Leaders of the British Treasury submitted a set of rules, called Digital Securities Sandbox (DSS) regulations, to Parliament on December 18.
A related memo explains that the purpose of these regulations is to create a controlled environment. This will allow companies and regulators to test new technology in the financial markets, overcome existing regulatory hurdles and potentially foster innovation in the crypto industry.
The rules allow the Ministry of Finance to disapply, amend or apply new legal requirements. They also allow the Bank of England (BoE) and the Financial Conduct Authority (FCA) to run and oversee a sandbox if the Treasury grants powers. Furthermore, it will be possible for sandbox findings to be permanently transposed into law through cooperation between the Ministry of Finance and Parliament.
The memo explicitly states that the rules are intended to enable testing of distributed ledger technology (DLT) and technology that supports digital assets. Concretely, these tests could use the above-mentioned technology to fulfill the role of central securities depositories and trading platforms.
The memo makes only passing reference to cryptocurrency: it notes that DLT has its origins in crypto assets, but highlights other uses of DLT. However, the memo notes that crypto exchanges are among the companies looking to use sandboxes.
The Digital Securities Sandbox (DSS) rules are the result of the Treasury exercising powers under the Financial Services and Markets Act 2023, which was signed into law in June. The sandbox rules will take effect on January 8, 2024.
Great Britain is strict, but open to crypto
Great Britain is known for its strict crypto policy. The FCA introduced extensive advertising rules in October. This has led to numerous companies scaling back their services – most recently Revolut, which has today closed down UK business services. Other companies, such as Poloniex, have been placed on a warning list.
In addition, a Travel Rule came into effect on September 1, 2023. This requires some UK companies to collect and share information related to crypto transfers.
Despite these restrictions, the UK government has expressed the goal of creating a “safe jurisdiction” for crypto activities. The Bank of England, meanwhile, has set out a financial innovation roadmap with a partial focus on allowing stablecoins.