In July this year, the UK’s HM Treasury opened a consultation for the Digital Securities Sandbox (DSS), an initiative run by the Bank of England (BoE) and Financial Conduct Authority (FCA) to study the adoption of digital asset technology in the UK. Now, the treasury has published the outcome of the consultation, which summarises the responses received and the government’s intended course of action.

The scope

Most respondees appeared satisfied with the type of assets proposed to be in scope of the DSS. These include debt, equity, and money market instruments. There were, however, calls for securities that closely resemble these instruments to be included, such as depository receipts and certificates, as well as all securitised instruments instead of just bonds. There was a “strong preference” for funds, including UCITS, property, and exchange traded funds (ETFs). Opinions on the inclusion of derivatives were split. A minority called for including unbacked cryptoassets.

In response, HM Treasury wrote that “all relevant assets currently in scope of the regulatory perimeter, aside from derivatives, are capable of being included in the DSS”. Derivatives are only excluded because “no derivatives-focused legislation is being brought into the process for amendment”. The government did not budge on its decision to exclude unbacked cryptoassets, stating that “there is currently no established regime for cryptoassets that could be amended in the sandbox”.


The rules

Concerns about legislation mostly centred around the UK Central Securities Depositories Regulation (CSDR). The need to modify definitions and requirements was brought up. For the latter, it was in areas such as the use of central bank money, international open communication procedures, outsourcing requirements, provision of banking services, and the separation of trading and settlement functions.

Taking these concerns into account, HM Treasury wrote that the government “will disapply many existing legislative requirements, some of which will be replaced by rules within the DSS.” The authority explained that this was to facilitate more flexible management of CSDR requirements for DSS participants.

So far, 19 firms have expressed interest in participating in the DSS. The treasury is keeping submissions open for more entities that may wish to join.