UK Digital Securities Sandbox Consultation Feedback Focuses on Limits and Digital Currencies

A joint consultation by the Bank of England and the FCA on the UK's digital securities sandbox ended last week. Feedback focused on two major issues: caps and digital currencies. Launched in January this year for a five-year period, the sandbox relaxed legal requirements for some central securities depositories (CSDs) to support experiments with distributed ledger technology (DLT) and tokenization.
Although the core function of CSD is settlement and blockchain has the advantage of instant settlement, there is little discussion of digital currencies in the consultation paper. UK Finance believes that not using on-chain digital currencies is a missed opportunity, especially for non-banks. The Global Blockchain Business Council and the International Regulatory Strategy Group (IRSG) have also called for the use of systemic stablecoins in sandboxes.
On limits, UK Finance suggests setting them on a company-by-company basis rather than globally, and IRSG warns 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, the IRSG mentioned that many legal changes simply make it clear that existing laws apply to digital securities. The GBBC emphasized that the sandbox design is more inclined to existing institutions, and that start-ups are expensive to participate in and face dual compliance requirements. ICMA and other responders called for increased flexibility in many ways to make the sandbox easier to use, but this would increase the regulatory workload.