Consultation on the Digital Securities Sandbox

Following the successful implementation of the EU DLT Pilot regulation and based on insights gained from some initial EU experience, the HM Treasury is now launching a consultation on a digital securities sandbox (DSS) in UK. With the proposed sandbox, the UK government recognizes the significance of new, innovative technologies and of digital assets which – according to the Treasury – could be „genuinely transformative for financial markets“.
The proposed sandbox will allow companies to establish and manage Financial Market Infrastructures (FMIs) using advanced technologies such as distributed ledger technology (DLT), including the performance of central securities depository functions and the operation of trading venues. It will thereby dis-apply existing regulations to facilitate the experimentation DLT and digital assets in a controlled environment.
In the consultation paper now, the Treasury seeks feedback on the general scope of the sandbox (which technologies and securities are included), the criteria to be eligible for participation, applicable limits as far as transactions / securities are concerned, limitations as regards retail access, and much more. Some of the key proposals are briefly noted below; for more detailed comprehensive information, please refer to the original consultation document.
#### Some of the key features proposed for the new sandbox are as follows:
– The sandbox will initially run for five years with the option to be extended.
– The sandbox will be open to regulated entities which are UK based.
– The new sandbox will include debt, equity and money market instruments which can be either „digitally native“ issuances or „digital representations of existing securities“.
– Cryptocurrencies will be explicitly excluded from the sandbox.
– There will be a limit on the volume of transactions that is partially flexible in nature: the number of securities of particular asset classes will be restricted and there will be a limit applying to an organization under the DLT sandbox, which is flexible due to being based on an entities size, activities, and sandbox performance. The exact limits are not yet defined.
– The sandbox will not permit retail investors access (unlike in the EU).
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Please note the Annex to the consultation which provides a nice overview of the proposed new sandbox.