Bank of England partners with FCA to test DTL Sandbox

The Bank of England is working with the UK Financial Conduct Authority (FCA) for a consultation on draft guidelines for a Digital Securities Sandbox. The Sandbox will be used to test the use of distributed ledger technology (DTL) in the trading and settlement of digital securities, including bonds and equities.

According to the Bank of England and the FCA, this Sandbox will last five years. It could also pave the way for a new regulatory framework for securities settlement.

Those who with good luck applying for this sandbox, which will last five years, will be able to offer a wide range of services, including securities custody and settlement. They will also be able to operate a trading platform and be governed by a customized set of regulations.

The draft guidelines also plan for the first group of applicants for the sandbox to join before the end of the year. These applicants will have the opportunity to provide DLT services in real-world situations under a new regulatory framework. The agencies plan that the sandbox will pave the way for more permanent changes to be adopted.

“The new Digital Securities Sandbox reshapes how we regulate by allowing companies to test regulatory changes against real-world situations before making those changes permanent. We hope this will be a more effective, collaborative and faster way to implement regulatory change,” said the FCA’s executive director, Sheldon Mills.

This Digital Securities Sandbox will pave the way for the creation of permanent regulations that will govern the trading and settlement process for digital assets.

The UK is working to create a new crypto regulatory regime. Last month, the UK Treasury published a consultation paper seeking feedback on how to ensure non-fungible tokens (NFTs) comply with anti-money laundering and terrorist financing legislation.

The UK Treasury began the consultation process for this framework in the middle of last year. At the time, the UK government said it would legislate to implement this digital sandbox by November last year.

This sandbox will be governed by a set of new regulations set out by the UK government in December 2023. These regulations allowed those who regulate the financial markets to oversee this digital sandbox. This new regulatory framework came into effect on January 8.

Interested parties will have to provide feedback on this digital sandbox until May 29. The BoE and the FCA will review feedback provided as a result of this process before opening applications in the summer. The first applicants for this initiative will begin joining in the fall.

This digital sandbox will be open to various companies. The Bank of England and the FCA aim for this Sandbox to provide a learning opportunity while promoting innovation in the UK financial sector.

The DSS also takes an inclusive approach. It aims to develop a fast and cost-effective method that supports processes such as settlement, trading and the use of securities in the financial market.