The Bank of England and FCA are consulting on a sandbox that would enable real-world testing of blockchain tech for trading stocks and bonds.
Britain's financial regulators revealed plans on Wednesday to launch a "digital sandbox" that would allow firms to experiment with blockchain technology and other innovations for trading securities like stocks and bonds.
The Bank of England and the Financial Conduct Authority issued a joint consultation seeking feedback on draft rules for the five-year sandbox. Within this controlled testing environment, existing regulations would be temporarily eased to enable companies to trial novel fintech solutions in real-world scenarios with customers.
"The adoption of new technology in this area, if done safely, could lead to a technological transformation promoting greater efficiency and resilience in the financial system long-term," the regulators stated in their proposal.
A key provision would, for the first time, permit sandbox participants to provide combined trading venue and securities settlement services under one roof using distributed ledger technology like blockchain.
Sasha Mills, the BoE's executive director for market infrastructure, heralded the sandbox as "an important tool" to help watchdogs assess how to adapt rulebooks to emerging technologies reshaping vital processes such as securities settlement.
"This consultation is an innovative approach for regulators and an exciting milestone in supporting innovation in the financial industry," Mills said. "We welcome views from potential participants and look forward to working with the FCA, government and industry over the lifespan of the DSS."
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, framed the initiative as fortifying Britain's status as a global finance hub by fostering fintech adoption while upholding market integrity.
"The new sandbox also helps strengthen the UK’s leading position as a global and vibrant financial centre, by driving adoption of new technologies for trading and settling traditional assets, like bonds and equities," he stated.
While enabling regulatory fintech experimentation, safeguards will be implemented to protect financial stability and limit risks.
The consultation period runs through May 29, after which final sandbox guidance is expected by summer. A new permanent regime for digital securities trading could ultimately emerge from lessons learned during the pilot.
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