Under the recently passed Financial Services and Markets Act 2023, the UK’s Treasury has the right to issue Statutory Instruments (SI) to create financial market infrastructure (FMI) sandboxes. Today it published the SI for the Digital Securities Sandbox which comes into force on January 8, 2024. It is still unclear about volume limits.
Last month His Majesty’s Treasury (HMT) clarified the scope of the Digital Securities Sandbox together with the results of a consultation. Volume limits in the EU’s DLT Pilot Regime discouraged some larger institutions from participating. HM Treasury said it planned to impose limits that would take into account the size of the organization.
However, today’s legislation states: “The Treasury may direct the appropriate regulator, having first consulted with them, to impose restrictions on the overall FMI activities or ancillary FMI activities in the FMI sandbox arrangements, whether by reference to a number, value or another metric.”
It remains to be seen if some organizations will be hesitant to participate without these details. Otherwise, they risk putting in a lot of work – time is money – and having to halt their activities quickly.
Last month HM Treasury said 19 organizations had expressed an interest in participating and they are keen to hear from more.
The regulators involved are the Bank of England and the FCA. Four types of FMI’s can apply to be FMI sandbox participants:
- UK recognized investment exchanges
- recognized central securities depositories (CSDs)
- multilateral trading facilities
- organized trading facilities.
As previously reported, there’s quite a bit of leeway regarding the end users that are not sandbox entrants.
Apart from defining the sandbox, the statutory instrument goes through various pieces of legislation and defines which clauses will be waived or altered in the sandbox.
