Global: UK Financial Watchdog Plans Digital Securities Sandbox Launch in Q1 2024

The UK Treasury is aiming to introduce a Digital Securities Sandbox (DSS) by the end of the first quarter next year, according to Helen Boyd, Head of Capital Markets at the Financial Conduct Authority (FCA), an independent regulatory watchdog.

A sandbox serves as a controlled testing environment for innovators seeking to bring new products to the market. The FCA already operates a similar initiative through its Regulatory Sandbox, allowing companies with promising products to present them to a select group of early adopters.

Speaking at the Digital Asset Summit hosted by CCData in London, Boyd highlighted the distinctions between the “traditional innovate sandbox” and the upcoming DSS. She explained that the DSS would feature “a new rule set that would enable it to explore novel applications of digital securities.”

Boyd emphasized that the DSS represents a new approach to regulatory oversight, departing from the traditional method of regulating activities as they emerge. Instead, it will adopt an iterative approach aimed at continuous learning. She expressed hopes for the DSS to be launched “at the end of Q1 next year.”

Regarding the FCA’s role in crypto regulation, Boyd clarified that the FCA derives its authority from HM Treasury, the UK’s Finance Ministry. She indicated that the FCA is currently awaiting powers granted by HM Treasury, pending the publication of consultation results and legislative steps.

Once granted these powers, the FCA plans to develop a regulatory framework based on industry input. Boyd encouraged industry stakeholders to provide feedback, expressing the FCA’s intention to engage with a significant amount of input from the sector.

Boyd also discussed the potential of tokenization to disrupt traditional finance when traditional securities are represented on blockchain platforms. She pointed out that processes such as trading, settlement, and clearing could undergo significant transformations.

Additionally, Boyd highlighted the approaching deadline for crypto advertising compliance in the UK. Crypto companies operating in the country were given until October 8 to align with the FCA’s financial promotion regulations. Companies must apply for approval and pay a fee to comply with these regulations.

Boyd acknowledged that certain firms might require flexibility in meeting registration deadlines and encouraged them to engage with the FCA to explore possible extensions: “There are some firms who may need some flexibility. Please come and talk to us, and we may be able to extend some flexibility to you into the new year.”