The Bank of England (BoE) and the Financial Conduct Authority (FCA) of the United Kingdom have initiated a consultation on the draft guidance for their Digital Securities Sandbox (DSS). The sandbox is tailored to enable participants to test distributed ledger technology (DLT) for trading and settlement of digital securities like shares and bonds.
Duration: The sandbox will operate for a five-year period and has the potential to establish a new regulatory framework for securities settlement.
Modified Regulations: Successful applicants in the sandbox will be permitted to provide securities depository and settlement services, as well as operate a trading venue under adjusted regulations.
FCA Executive Director Sheldon Mills emphasized the transformative nature of the Digital Securities Sandbox, stating that it allows firms to test regulatory changes using real-world scenarios before permanent implementation. The initiative aims to deliver regulatory changes more effectively, collaboratively, and expeditiously.
The inaugural group of applicants is targeted to join the DSS by autumn 2024.
The U.K. Treasury initiated consultations on the DSS in July 2023, with legislation introduced by November 2023 to implement the initiative.
New regulations introduced in December 2023 provided guidelines for the U.K.’s financial regulators to oversee the sandbox, taking effect on Jan. 8 as part of the Financial Services and Markets Act 2023.
Interested parties can provide feedback on the joint consultation paper until May 29. The BoE and FCA will review the feedback and commence applications by summer, with the first applicants anticipated to join the initiative by autumn.
The DSS aims to welcome a diverse range of firms to optimize learning opportunities and foster innovation within the U.K. financial system. This inclusive approach is expected to facilitate quicker and more cost-effective methods for trading, settling, and utilizing securities among financial market participants.
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