The Digital Securities Sandbox: What is it and what does it mean for the Financial Services Industry?
The Bank of England (BoE) and the Financial Conduct Authority (FCA) recently launched the Digital Securities Sandbox (DSS) to encourage innovation in financial market infrastructure while ensuring stability and market integrity. This initiative is designed to reinforce the UK’s position as a leading global financial hub.
New technologies, like Distributed Ledger Technology (DLT), have the potential to transform financial markets by making the process of trading and recording assets faster and more efficient. This could lead to significant savings for banks, pension funds, and other financial institutions. However, for these benefits to be achieved, successful implementation is crucial.
How the DSS will operate
The DSS provides a flexible, controlled ‘safe space’ for participating financial institutions to test new technologies for managing securities. It facilitates the issuance, trading, and settlement of digital securities in the UK, while complying with regulations set by the BoE and the FCA. This approach allows firms to innovate in a controlled setting, while simultaneously giving regulators the opportunity to gain insight into potential risks and market needs, therefore better informing the regulatory framework.
The ensure safe testing, the DSS sets specific limits on the scale of activities that participants can undertake. As firms meet regulatory requirements, they can gradually expand their operations. The DSS also provides a flexible legal regime, allowing the BoE and the FCA to temporarily adjust some legal rules that might otherwise act as barriers to innovation, making it easier for firms to develop new solutions. Successful participants will be able to scale their businesses and transition to a permanent regulatory framework.
Sarah Breeden, BoE’s Deputy Governor for Financial Stability, described the DSS as an exciting opportunity for both start-ups and existing firms to create ‘a new permanent regime that's innovation friendly and fit for purpose, and importantly, without compromising financial stability.’
Applying for the DSS
The DSS will be in operation until late 2028, with applications expected to close by March 2027. For more information on the DSS and how to apply, visit the FCA website here. Additionally, read the Bank of England’s Guidance on the operation of the Digital Securities Sandbox.
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James Challinor
Head of Financial Services, techUK
James leads our financial services programme of activity. He works closely with member firms from across the sector to ensure innovation and technology are fully harnessed and embraced by both industry and regulators.
Prior to joining us James worked at other business organisations including TheCityUK and the Confederation of British Industry (CBI) in roles focused on supporting the financial & related professional services eco-system, with a particular focus on financial technology and market infrastructure.
He holds degrees from King's College London and Oxford Brookes University, and outside of work enjoys socialising, exercising, and travelling to new locations.
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Ella Gago-Brookes
Team Assistant, Markets, techUK
Ella joined techUK in November 2023 as a Markets Team Assistant, supporting the Justice and Emergency Services, Central Government and Financial Services Programmes.
Before joining the team, she was working at the Magistrates' Courts in legal administration and graduated from the University of Liverpool in 2022. Ella attained an undergraduate degree in History and Politics, and a master's degree in International Relations and Security Studies, with a particular interest in studying asylum rights and gendered violence.
In her spare time she enjoys going to the gym, watching true crime documentaries, travelling, and making her best attempts to become a better cook.
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