Potential for New Technology Unleashed by BoE Regulatory ‘Culture Shift’

The Digital Securities Sandbox (DSS) is bringing about a proactive and flexible regulatory approach from the Bank of England (BoE) and the Financial Conduct Authority (FCA). This move represents a cultural shift for regulators, according to BoE Executive Director Sashi Mills. Speaking at City Week 2024, Mills emphasized the importance of innovation in maintaining financial stability and highlighted the DSS’s role in supporting such innovation.
The DSS will operate under a more flexible rulebook that can adapt based on observations from activity within the sandbox. This approach will enable regulators to utilize new methodologies, maximize the potential benefits of innovation, and effectively manage financial stability risks.
Mills suggests that this proactive approach will allow the BoE and the FCA to permit firms to use developing technologies that would otherwise be prohibited. One such technology is digital ledger technology (DLT), which facilitates the issuance, trading, and settlement of securities. The DSS will provide a platform for firms to explore the use of DLT.
The DSS will include Digital Securities Depositories (DSDs) that will have limitations on the value of securities they can handle. These limitations will be adjusted as firms demonstrate their ability to meet regulatory standards.
Through the use of DLT, the DSS aims to address inefficiencies in post-trade environments, which Mills believes can lower barriers to entry for providers and enhance financial market resilience.
Mills’ explanation of the DSS’s scope and implications builds on FCA executive Matthew Long’s earlier announcement of combining traditional finance with decentralized finance (DeFi).