Bank of England and FCA Propose Digital Securities Sandbox For Financial Institutions

The Bank of England (BoE) and the Financial Conduct Authority (FCA) have revealed plans for a Digital Securities Sandbox (DSS) to allow firms to use distributed ledger technology and other developments to issue shares and bonds.

In an April 3 official release, the Bank of England announced a consultation paper geared towards allowing financial firms to implement and operate a digital sandbox. According to the release, financial firms will be allowed to issue, trade, and settle securities through blockchain and developing technology. This comes on the back of increasing adoption from several traditional finance firms and driving use cases around blockchain technology. 

“Firms that successfully apply for the DSS will be able to operate under a set of rules and regulations that has been modified to facilitate this. The DSS lasts for five years and will help regulators design a permanent technology-friendly regime for the securities market.”

Regulators Target Efficiency 

Firms can leverage this to create new business models or simply combine previous activities for the desired efficiency. The Bank of England aims to facilitate innovation creating a safe and sustainable system, protecting stability and integrity in the financial market. 

Per the release, the issuance of derivative contracts and crypto assets like Bitcoin are not under the scope of the DSS 

“The intention of the Bank and the FCA is that financial market participants, such as companies that use capital markets to raise finance, or participants in financial markets who trade securities, should be able to interact with the firms inside the DSS as normal while benefitting from the new technology.”

Bank of England Rolls Out Consultation

To achieve the aims of the digital securities sandbox, the Bank of England seeks to engage stakeholders in finance to chip in points and promote fair representation. The bank has released a proposed template for the structure of the sandbox and a guide for applicants.

Players in the sector including financial market infrastructure firms or settlement services can engage in the consultation in a bid to make the regime successful. The deadline for responses to the consultation is May 29 creating an eight-week window for all stakeholders.

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