UK Regulators Publish Draft Guidance on Digital Securities Sandbox Open to DLT

The Bank of England (BoE) and the Financial Conduct Authority (FCA) started a consultation on the draft guidance for their digital securities sandbox, which is designed to allow participants to test distributed ledger technology (DLT) in financial services.

The sandbox – a controlled environment where firms can test their products – is planned to last five years and could lead to a new regulatory regime for securities settlement, the regulators said on Wednesday.

“The Digital Securities Sandbox is an important tool for regulators to learn how we need to react to benefit safely from developments in technology and changes to vital financial market processes such as securities settlement," Sasha Mills, the BOE's executive director for financial market infrastructure, said in a statement.

Successful applicants to use the sandbox will be able to provide securities depository and settlement services as well as operate a trading venue under modified regulations. Participants will be able to use DLT in the trading and settlement of digital securities such as shares and bonds.

The U.K. has taken steps in recent months toward becoming a crypto hub, including ushering in legislation to enable crypto to be treated as a regulated financial activity. The U.K. brought in legislation enabling the FCA and the BOE to run the sandbox in December.

The consultation, which runs until May 29, follows an earlier feedback period last year. The regulators plan to issue final guidance and start processing applications toward the end of the second quarter.