The Bank of England (BoE) and the United Kingdom’s Financial Conduct Authority (FCA) have started a consultation on the draft guidance for their Digital Securities Sandbox (DSS), which is designed to allow participants to test distributed ledger technology (DLT) for trading and settlement of digital securities such as shares and bonds.

According to a joint consultation and draft guidance released on Wednesday, April 3, the sandbox will last five years and could lead to a new regulatory regime for securities settlement.

Successful applicants using the sandbox will be able to provide securities depository and settlement services, as well as operate a trading venue under modified regulations.

The BoE and the FCA aim for the inaugural group of applicants to join the DSS by autumn 2024. FCA Executive Director Sheldon Mills said in a statement:

“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. We hope this will be a more effective, collaborative and quicker way of delivering regulatory change.”

The initiative, which is to take place over five years, could pave the way for establishing permanent regulations governing the trading and settlement of digital assets down the line.

The U.K. Treasury first started consultations on the DSS in July 2023. Subsequently, the U.K. government said it would enact legislation to implement the initiative by November 2023 .

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Following this, the government introduced new regulations in December  2023, offering the nation’s financial regulators guidelines for overseeing the sandbox. These regulations took effect on Jan. 8 as part of the U.K.’s Financial Services and markets Act 2023.

After releasing the joint consultation paper, interested parties can now provide feedback until May 29. Subsequently, the BOE and FCA will review the feedback and open applications by the summer, with the first applicants joining the initiative by the autumn.

According to the regulators, the DSS will welcome a diverse array of firms, aiming to optimize learning opportunities and foster innovation within the U.K. financial system.

This inclusive approach could facilitate quicker and more cost-effective methods for trading, settling and utilizing securities among financial market participants.

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