The Bank of England (BoE) and the Financial Conduct Authority (FCA) in the United Kingdom have initiated a consultation on the draft guidance for their Digital Securities Sandbox (DSS). The purpose of the sandbox is to allow participants to test distributed ledger technology (DLT) for trading and settlement of digital securities like shares and bonds.
According to a joint consultation and draft guidance released on April 3rd, the sandbox will last for a period of five years and has the potential to establish a new regulatory framework for securities settlement. Participants who are successful in the sandbox will have the opportunity to offer securities depository and settlement services, as well as operate a trading venue under modified regulations.
The BoE and FCA are aiming for the first group of applicants to join the DSS by the autumn of 2024. Sheldon Mills, Executive Director at the FCA, stated that this initiative, which spans over five years, could lay the foundation for permanent regulations governing the trading and settlement of digital assets in the future.
The UK Treasury initially began consultations on the DSS in July 2023, with the government subsequently announcing its intention to enact legislation to implement the initiative by November of the same year. In December 2023, new regulations were introduced, providing guidelines for the nation’s financial regulators to oversee the sandbox. These regulations came into effect on January 8th as part of the UK’s Financial Services and Markets Act 2023.
Following the release of the joint consultation paper, interested parties now have the opportunity to provide feedback until May 29th. The BOE and FCA will then review the feedback and open applications by the summer, with the first applicants joining the initiative in the autumn.
The regulators have expressed that the DSS will welcome a diverse range of firms, aiming to maximize learning opportunities and foster innovation within the UK’s financial system. This inclusive approach has the potential to facilitate faster and more cost-effective methods for trading, settling, and utilizing securities among financial market participants.