The Bank of England (BoE) and the Financial Conduct Authority (FCA), the UK’s two main financial regulators, have announced the launch of their Digital Securities Sandbox (DSS). The initiative aims to support innovation around digital assets and their integration into the traditional financial services sector.
The DSS has three primary objectives: to facilitate innovation for a safe, sustainable, and efficient financial system; to protect financial stability; and to maintain market integrity. Developed following a consultation process by the BoE and FCA, the sandbox will also serve as a platform to test legislative changes relating to digital securities and assess their impact on the market.
“It has been well documented that London’s status as a global financial hub is under threat, but tokenised securities can put our capital markets at the forefront of technological innovation for the next 30 years,” comments Gilbert Verdian, CEO at Quant, specialists in digital ledger technology and blockchain for finance. “These instruments offer greater liquidity for issuers and, in the case of investors, a democratisation of asset classes and financial products that were previously unavailable to them, in addition to new operational efficiencies and cost reduction. By working collaboratively in a pilot sandbox environment with participants and counterparties, you can better achieve timely and effective project implementation. With emerging technology, start small, test and iterate and then go bigger. This is the approach of many successful central bank digital currency pilots, which run on a variety of DLTs.”
In a joint statement, the BoE and FCA encouraged firms involved in innovating financial market infrastructure to apply for participation in the DSS. Guidance has been made available to assist potential applicants, and firms can arrange pre-application meetings with the regulators to gain a clearer understanding of requirements.
Participants in the DSS will be able to experiment with emerging technologies, such as distributed ledger technology (DLT), to explore their application within activities typically associated with Central Securities Depositories and trading venues.
“The DSS lays the foundation for market participants to realise these benefits in a safe, regulated environment and importantly, puts the UK in a strong leadership position when it comes to tokenisation,” says Verdain. “With the EU having already launched its DLT pilot regime, it is vital that the UK does not fall behind in this new era of digital finance.”
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