The UK’s HM Treasury has opened a consultation for Digital Securities Sandbox (DSS), the country’s first sandbox for financial market infrastructure. In its paper, the authority describes sandboxes as “a safe space in which to experiment, learn, and in some circumstances test new technology”.

The establishment of the DSS was motivated by the Call for Evidence in 2021, which set out to examine “the application of DLT to financial market infrastructures (FMIs)”. A key issue identified was that the UK legislative framework lacked support for the use of DLT.

According to HM Treasury, the DSS will “enable firms to set up and operate FMIs using innovative digital asset technology, performing the activities of a central securities depository, and operating a trading venue, under a legislative and regulatory framework that has been temporarily modified to accommodate digital asset technology”. Entities participating in the DSS will be functioning under limits, which will increase with progress. The limits are meant to “reflect the ability of a participating entity to meet requirements and manage risks”.

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The DSS has been set up with three aims:
• To test how existing UK legislation needs to change to accommodate digital asset technology and the new practices associated with it.
• To enable the financial sector to test and adopt digital asset technology in FMIs.
• To test the use of FMI sandboxes as a policymaking concept.

The consultation will close on 22 August 2023.