Digital 色花堂Sandbox opens for applications
30 September 2024 UK
Image: PhotographyByMK/stock.adobe.com
The Bank of England (BoE) and the Financial Conduct Authority (FCA) have opened the Digital 色花堂Sandbox (DSS) for applications.
The DSS is a regime that allows firms to use developing technology, such as distributed ledger technology (DLT), in the issuance, trading and settlement of securities including shares and bonds.
Sarah Breeden, deputy governor for financial stability at the BoE, says: 鈥淭he DSS will provide a guided live environment for innovators in this area to create and trade these digital securities so that opportunities created by this innovation can be maximised in a way that keeps our financial system safe.
鈥淲e鈥檒l apply flexible and proportionate regulations created specifically to facilitate this activity. Flexible rules allow us to make adjustments as we learn to support the safe development and implementation of these technologies.鈥�
The DSS is open to firms of all sizes and at all stages of development as long as they are legally established in the UK.
Breeden adds: 鈥淭aking this approach means we can shape a new, permanent regulatory regime that鈥檚 innovation-friendly and fit for purpose, and importantly, without compromising financial stability.鈥�
The DSS also allows firms to test legislative changes in real-world scenarios before their implementation.
However, trading and settlement of derivative contracts and of 鈥渦nbacked cryptoassets鈥�, such as Bitcoin and Ether, are not in the scope of the DSS.
In order to protect financial stability, the BoE also sets limits on the value of securities that can be issued in the DSS to reflect the fact that the new technologies are untested in important financial markets at a significant scale.
The FCA believes that the DSS could lead to 鈥渁 quicker, more effective, and collaborative way of delivering regulatory change鈥�.
鈥淲e encourage firms that are innovating in financial market infrastructure to apply and have published guidance to help them,鈥� says the FCA. 鈥淭he DSS supports innovation, helps protect financial stability, and strengthens the UK鈥檚 leading position as a global and vibrant financial centre, built on globally respected high standards.鈥�
The DSS launch follows a joint consultation by the BoE and the FCA running between April and May 2023
In its feedback, the BoE says 20 out of 33 respondents were 鈥渆ither broadly or highly supportive of the creation of the DSS and welcomed the overall approach proposed by the regulators鈥� while no respondents 鈥渆xplicitly disagreed鈥� with the creation of the DSS.
In response to the consultation, the regulators have made some changes to the proposed policy, which includes extending the scope of the DSS to non-GBP denominated assets, and reducing the minimum capital requirement for a digital securities depository (DSD) to six months of operating expense.
The DSS will operate at least until December 2028, and the window for applying to join the regime will close around a year before that.
The DSS is a regime that allows firms to use developing technology, such as distributed ledger technology (DLT), in the issuance, trading and settlement of securities including shares and bonds.
Sarah Breeden, deputy governor for financial stability at the BoE, says: 鈥淭he DSS will provide a guided live environment for innovators in this area to create and trade these digital securities so that opportunities created by this innovation can be maximised in a way that keeps our financial system safe.
鈥淲e鈥檒l apply flexible and proportionate regulations created specifically to facilitate this activity. Flexible rules allow us to make adjustments as we learn to support the safe development and implementation of these technologies.鈥�
The DSS is open to firms of all sizes and at all stages of development as long as they are legally established in the UK.
Breeden adds: 鈥淭aking this approach means we can shape a new, permanent regulatory regime that鈥檚 innovation-friendly and fit for purpose, and importantly, without compromising financial stability.鈥�
The DSS also allows firms to test legislative changes in real-world scenarios before their implementation.
However, trading and settlement of derivative contracts and of 鈥渦nbacked cryptoassets鈥�, such as Bitcoin and Ether, are not in the scope of the DSS.
In order to protect financial stability, the BoE also sets limits on the value of securities that can be issued in the DSS to reflect the fact that the new technologies are untested in important financial markets at a significant scale.
The FCA believes that the DSS could lead to 鈥渁 quicker, more effective, and collaborative way of delivering regulatory change鈥�.
鈥淲e encourage firms that are innovating in financial market infrastructure to apply and have published guidance to help them,鈥� says the FCA. 鈥淭he DSS supports innovation, helps protect financial stability, and strengthens the UK鈥檚 leading position as a global and vibrant financial centre, built on globally respected high standards.鈥�
The DSS launch follows a joint consultation by the BoE and the FCA running between April and May 2023
In its feedback, the BoE says 20 out of 33 respondents were 鈥渆ither broadly or highly supportive of the creation of the DSS and welcomed the overall approach proposed by the regulators鈥� while no respondents 鈥渆xplicitly disagreed鈥� with the creation of the DSS.
In response to the consultation, the regulators have made some changes to the proposed policy, which includes extending the scope of the DSS to non-GBP denominated assets, and reducing the minimum capital requirement for a digital securities depository (DSD) to six months of operating expense.
The DSS will operate at least until December 2028, and the window for applying to join the regime will close around a year before that.
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