On 18 December 2023, the Financial Services and Markets Act 2023 (Digital Securities Sandbox) Regulations 2023 (SI 2023/1398) were published, along with an explanatory memorandum.

The Regulations create the first financial market infrastructure (FMI) sandbox, the Digital Securities Sandbox (DSS), which is intended to allow firms and the regulators to test the use of new technology across the UK financial markets. The DSS will enable the Government and regulators to test and then make changes on a permanent basis to accommodate new and developing technologies.

In addition, the Regulations create the framework that will enable the Bank of England and the Financial Conduct Authority to operate the DSS, including:

  • Specifically setting out the activities and financial instruments in scope (as well as the relevant regulator for these activities).
  • The eligibility criteria to apply to participate in the DSS and, if successful, become a “sandbox entrant”.
  • The arrangements to ensure that regulators are able to appropriately supervise the DSS.
  • Termination and wind-down arrangements for DSS activities.
  • The relevant legislation being modified, disapplied or applied to new entities in the DSS.

Firms will, in general, be subject to a schedule of disapplied and modified legislation when participating in the DSS. All other legislation will continue to apply to the activities of each sandbox entrant and other participants in its unmodified form.

The Regulations will come into force on 8 January 2024.