such as rights or debts owed.

“Digital assets do not fit easily into any category, and applying the laws of one category or another to digital assets does not always achieve an outcome that appears obvious, fair, or even feasible.”

Burgoyne added that the Law Commission’s recommendations were deliberately miniature and focused. The government intends to establish an expert working group and guide statutory reform only in cases where common law cannot resolve disputes. The government is expected to implement the recommendations with a confined delay.

Warehouse: Tornado Cash 2.0: The race to build sheltered and legal coin acceptors