UK digital securities sandbox consultation feedback focuses on limits and digital currencies

The joint consultation between the Bank of England and the FCA on the UK Digital Securities Sandbox ended last week, with feedback focusing on two main issues: limits and digital currencies. The five-year digital securities sandbox was launched in January this year, temporarily relaxing the legal requirements for some central securities depositories (CSDs) to support experiments with distributed ledger technology (DLT) and tokenization. Despite the fact that the core function of CSDs is settlement and blockchain has the advantage of instant settlement, there is little discussion of this issue in the consultation document. The document mentions that the Bank of England is considering using its real-time gross settlement (RTGS) system for simultaneous settlement, but does not specify if or when this may be achieved. In addition, it mentions central bank omnibus account facilities. It does not explicitly mention Fnality, which uses omnibus central bank accounts as its tokenized settlement infrastructure. Fnality has been launched in the UK, but in a controlled manner subject to restrictions imposed by the Bank of England. UK Finance believes that not using on-chain digital currencies is a missed opportunity, especially for non-bank institutions. Given that Fnality is only available to banks, this puts non-bank institutions in the sandbox at a competitive disadvantage. Stablecoins were not mentioned in the report, but UK Finance said their use was limited. The Global Blockchain Business Council and the International Regulatory Strategy Group (IRSG) also called for systemic stablecoins in the sandbox. Regarding limits, UK Finance suggested setting them on a company-by-company basis rather than a global limit. IRSG warned that low limits could prevent the sandbox from attracting a large number of institutions, especially when testing large-scale projects such as digital gilts. In addition, IRSG mentioned that many legal adjustments simply clarify that digital securities are subject to existing laws. GBBC emphasized that the sandbox design is more inclined to existing institutions, and start-ups have high participation costs and face dual compliance requirements. ICMA and other responders called for increased flexibility in many aspects to make the sandbox easier to use, but this would increase the workload of supervision. (Ledger Insights)