Digital Securities Sandbox opens in UK to steer take-up of innovative technologies

The Bank of England (BoE) and the Financial Conduct Authority (FCA) have jointly launched the Digital Securities Sandbox (DSS), a platform designed to enable firms to test digital asset technologies, such as distributed ledger technology (DLT), in a live environment. The DSS, operational until December 2028, provides a regulatory testing ground for companies to experiment with issuing, trading, and settling securities using digital infrastructure. This initiative aims to foster innovation in financial market infrastructures while allowing regulators to develop and adapt regulations in real-time.

The sandbox allows participants to use digital infrastructure to issue, trade, and settle financial instruments such as equities, bonds, and other securities. It is intended to strengthen the UK’s position as a leading global financial center by embracing innovation while ensuring financial stability. However, unbacked cryptocurrencies like Bitcoin are excluded from the sandbox’s scope.

The DSS has been in development since early 2021, following a government consultation that identified gaps in the UK’s regulatory framework for DLT and digital assets. The Financial Services and Markets Act 2023, which gives the BoE a secondary objective to facilitate innovation in financial market infrastructures, has helped resolve these issues, paving the way for the DSS.

Other regions, like the European Union and Switzerland, have also made strides in the digital asset space, launching similar DLT initiatives. According to BoE’s executive director Sasha Mills, the sandbox is a catalyst for the transformation of financial market infrastructures, offering a collaborative space for the private sector and regulators to drive technological progress.