The UK is to introduce a “digital securities sandbox” in an effort to identify legal adjustments potentially needed to address the rise of cryptographic technologies.
The UK Treasury said in a report on Tuesday that the uncertainty surrounding the future composition of financial markets and the key risks associated with it made it difficult to put the right framework in place in advance.
“Rather than this leading to inertia in the legislative and regulatory arena, it is important to recognize that reviewing financial services legislation is an ongoing process that can take many years.” says the report.
The UK has announced that digital assets and distributed ledger technology (DLT) could be used in so-called financial market infrastructures (FMIs) (networks that enable the execution of financial transactions) to increase efficiency and cost-effectiveness. I admitted something.
The country's Ministry of Finance conducted a “call for evidence” in 2021 to investigate the application of DLT and FMI and published a response in April 2022. The findings highlight that the UK legal framework is not structured to support the use of DLT and testing is required.
According to the Treasury Department, respondents said a sandbox – “a safe space in which to experiment, learn and in some cases test new technologies” – could be key to achieving that goal.
how it works
The Financial Services and Markets Act 2023, which came into force this month, gives the Treasury “sufficiently flexible” powers to test different technologies and practices in the sandbox.
The statutory instrument to be submitted to Parliament, that is, the law that allows the implementation of the provisions without passing new ones, is the “Act for temporarily repealing or amending the laws relating to each sandbox and to the participants. “This will provide a rationale for this,” the report states.
Companies will be able to use digital asset technology to set up and operate FMIs, perform central securities depository activities, and operate trading venues.
The UK government plans to include “digital representations” (tokenized or digitally native) of financial products such as bonds, shares and money market instruments in the sandbox.
However, “unbacked crypto assets” and derivatives were not initially included.
The aim is for digital securities issued, traded, settled and maintained within the sandbox to interact with broader financial functions such as collateral and recourse contracts.
The Treasury is expected to submit a statutory instrument to Parliament later this year to establish the legal framework for the sandbox.
The UK's latest plans were announced months after the European Union passed the Markets in Crypto Assets (MiCA) Regulation.
Similar sandboxes are among the ideas being floated in the United States.
In an April white paper, CFTC Global Markets Advisory Committee member Chris Perkins echoed a similar proposal from SEC Commissioner Hester Peirce, calling on lawmakers to prioritize sandbox and safe harbor programs. Ta.
Perth’s “token safe harbor proposal”, first floated in 2021, included a three-year grace period for developers to work on decentralized networks and an exemption from federal securities law registration requirements.
“Entrepreneurs should be encouraged to innovate thoughtfully without fear of regulatory retaliation,” Perkins told Blockworks in April. “Sandboxing allows us to do this.”
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