The Bank of England (BoE) and Financial Conduct Authority (FCA) have released a consultation paper on the mooted Digital Securities Sandbox (DSS) – an initiative to explore the trading and settlement of digital securities.
The DSS will modify regulations in the UK to enable financial market participants to use new technology – such as Distributed Ledger Technology (DLT) – in the trading and settlement of digital securities such as shares and bonds.
The DSS will be able to provide securities depository and settlement services and operate a trading venue under those modified regulations. For the first time, they will be able to provide these services from a single legal entity. The DSS will be open to a range of firms, including new financial markets infrastructure (FMI) providers, to maximise the opportunities to learn and for the UK financial system to benefit from private sector innovation and competing business models.
The DSS will last five years and may lead to a new permanent regulatory regime for securities settlement. Alongside the consultation paper, regulators have published draft guidance for firms looking to enter the DSS, including details of how the BoE proposes to allow firms to scale their activities once authorised to undertake live activity in the DSS.
Sasha Mills, executive director for financial market infrastructure at the BoE, said: “The Digital Securities Sandbox is an important tool for regulators to learn how we need to react to benefit safely from developments in technology and changes to vital financial market processes such as securities settlement.”
Sheldon Mills, executive director, consumers and competition at the FCA, said: “The new Digital Securities Sandbox reshapes how we regulate by allowing firms to test regulatory changes using real world situations before these changes are made permanent.”
“The new sandbox also helps strengthen the UK’s leading position as a global and vibrant financial centre, by driving adoption of new technologies for trading and settling traditional assets, like bonds and equities,” Mills added.
Feedback on the consultation is open until 29 May 2024. The BoE and FCA intend to publish final guidance for firms and open the DSS for applications in summer 2024.
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