New laws or considerable amendments to existing finance and data rules will be required if the UK economy is to be fit to accommodate a digital pound, two lawyers told CoinDesk.
New laws will be required for Digital Pound
The Bank of England and the UK Treasury are seeking public feedback on their plans for the design of a digital pound.
Should the country decide to have a CBDC, new legislation will be needed to lay out the characteristics of a digital pound and current data, privacy and anti-money laundering rules should be amended to accommodate such a currency, two lawyers told CoinDesk in a blog originally posted on its website.
“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 and that’s part of the consultation process,” says Louise Abbott, partner at Keystone Law.
The European Union is looking to publish a bill setting out what a digital euro will look like this year. This will tackle the finer points of digital euro applications and the technology that will support one.
While the EU has chosen to create new regulatory regimes to address crypto assets or even a digital euro, the UK has so far tried to accomplish similar goals by extending existing frameworks to cover digital assets, so will likely take a similar approach with the digital pound.
The Treasury and Bank of England are moving to phase two of their digital pound work, where they will develop the model of the digital pound in both policy and technology terms, the consultation said.
The legal framework for a digital pound would also need to cover ownership issues and security Abbott said.
“There is also the question of the property law status of token-based CBDC – for example it will be extremely important to determine whether such CBDC can be lent by its owner to a commercial bank … can a CBDC token be deposited into a bank account, and who owns that?” Abbott said.
Not all legislation for a digital pound would need to be completely brand new, but some issues just have no analogue in existing law, Abbott said. “All financial laws will need amending to reflect whether it applies to the CBDC.”
The consultation set out that basic access to the digital pound wallet with limited verification checks can be consistent with existing UK anti-money laundering rules and payments regulations, which include protections for customers that can prevent financial losses from companies failing to make payments.
The UK has privacy and data laws which may need to be amended for a digital pound, George Morris, partner at Simmons & Simmons said. How the Treasury plans to ensure privacy and liberty if it issues a digital pound was questioned at the digital pound debate on February 7th.
“It is right that we debate the balance between freedoms and our duty to protect citizens from fraud and other things, that this house, from time to time, will decide to justify the piercing of that veil of privacy,” Economic Secretary Andrew Griffith said at the debate in response to questions on the matter.
The UK government is planning to rely on private firms to be the digital pound’s wallet providers. The consultation sets out that firms that will offer services via the digital pound will have to comply with data protection laws, which encourages firms to use people’s data fairly.
The Data Protection Act 2018 sets out that, for existing commercial bank accounts, law enforcement agencies could access people’s personal data on a lawful basis.
This is something the consultation said would apply to digital pound wallet providers too, but this could be an issue because with the digital pound it would be easier to track people’s financial activities, unlike with physical money, Morris said.
There’s going to have to be a lot of thought put into how people’s concerns will be satisfied, because it’s not enough to just say law enforcement agencies will have access to data when needed, Morris said.
“So the digital Data Protection Act is probably going to become more important,” Morris said.
“There might need to be specific amendments made in relation to what the government can or can’t do with respect to data relating to the digital pound because only when you start seeing those kinds of specific changes, will you get people comfortable with using it.”
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