The Bank of England (BoE) and the Financial Conduct Authority (FCA) of the United Kingdom have commenced a consultation on the preliminary guidance for the Digital Securities Sandbox (DSS). The purpose of the DSS is to enable participants to test distributed ledger technology (DLT) for the trading and settlement of digital securities, such as shares and bonds.
As per the joint consultation and draft guidance, which were released on April 3, the sandbox will have a duration of five years and could potentially lead to the establishment of a new regulatory framework for securities settlement. Successful applicants who participate in the sandbox will have the ability to offer securities depository and settlement services, as well as operate a trading venue under modified regulations.
The BoE and FCA have set a target for the first group of applicants to join the DSS by autumn 2024. Sheldon Mills, the Executive Director of the FCA, stated that this initiative, which spans across five years, has the potential to lay the groundwork for permanent regulations governing the trading and settlement of digital assets in the future.
The U.K. Treasury initially initiated consultations on the DSS in July 2023. Subsequently, the U.K. government announced its intention to enact legislation to implement the initiative by November 2023.
In December 2023, the government introduced new regulations that provided guidelines to the nation’s financial regulators for overseeing the sandbox. These regulations came into effect on January 8 as part of the U.K.’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 29. The BOE and FCA will then review the feedback and open applications by the summer, with the first applicants joining the initiative by autumn.
According to the regulators, the DSS will welcome a diverse range of firms, with the aim of maximizing learning opportunities and fostering innovation within the U.K. financial system. This inclusive approach is expected to facilitate faster and more cost-effective methods for trading, settling, and utilizing securities among financial market participants.