IRSG response to Digital Securities Sandbox consultation by HM Treasury

Published 21 Sep 2023

The IRSG welcomes the opportunity to respond to the HM Treasury (HMT) Consultation on the Digital Securities Sandbox. In summary, the IRSG is supportive of HMT’s proposal for the establishment of a digital securities sandbox - key views include:

Scope: the IRSG generally agrees with the approach that the DSS should facilitate trading in at least debt, equity and money market instruments, and certain other "financial instruments". However, the framework for the DSS should be drafted broadly enough that any innovative trading and settlement proposals for other financial instruments (including exchange traded derivatives and units in collective investment schemes) can be considered on a case-by-case basis.

Eligibility: we broadly agree with eligibility as set out by HMT, we also generally agree that the DSS should not focus on facilitating markets in unbacked cryptoassets, subject to the exception outlined in the response below. We note it should be possible for firms to partner and apply for/offer DSS activities as a consortium – even if they are required to act via a single legal entity throughout the process. This would reduce perceived barriers to entry and enable established financial services providers to partner with technology companies to work together to propose innovative projects that might not be viable for either alone.

Benefits: we see various potential benefits from entities using digital asset technology offer when meeting regulatory reporting requirements – such as enhanced data quality, more accurate and efficient trade recording, standardised regulatory data models and logic being uniformly implemented among multiple stakeholders, streamlined operations etc.

Clarity around transition out of DSS: we would propose that SEs should be allowed to transition out of the DSS subject to them being able to comply with any applicable rules at any time and that regulators must take into account the evidence and work produced during the sandbox phase. In order to help SEs to operate, there should be a streamlined and expedited path for firms to participate in DSDs or MTFs, subject to the appropriate limitations from regulators.

Cross industry body for DSS: a body would be a welcome addition to the financial markets policy ecosystem. We agree that the cross-industry body should be formed by entities directly participating in the DSS, trade associations, law firms, academics, the regulators and HMT (and potentially other government departments).