The UK is set to become a global leader in digital securities innovation with the launch of a new sandbox that will allow firms to test and adopt new market infrastructures using distributed ledger technology (DLT).
The Digital Securities Sandbox (DSS), which was announced by the Financial
Conduct Authority (FCA) at the CCData Digital Asset Summit on Oct. 31, will be the first financial market infrastructure sandbox delivered under the powers granted by the Financial Services and Markets Act 2023.
The DSS will enable firms to model the operations of a central securities depository and a trading venue using DLT, which can facilitate faster, cheaper and more secure transactions of digital securities. Digital securities are digital representations of existing securities, such as debt, equity and money market instruments, or native digital assets that are issued and traded on DLT platforms.
The DSS will provide a temporary and flexible regulatory environment for firms to experiment with digital securities, with the prospect of permanent changes to the legislative framework if the tests are successful. The DSS will also foster collaboration between regulators, industry and academia to address the technical, legal and policy challenges posed by digital securities.
The FCA is inviting expressions of interest from firms that want to participate in the DSS, which is expected to launch at the end of Q1 2024. The FCA is also seeking feedback from stakeholders on the proposed approach and scope of the DSS, which was outlined in a consultation paper published by HM Treasury in July2.
The DSS is part of the UK government’s ambition to support innovation and competition in financial services, and to position the UK as a leading global fintech hub. The DSS follows the success of the FCA’s Regulatory Sandbox, which has supported over 100 fintech firms since its launch in 2016. The DSS also complements other initiatives such as the Kalifa Review of UK Fintech, which recommended the creation of a Centre for Finance, Innovation and Technology, and the UK’s FinTech Strategic Partnership with Singapore.