On 30 January 2025, the Financial Services and Markets Act 2023 (Digital Securities Sandbox) (Amendment) Regulations 2025 were laid before Parliament and published on legislation.gov.uk, along with an explanatory memorandum.
The Regulations amend the Financial Services and Markets Act 2023 (Digital Securities Sandbox) Regulations 2023 (the DSS Regulations), to modify the effect of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) as well as making other minor amendments to the DSS Regulations.
Specifically, the Regulations temporarily disapply the provisions of the MLRs that apply to cryptoassets (and other related concepts) that would otherwise apply to activity in the Digital Securities Sandbox (DSS), whilst maintaining all other anti-money laundering (AML) obligations. The reason given for this in the explanatory memorandum is that:
- Currently, where distributed ledger technology (DLT) is used in relation to activity connected with the DSS, that activity could be defined as a cryptoasset service under regulation 14A of the MLRs.
- As a result, without changes to existing legislation, firms already registered or authorised with the FCA for other activities, and subject to the MLR requirements, would need to register separately with the FCA as a cryptoasset business to undertake DSS activities.
- The Government does not consider this approach to be proportionate, and notes that it would also impose obligations on firms in a way that goes beyond current market practice for the traditional regulated securities markets that DSS activity involves. It has therefore decided to temporarily exempt activity in the DSS from the MLRs cryptoasset regime.
- AML risks will continue to be mitigated within the DSS with the exemption in place, given that all conventional non-cryptoasset related AML requirements would continue to apply, and due to activity in the DSS being regulated and supervised.
The Regulations come into force on 3 March 2025.