US Securities and Exchange Commission (SEC) Hester Peirce on Thursday proposed a novel idea to foster innovation in the financial sector: a joint US-UK “digital securities sandbox.”
What Happened: This initiative would create a safe environment for companies in both countries to experiment with blockchain technology for securities trading, without fear of regulatory penalties.
Peirce’s proposal builds on an existing sandbox initiative by the Bank of England and the Financial Conduct Authority (FCA) designed to explore how distributed ledger technology (DLT) could enhance the issuance, trading and settlement of securities.
"The sandbox is designed to generate real-world insights about whether distributed ledger technology could streamline the issuance, trading, and settlement of securities without undermining investor protection, market integrity, or financial stability," Peirce stated in her letter.
Highlighting the potential benefits of a cross-border sandbox, Peirce suggested that including US-domiciled firms in the UK's sandbox could significantly enhance innovation.
She noted, "A cross-border sandbox could be even more transformative than a solely domestic one. The US and UK are well paired for such an experiment due to our shared commitment to capital markets as a vital building block of a growing and dynamic economy."
The proposed sandbox would allow firms to conduct activities under the same regulatory conditions in both the US and the UK. This would facilitate a unified framework for experimenting with DLT in financial markets.
Peirce emphasized the potential for a cross-border sandbox to provide valuable data and insights that could benefit both regulators and market participants.
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“The information-sharing agreement between the SEC and UK regulators covering joint sandbox activity would enable both regulators to learn from activity undertaken in both jurisdictions,” she added.
Peirce also underscored the importance of this initiative for public benefit, allowing firms to access markets without the immediate burden of full regulatory compliance.
This, she argued, could lead to greater innovation and more competitive markets. "Most important, sandboxes can benefit the public.
Allowing firms to access markets without having to comply immediately with the full panoply of regulations provides a manageable entry point into highly regulated markets," Peirce explained.
Peirce’s proposal comes at a time when both the US and UK are recognized as global hubs for financial technology and innovation.
By combining efforts, she believes that both countries can leverage their strengths to push the boundaries of financial technology further.
"A cross-border sandbox covering the issuance, trading, and clearing of securities using DLT is particularly ripe for exploration," she stated.
What’s Next: This initiative and its broader implications for digital asset markets will be key topics of discussion at Benzinga’s Future of Digital Assets event on Nov. 19.
Image: Shutterstock
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