UK Finance Minister Proposes Sandbox Initiative for Digital Assets Legislation

The UK government has announced a new legislative proposal for a Digital Securities Sandbox (DSS), aiming to create a supportive testing environment for crypto technologies and services.

In the recently released Autumn Statement, UK Chancellor of the Exchequer Jeremy Hunt detailed 110 measures to bolster economic growth, including the introduction of the Digital Securities Sandbox as a key step towards enhancing the country’s digital asset legislation.

According to the Statement, the UK government will proceed with the legislation to implement the DSS, which will “facilitate the adoption of digital assets across financial markets.” The government will also “lay an SI to implement the DSS, delivering on the Edinburgh Reform announcement to implement a Financial Market Infrastructure Sandbox in 2023.”

The SI, also known as the statutory instrument, will be introduced by the government before the Parliament can officially and permanently implement the DSS. The DSS initiative will presumably begin in the first quarter of 2024.

UK’s Attempt to Focus on Innovation and Regulation

In July, the UK government published a consultation on its proposal for implementing a Digital Securities Sandbox, an initiative run by the Bank of England and Financial Conduct Authority. It was the first Financial Market Infrastructure (FMI) Sandbox set up under the powers given to the Government in the Financial Services and Markets Act (FSMA) 2023.

Following its launch, the DSS has received feedback from the industry on the consultation. The government has also published a response to the consultation, summarizing the feedback received. According to the response, “feedback praised the emphasis on facilitating innovation, without compromising on regulatory outcomes.”

However, the DSS still have some gaps to fill. “On unbacked cryptoassets, the government will maintain the policy of exclusion for the DSS,” said the Response, “given there is currently no established regime for cryptoassets that could be amended in the Sandbox.”

It is also possible to include non-GBP digital assets in the DSS. But for now, “the early activity in the DSS is likely to be focused on GBP-only assets.” The Bank of England will eventually decide if to include non-GBP assets.