UK Financial Regulators Unveil DSS Sandbox for DLT Integration

By: Eva Baxter

The Bank of England (BoE) and the UK Financial Conduct Authority (FCA) initiated the Digital Securities Sandbox (DSS) on April 3. This new framework, aimed to remain operative for five years, enables the incorporation of burgeoning technologies like distributed ledger technology (DLT) into the issuance, trading, and settlement of financial securities.

UK financial regulators have marked a definitive step towards amalgamation of innovative technologies with the financial market infrastructure. The core objective of this initiative is fostering a stable, efficient, and resilient financial system. The DSS is projected to mitigate risks linked with these experimental technologies in significant financial contexts by imposing limits on the security value issued within the platform.

The framework supports the amalgamation of roles associated with central securities depositories with trading venue functionalities, potentially steering towards creation of new business models within the financial sector. The sandbox is likely to bring multiple benefits to the financial system and significantly reduce costs for market participants, such as pension funds, investment firms, and banks.

Despite excluding operations of derivative contracts and unbacked digital assets like Bitcoin, the DSS, based on the current operative consultation period with potential infrastructure providers, intends to accept applications starting this summer.