The U.K.’s Financial Conduct Authority (FCA) and the Bank of England are launching a joint consultation on a regulatory sandbox focused on digital assets — an initiative that aims to facilitate innovation in trading and settlement.
The regulators published a consultation paper that sets out their proposed approach to a digital securities sandbox that would enable firms to use new technologies like blockchain for trading and processing transactions in digital securities, such as stocks and bonds.
Under the proposals, approved sandbox participants would be able to operate a trading venue, or provide securities depository and settlement services, under modified regulations — including the ability to provide these experimental services within a single legal entity for the first time.
“The adoption of new technology in this area, if done safely, could lead to a technological transformation that will promote greater efficiency as well as greater resilience in the financial system in the long run,” the regulators said. They said the proposed sandbox “represents a major step in exploring innovation in digital assets in the U.K. and could lead to faster and cheaper ways for these securities to trade, settle, and be utilized among financial market participants.”
The modified regime — which will also limit activity in the sandbox to protect financial stability — would run for five years, and may result in a new permanent regulatory regime for securities settlement.
“The new Digital Securities Sandbox reshapes how we regulate by allowing firms to test regulatory changes using real world situations before these changes are made permanent,” said Sheldon Mills, executive director, consumers and competition at the FCA, in a release.
“We hope this will be a more effective, collaborative and quicker way of delivering regulatory change,” he added.
Alongside the consultation paper, regulators also published draft guidance for firms that consider entering the sandbox.
The consultation is open for feedback until May 29.
The regulators aim to finalize their approach, and to open the sandbox in the summer.