UK Treasury Starts Consultation on Five-Year Digital Securities Trial

Digital bonds and equities could benefit from lighter regulations for a period of around five years, under plans set out by the U.K. Treasury in a consultation published on Tuesday.

The government said the new “sandbox” for innovative securities based on distributed ledger technology (DLT) could make markets more efficient, transparent and resilient, and wants to start using new rules that were signed into law two weeks ago.

“The use of digital assets has the potential to be genuinely transformative for financial markets,” said the Treasury’s consultation paper. “It is important that markets are able to realize the benefits in a safe manner, preserving existing regulatory outcomes.”

New technology could allow securities trades to “deviate substantially from existing practice”, operating overnight and at weekends, or allowing trades to be settled immediately rather than after a few days, said the Treasury, touting new powers it has been granted under the 2023 Financial Services and Markets Act.

The relaxation will in the first instance operate for a period of up to five years, and would apply as a minimum to digital equities, bonds and money market instruments – but not to derivatives, or to unbacked crypto, such as bitcoin (BTC) and ether (ETH), as officials point to an evolving regulatory framework.

Last year, Rishi Sunak, then finance minister and now prime minister, said he wanted to make the U.K. a cryptoasset hub. Proposals have followed on stablecoins, crypto promotions and a digital pound which would potentially be issued by the Bank of England – but the industry has complained ministers aren’t acting fast enough compared to rival jurisdictions.

The EU’s landmark Markets in Crypto Assets Regulation is set to take effect next year, and a pilot project to test out DLT securities trading is already in effect.

The Treasury is seeking views on its plans for a digital securities sandbox between now and August 22.