On 31 October 2024, the draft Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024 (the draft Regulations) were published on legislation.gov.uk, along with a draft explanatory memorandum.

The draft Regulations use powers set out in section 17(6) of the Financial Services and Markets Act 2023 to bring the following pieces of legislation into scope of the Financial Market Infrastructure (FMI) Sandbox powers:

  • The Stock Transfer (Gilt-edged Securities) (CGO Service) Regulations 1985 (STRs).
  • The Government Stock Regulations 2004 (GSRs).
  • The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
  • The Prospectus Regulation (Regulation (EU) 2017/1129 of the European Parliament and of the Council) (UK Prospectus Regulation).

As a result of this, HM Treasury will be able to apply, disapply or modify the effect of these pieces of legislation by way of negative statutory instruments (SI) when establishing new FMI Sandboxes or modifying existing sandboxes. Each negative SI will set out in detail the specific changes being made.

FMI Sandboxes are intended to enable firms to use developing technologies such as distributed ledger technology (DLT) in performing the functions of traditional FMIs, such as the operation of a securities settlement system or operating a trading venue. They do this by making temporary changes to existing legislation for participating firms, where existing legislation (or its interpretation) would otherwise present a barrier or obstacle to this.

Three of the pieces of legislation being brought into scope by the draft Regulations (the STRs, the GSRs and the MLRs) would facilitate activity in the first FMI Sandbox – the Digital Securities Sandbox.

The UK Prospectus Regulation will be brought into scope of the FMI Sandbox powers in order to facilitate the creation of a separate FMI Sandbox, the Private Intermittent Securities and Capital Exchange System (PISCES) Sandbox. The Government intends to establish the PISCES Sandbox in due course through secondary legislation using FSMA 2023 powers.