The United Kingdom’s Financial Conduct Authority (FCA) and the Bank of England have officially kicked off the next phase of their Digital Securities Sandbox (DSS), providing a platform for firms to delve into distributed ledger technology (DLT) and tokenized securities within traditional financial markets.
Running until December 2028, the DSS offers a structured environment for testing and implementing DLT applications, with the goal of improving market efficiency, transparency, and resilience. The initiative aims to position the UK as a global leader in financial innovation by creating an environment conducive to investment and sustainable growth. The DSS is divided into sequential stages known as gates, allowing sandbox participants to gradually increase their level of permitted activity as they progress through each phase.
The activities will commence after the Gate 2 stage, involving the issuance, trading, and settlement of actual digital securities that function similarly to traditional securities. These digital securities can be used in repurchase agreements and derivative contracts and include equities, corporate and government bonds, money market instruments, fund units, and emissions allowances.
The DSS is open to UK-based firms of all sizes and development stages, including existing financial institutions and new market entrants. Applications are being accepted until approximately March 2027, giving regulators and firms time to prepare for a potential transition to a new permanent regime if the new technologies are successfully implemented.
Alongside the launch of the DSS, the FCA and the Bank of England have released Policy Statement PS24/12, outlining the final policy approach and addressing industry feedback. Changes include expanding the scope to include non-pound sterling-denominated assets, introducing a more flexible method for setting firm-specific limits during the go-live stage using limit ranges, and reducing the minimum capital requirement for a Digital Securities Depository (DSD) to six months of operating expenses.
Firms interested in participating are encouraged to review the guidance provided and complete the online application process, ensuring compliance with the outlined requirements. Applications will be shared with regulators for evaluation, and additional information may be requested during the process.
The DSS signifies a significant step in exploring the potential of blockchain and other emerging technologies in the UK’s financial markets. By promoting innovation while safeguarding financial stability and market integrity, the initiative aims to contribute to a secure, sustainable, and efficient financial system.
It is worth noting that the UK’s focus on DLT does not necessarily indicate a promotion of the decentralized ethos associated with Web3.