The Digital Securities Sandbox (DSS) is ushering in a new era of regulatory approach for the Bank of England (BoE) and the Financial Conduct Authority (FCA). Sashi Mills, the Executive Director of the BoE, sees this initiative as a significant shift in the regulatory culture.
Speaking at City Week 2024, Mills highlighted the importance of innovation in maintaining financial stability and emphasized the DSS’s role in supporting these advancements. The DSS will operate under a more flexible rulebook, allowing for adaptation based on insights gained from activities within the sandbox. This approach enables regulators to utilize new methodologies, harness the potential benefits of innovation, and effectively manage risks to financial stability.
By adopting this proactive approach, the BoE and the FCA aim to enable firms to explore and utilize developing technologies that would typically be restricted. The DSS, for example, permits the use of digital ledger technology (DLT), which facilitates the issuance, trading, and settlement of securities.
Within the DSS, Digital Securities Depositories (DSDs) will have limitations on the value of securities they can handle. These limits will be adjusted as firms demonstrate their ability to adhere to regulatory standards.
DLT, as employed by the DSS, aims to address inefficiencies in post-trade environments. Mills believes that this technology has the potential to reduce barriers to entry for providers while enhancing the resilience of financial markets.
Mills’ insights into the DSS’s scope and implications build upon the recent announcement by FCA executive Matthew Long, who emphasized the integration of traditional finance and decentralized finance (DeFi).
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