The Financial Services and Markets Act 2023 (Digital Securities Sandbox) (Amendment) Regulations 2025
The Financial Conduct Authority (FCA) has announced new regulations that will amend the Financial Services and Markets Act 2023 (FSMA 2023) to establish a digital securities sandbox.
The digital securities sandbox will allow innovative firms to test new digital securities products and services in a controlled environment, with the benefit of tailored regulatory support. This will help to promote innovation in the digital securities market while ensuring that consumers are protected.
The amendment regulations will make a number of changes to FSMA 2023, including:
- Introducing a new definition of a “digital security”
- Creating a new regulatory sandbox regime for digital securities
- Amending the existing regulatory sandbox regime to include digital securities
- Making consequential amendments to other legislation
The amendment regulations will come into force on 31st January 2025.
What is a digital security?
A digital security is a security that is issued and transferred using distributed ledger technology (DLT). DLT is a new technology that allows for the secure and transparent recording of transactions.
Digital securities have a number of potential benefits over traditional securities, including:
- Increased efficiency and cost-effectiveness
- Improved transparency and security
- Greater accessibility for investors
The digital securities sandbox
The digital securities sandbox will be a controlled environment in which innovative firms can test new digital securities products and services. This will allow firms to:
- Experiment with new technologies and business models
- Develop new products and services that meet the needs of consumers
- Test the regulatory implications of new digital securities products and services
The FCA will provide tailored regulatory support to firms that participate in the digital securities sandbox. This support will include:
- Guidance on the regulatory requirements for digital securities
- Access to regulatory experts
- A streamlined application process for firms that want to participate in the sandbox
Benefits of the digital securities sandbox
The digital securities sandbox will provide a number of benefits for firms, consumers, and the UK economy.
For firms, the sandbox will:
- Provide a safe and supportive environment to test new digital securities products and services
- Reduce the cost and time associated with developing and launching new digital securities products and services
- Give firms the opportunity to work closely with the FCA to develop new regulatory approaches for digital securities
For consumers, the sandbox will:
- Increase access to innovative new digital securities products and services
- Help to ensure that digital securities products and services are safe and secure
- Foster competition in the digital securities market
For the UK economy, the sandbox will:
- Promote innovation in the digital securities market
- Attract investment in the UK digital securities industry
- Create new jobs and economic growth
How to apply for the digital securities sandbox
Firms that are interested in participating in the digital securities sandbox should apply to the FCA.
The application process will be competitive, and firms will need to demonstrate that they have:
- A clear and innovative idea for a digital security product or service
- The technical expertise to develop and launch a digital security product or service
- A strong understanding of the regulatory requirements for digital securities
- The resources to participate in the sandbox
Conclusion
The digital securities sandbox is a significant step forward for the UK digital securities market. It will provide a safe and supportive environment for firms to test new digital securities products and services, and it will help to promote innovation in the digital securities market.
The amendment regulations will come into force on 31st January 2025.
The Financial Services and Markets Act 2023 (Digital Securities Sandbox) (Amendment) Regulations 2025
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