The UK recently held a consultation about its Digital Securities Sandbox (DSS), which aims to simplify legal requirements for central securities depositories, facilitating tokenisation initiatives in issuing, trading, and settling digital securities in traditional finance (TradFi).
An unexpected yet notable respondent was Hester Peirce, the SEC Commissioner, who proposed that the UK and US explore the possibility of an international sandbox. Although she acknowledged that she doesn’t necessarily have the full support of the Commission, and her proposal isn’t as immediately actionable as other responses to the UK consultation, her suggestion is nonetheless noteworthy.
Currently, the DSS is limited to UK firms. However, Commissioner Peirce advocates for including US companies, highlighting the global nature of tokenisation, which fosters international trading and investment. She emphasised that a multinational sandbox would provide regulators with more extensive data on the operation of complex emerging technologies across different contexts than a single jurisdiction sandbox could.
For such a collaboration to work, the SEC would need to establish a micro-innovation sandbox. Commissioner Peirce outlined a potential framework for this: a two-year sandbox where participants could select rules to temporarily waive, provided they demonstrate risk mitigation strategies. She suggests imposing restrictions on the number of clients and monetary amounts to balance flexibility with oversight, allowing companies to validate their business models effectively.
Commissioner Peirce also referenced benefits from a recent study on sandboxes, which found that participants in the UK FCA’s sandbox raised 15% more capital, were 50% more likely to secure funding, and had a 25% higher survival rate.
Additionally, the Global Financial Innovation Network (GFIN), launched in 2019 with both the FCA and SEC as members, aimed to serve as a global sandbox. Despite its potential, GFIN’s low profile might limit awareness and participation among startups, as indicated by its recent GFIN Greenwashing Techsprint.
In summary, while Commissioner Peirce’s proposal for an international sandbox faces challenges, its potential benefits for fostering innovation and regulatory understanding in the rapidly evolving field of digital securities are indeed very significant – watch this space!
(Source: SEC / Ledger Insights)