The UK Financial Conduct Authority (FCA) and the Bank of England have officially launched the next phase of their Digital Securities Sandbox (DSS), allowing firms to explore distributed ledger technology (DLT) and tokenized securities within traditional financial markets.
The DSS, which will be operational until December 2028, provides a structured environment for testing and deploying DLT applications, with the aim of increasing market efficiency, transparency and resilience.
The initiative aims to position Britain as a global leader in financial innovation by promoting conditions conducive to investment and sustainable growth. The DSS is divided into successive phases, known as gates, and allows sandbox participants to gradually increase their level of permitted activity as they progress through each phase.
The activities will go live after the Gate 2 phase and will include the issuance, trading and settlement of actual digital securities. These securities are designed to function similarly to traditional counterparts, facilitating their use in repurchase agreements and derivative contracts. Eligible financial instruments include shares, corporate and government bonds, money market instruments, fund units and emission allowances.
The DSS is open to UK-based firms of all sizes and stages of development – including both existing financial institutions and new entrants to the market – and invites applications until approximately March 2027. This timeframe will allow regulators and participating firms to prepare on a possible transition to a new permanent regime. , depending on the successful implementation of the new technologies.
In conjunction with the launch of the DSS, the FCA and Bank of England published Policy Statement PS24/12, which set out the final policy approach and addressed industry feedback. According to the Policy Statement, several targeted changes have been made after consultation. These include expanding the scope to include non-sterling assets and adopting a more flexible method for setting company-specific limits during the go-live phase by introducing limit ranges rather than fixed limits.
Additional adjustments mean that the minimum capital requirement for a Digital Securities Depository (DSD) will be reduced to six months of operating costs, compared to the initially proposed nine months. Clarifications have also been made regarding provisions relating to securities settlement systems, with the aim of simplifying the understanding and navigation of the DSS rules.
Companies interested in participating are advised to read the guidelines provided and complete the online application process, ensuring the outlined requirements are met. After submission, the applications are shared with both supervisors and further information may be requested as part of the assessment.
The DSS represents a step forward in exploring the potential of blockchain and other emerging technologies within the UK financial markets. By facilitating innovation while ensuring “financial stability” and “market integrity”, the initiative aims to contribute to a safe, sustainable and efficient financial system.
However, it is important to note that the UK’s focus on DLT does not necessarily mean that the country wants to promote the decentralized ethos that pervades Web3.
