Property (Digital Assets etc) Bill

Lord Holmes of Richmond Excerpts

Second reading committee
Wednesday 6th November 2024 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this Second Reading Committee on the digital assets Bill, and to follow the Minister. I congratulate him on his erudite and excellent introduction. I declare my technology interests as set out in the register, not least as an adviser to Lombard Electronic Market Infrastructure and to MCM Ltd. I shall set out a bit of history around the technology that underpins the Bill and the opportunities for the UK, say some words on the Bill itself and then ask some questions of the Minister. Before all that, I put on record my thanks to the Law Commission, particularly Professor Green, for her work and the work of her team in bringing this Bill to your Lordships’ House for our consideration.

Turning to the technology, we can all be forgiven for believing that artificial intelligence, not least gen AI, is the only technology show in town. It certainly has enough column inches to keep feeding itself until the end of time. But there are other technologies that we should consider when we look at the social, economic and democratic opportunities for the UK. Chief among them is blockchain or distributed ledger technology, which I believe could be a far more profound driver and enabler of value than even some of the greatest claims about artificial intelligence. That is why I have been interested in blockchain for decades and wrote a report on the subject in 2017, Distributed Ledger Technologies for Public Good: Leadership, Collaboration and Innovation. I believe that leadership, collaboration and innovation remain three wise watchwords for our approach to this Bill.

I shall give an example of the transformative powers of this technology, which was in my 2017 report. Currently, 25,000 doctor days are used up in the NHS on proof of credentials. Of course they are important—you want to know that the person operating on you is who they say they are and has the experience and the credentials to do so—but with a relatively simple DLT solution, those 25,000 doctor days could be converted into 25,000 doctor days of care.

Crucially, when we consider these technologies, we need to put the human right at their heart. They are extraordinarily powerful, but they are technologies in our human hands: we decide, we determine and we choose how to develop and deploy. It is down to us.

On the opportunities of digital assets, I could cite any statistic from one of the four consultancy firms. I am not going to, but take this: by 2030, the majority of value exchange will take place under or using digital assets. By 2030, tokenisation of real-world assets will be in excess of $10 trillion. This technology came into being only in 2017 and is still highly nascent—my noble friends may be aware of non-fungible tokens or stablecoins, which are the two obvious examples—but we are talking about more than $10 trillion by the end of this decade.

The opportunities for the planet are extraordinary. The opportunities for the UK are immense, not least because of our financial services ecosystem, our fantastic higher education, our start-up and technology communities, and the greatest gift of all: English common law. Some £250 billion of M&A activity takes place around the globe and 40% of commercial arbitration is done under English common law. We have a unique opportunity in this country: as individuals, to assist with financial inclusion, through to financial market transformation, the dematerialisation of capital markets, and a transformation of our economy and society for the benefit of all, if we get it right—all potential, none of it inevitable.

I will quickly list some use cases. The Electronic Trade Documents Act that we passed last year, which also came from Professor Green’s team at the Law Commission, is an excellent example of a short Bill with a significant impact: enabling efficiency in international trade, driving economic and environmental benefits, and collapsing the time it takes to perfect trade, potentially from 10 to 14 days to a matter of moments.

With regard to individuals and the housing crisis we have in this country right now, what about looking at fractionalised models for home ownership so that our young people in particular can get a grip on and a piece of the housing market? There are extraordinary opportunities through all the social and economic challenges that we currently face. For our global workforce in the UK, there is transforming overseas payments, taking friction and cost out, so that they can send that money back to their families around the world. On the environmental challenge, we should all be highly cognisant of the environmental impact of blockchain and AI, not just in development but in each and every query and interaction. But none of that is inevitable. We can choose, we can determine, and we can say that all digital assets have to be driven by and generated through renewable sources. All this is in our power. If we get this right, to quote a phrase, digital assets could be a key enabler of “growth, growth, growth”.

I turn to the Bill itself. What do we need to consider? What do we currently not have when it comes to the law of property in England and Wales? The question must revolve around clarity, certainty, consistency and coherence. We have already seen the role the EU has played with MiCA and its definition of crypto assets, in a prescriptive code, and how that is currently evolving. Perhaps more pertinent to the UK are the examples in the UAE—Dubai—and Saudi and, indeed, the approach of the Hong Kong Monetary Authority. This is a global game, and the UK needs to decide what role we want to play within it.

The Bill is short in nature but could be extraordinarily significant in impact. At the heart of it is that question set out by the Minister: are the current classifications and categorisations of property in this country, developed over centuries, insufficient to cover digital assets? It is a significant question, because set out in the Bill is a suggestion that a third category of property right should be developed as a consequence, if we pass the Bill as drafted. There are so many elements at play internationally but, looking at home, is there a case to consider that the courts have in some ways overtaken the Law Commission and, indeed, the parliamentary process? I am thinking not least of recent High Court decisions.

When it comes to Committee, I believe that we will need to go into a series of issues in significant detail, and this brings me to the questions for the Minister. First, and most important, are the Government sure that the current categorisation of property into things in possession and things in action is not exhaustive and not able to accommodate digital assets? If not, is the development of a third category desirable in English common law? If we take that path, what are the implications for the courts? Will it become inevitable that the courts follow the parliamentary steer and think, “Well, there must be a need to develop this jurisprudence as a result of the activities of Parliament in passing the Bill”?

Similarly, what will it mean internationally for our common-law community, in which we are such a key player? One of the strengths of common law is consistency in whichever jurisdiction one finds oneself. To that extent, can the Minister say what the Government’s position is on the impact of the Bill on other common-law jurisdictions, which have already determined that digital assets can be classified as things in action? I am thinking not least of Singapore and New Zealand, and the relevant cases well passed at precedent level in those jurisdictions. Perhaps closer to home, we should strongly consider the situation in Scotland, as its law on incorporeal movable property seems highly capable of taking digital assets into account.

Noble Lords will have an extraordinarily interesting and detailed exposition of all these matters in Committee. The Bill may seem small, but it is incredibly significant, and we need to consider whether the existing two-state classification of property law is in fact sufficient for the task in hand, and if not, what case law and evidence we are bringing to bear. For example, do we find the 2012 High Court decision in Armstrong compelling in this respect or not?

Ultimately, this is not about the law—the statute itself. It is about what we do in this place and in courts up and down the land as a consequence of this statute, and what that means for individuals, businesses, our economy, our society and our very democracy. I believe that, if we get this right, there will be an extraordinary, almost limitless, unique opportunity for the UK to drive benefits for citizen and state alike to pass a Bill which drives economic and social benefits, which shows Parliament playing her role in this digital future, enabling the courts to play their role in interpretation and development, and reaching out to our common-law communities right around the world. That will be a fine digital assets Bill.