- The DSS has the “potential to improve efficiency and reduce costs” in financial markets
- The sandbox will boost the UK’s position as a “vibrant financial centre”
- The DSS will operate until December 2028, but could be extended
The Bank of England (BoE) and the UK’s Financial Conduct Authority (FCA) have launched a sandbox exploring new technologies such as distributed ledger technology (DLT) and how it can be applied to improve efficiency in financial markets.
In an announcement, the BoE and the financial regulator said they had opened the Digital Securities Sandbox (DSS), encouraging innovative firms to test the DLT for financial markets.
According to the FCA, the DLT has the “potential to improve efficiency and reduce costs in wholesale markets, benefitting industry and investors.”
“We believe the DSS could also lead to a quicker, more effective and collaborative way of delivering regulatory change.”
The FCA stated that the initiative’s aim will help boost the UK’s leading position as a “global and vibrant financial centre” by providing the best environment for “investment, innovation, and sustainable growth.”
The DSS will be operational until December 2028, but the FCA noted that this could be extended by the UK government. Applications for applying will close around March 2027 giving regulators and firms time to transition to a permanent regime.
Scope of the DSS
The BoE and the FCA have said that the DSS has four stages: testing, go live, scaling, and a permanent regime.
During the second “go live” stage, firms in the DSS will be involved in activities including issuing, trading, and settling real digital securities. According to the FCA, “the aim of the DSS is that these securities should be capable of being used in broadly the same way as traditional securities.”
The FCA noted that these can include equities, corporate and government bonds, money market instruments, fund units, and emissions allowances.
Last July, the FCA launched its digital sandbox as a testing environment for firms to see how their products would perform at an early stage of development. At the time, the FCA said that the digital sandbox fosters innovation and growth, and that its development environment allows experimentation while safeguarding the data assets on the platform.