UK’s FCA and Bank of England launch consultation for Digital Securities Sandbox
The UK’s Financial Conduct Authority (FCA) and the Bank of England (BoE) have launched a consultation regarding the operation of the country’s upcoming Digital Securities Sandbox (DSS).
FCA teams up with BoE for DSS consultation paper
The consultation seeks to propose a suitable approach to how the DSS is run, including its rules and fee structures, alongside a draft guidance document for potential applicants.
The DSS aims to cultivate the use of emerging technologies, such as distributed ledger technology (DLT), beyond central securities depositories.
Set to last five years with plans to begin accepting applicants in summer 2024, the regime will allow firms seeking to operate in the issuance, trading and settlement of digital financial securities to tap these emerging technologies to develop their offerings under a set of rules and regulations.
The BoE says the move will help the regulators “design a permanent technology friendly regime for the securities market”.
Included in this scope are transferable securities, fund units in collective investment schemes, money market instruments and emissions allowances. However, the trading and settlement of derivative contracts and unbacked cryptocurrencies such as Bitcoin remains prohibited from the regime at this time.
The BoE says: “Successful applicants to 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.”
However the regulators state that initial activities conducted in the DSS will be subject to limitations “in order to protect financial stability”.
Sasha Mills, executive director for financial market infrastructure at the Bank of England, explains that the DSS will serve as “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”.
Adding to this, Sheldon Mills, executive director of consumers and competition at the FCA, says the regime will enable firms “to test regulatory changes using real world situations”, while positioning the UK as “a global and vibrant financial centre”.
The publication of the regulator’s consultation paper has been accompanied by draft guidance for how firms can access the regime, as well as details on the contextualisation of existing regulations around securities depositories.
Responses to the consultation are being accepted until 29 May.
