The UK is gearing up to address the legal and regulatory complexities associated with introducing a Digital Pound, as the Bank of England and the UK Treasury recently initiated public consultations to explore the potential design of a central bank digital currency (CBDC). Lawyers specializing in finance and data law have emphasized the need for new legislation and regulatory amendments to accommodate the Digital Pound.
According to legal experts who spoke to a news agency, the absence of an existing legal framework for a CBDC means that new legislation would be required to define its characteristics and operational guidelines. “There’s no such thing in this country as a central bank digital currency, so they would need to create new legislation around what that would look like,” explained Louise Abbott, a partner at UK-based Keystone Law.
The legal considerations for a digital pound extend beyond its fundamental structure. Issues such as ownership rights and security measures would need to be addressed to ensure a robust legal framework. Abbott noted that clarifying the property law status of token-based CBDC would be crucial. Questions arise regarding the possibility of lending CBDC tokens to commercial banks or depositing them into bank accounts, which would require careful examination.
The privacy and data protection landscape would also require adjustments to accommodate the Digital Pound. George Morris, a partner at Simmons & Simmons, highlighted the need to amend existing privacy and data laws to align with the issuance of a CBDC. Balancing privacy and liberty concerns with the objective of protecting citizens from fraudulent activities poses a significant challenge. The UK government plans to rely on private firms as digital pound wallet providers, necessitating compliance with data protection laws.
To ensure public trust and widespread adoption, the legal framework surrounding the digital pound must carefully consider data access and usage by law enforcement agencies. The heightened traceability of digital transactions compared to physical money raises concerns about potential breaches of financial privacy. Morris suggested that specific amendments might be required to regulate the government’s handling of data associated with the Digital Pound, promoting confidence and user acceptance.
The UK’s approach to developing a legal framework for the digital pound sets it apart from the European Union, which is working on a bill to define the Digital Euro. While the EU opts for creating new regulatory regimes, the UK has chosen to extend existing frameworks to encompass digital assets.
As the consultations progress into the second phase, both policymakers and legal experts are poised to shape the future of the Digital Pound, paving the way for potential advancements in the country’s crypto sector. With the need for new legislation, amendments to finance and data rules, and careful consideration of ownership and privacy concerns, the legal framework surrounding the digital pound will play a critical role in shaping its future and impact on the country’s crypto landscape.