PS24/12: Digital Securities Sandbox joint Policy Statement and Final Guidance

DSS joint Bank of England and FCA Policy Statement[1]

DSS Final Guidance[2]

Why we are doing this

The DSS[3] will allow participants to use developing technologies, such as distributed ledger technology (DLT), to undertake the activities traditionally associated with Central Securities Depositories[4] and trading venues. 

Firms will be able to explore the benefits of these new technologies and practices in traditional financial markets.

We’ll work together with the Bank to operate the DSS, which will have 3 overarching aims: 

• Facilitating innovation to promote a safe, sustainable, and efficient financial system.
• Protecting financial stability.
• Protecting market integrity and cleanliness. 

Who this is for

• Firms intending to apply to enter the DSS and be approved as a sandbox entrant.
• Firms that wish to engage with a sandbox entrant but not become one themselves, for example, firms seeking to offer custody services for the digital securities that are recorded, traded or settled on those Financial Market Infrastructures (FMIs).

What we are changing

Following the feedback received to CP24/5, which closed on 29 May, we and the Bank have made targeted changes to our approach. This includes broadly finalising the rules, with some changes.  

In particular:  

• Extending the scope of the DSS to include non-GBP (non-Pound Sterling) denominated assets.
• Adopting a more flexible approach to setting firm-specific limits at the go-live stage, by adopting limit ranges rather than a fixed go-live limit. This aims to further facilitate firms’ business plans and their activities to grow in the DSS, subject to the number of firms participating in the DSS.
• Adding the option of a third Gate 3 progress review window to ensure that firms are not stuck at the live stage for a long period of time.
• Reducing the minimum capital requirement for a Digital Securities Depository (DSD) to 6 months of operating expenses, from the original proposal of a minimum of 9 months of operating expenses.
• Removing detailed provisions relating to the use of bank guarantees and letters of credit used to secure DSD links that were based on provisions in Commission Delegated Regulation (EU) 2017/390. Instead, we’re relying on the high-level provisions in the rules based on article 48 of UK CSDR. This is designed to make the provisions relating to DSD links in the DSS rules instrument easier to understand and navigate.
• Amending the rule based on article 39 of UK CSDR to clarify that adequate protection to participants in any securities settlement system that a DSD operates can include protection by contractual means.
• Bringing Article 65 of UK CSDR (Reporting of infringements) back into the Bank DSS rules instrument to avoid lacunas in whistleblowing protection for DSS participants.