UK Law Commission affirms English and Welsh laws apply to smart contracts

The UK Law Commission, charged with monitoring laws in the UK and recommending reforms, has said England and Wales do not need legal reform for smart legal contracts in the digital asset space.

In an announcement Thursday, the commission said Smart contracts built with distributed ledger technology are permitted within the current legal framework in England and Wales. The Law Commission recommended only "an incremental development of common law" as needed for existing frameworks, but also encouraged smart contract parties to explain risks related to "code performance" and any other necessary terms.

The commission said the findings are based on those reached by the UK Jurisdiction Working Group, which in 2019 recognized smart contracts as enforceable agreements per local laws, as well as labeling crypto assets as negotiable property. However, the group added that it was aiming to work with the UK government on a project looking at any potential conflict of laws regarding emerging technology in 2022.

"The Law Commission's analysis demonstrates the flexibility of common law to accommodate technological developments, particularly in the context of smart legal contracts," the announcement said. "It confirms that the jurisdiction of England and Wales provides an ideal platform for business and innovation."

"As smart legal contracts become more and more prevalent, the Commission anticipates that the market will develop established practices and model clauses that parties can use to simplify the process of negotiating and drafting their smart legal contracts."

Related: Evolve or die: how smart contracts are changing the crypto sector's balance of power

Determining what regulations and laws apply to emerging markets, including cryptocurrencies and blockchain, has been largely limited to individual governments despite the apparent need for a framework in cross-border transactions and other actions that affect more than one country. Some, in both the public and private sectors, have claimed that regulatory oversights and crackdowns Ultimately, it will benefit the crypto space, while others claim that regulators should adapt existing frameworks to digital assets, and not the other way around.