The proposal put forth by SEC commissioner Hester Peirce on May 29 suggests the establishment of a shared digital securities sandbox between the US and the UK. This initiative aims to extend the existing joint digital securities sandbox (DSS) operated by the Bank of England and the Financial Conduct Authority (FCA) to include US firms. The sandbox would allow participants to engage in regulatory-compliant activities, collaborate on information-sharing, and test the viability of distributed ledger technology (DLT) in facilitating securities issuance, trading, and settlement.
Under the shared digital securities sandbox, participating firms would have the flexibility to operate under self-chosen regulatory conditions while utilizing the sandbox to develop a market case for their products. The SEC would grant access to firms that are not designated as bad actors, subject to a list of eligible activities determined through public input. Firms would be able to participate in the sandbox for a period of two years, during which they must disclose their involvement to the public and adhere to predetermined activity ceilings. The SEC’s FinHub would provide support for firms submitting participation notices and assist with regulatory inquiries.
In response to potential objections, Peirce emphasized that firms participating in the sandbox would be required to adhere to reasonable conditions, thereby addressing regulatory anxieties. She cited the success of firms that entered the FCA sandbox in the UK, noting that they raised more capital and had higher survival rates compared to other firms. Additionally, she highlighted the consumer benefits of the program, stating that it would enable quicker market entry for firms and offer consumers access to innovative products.
Peirce’s proposal comes at a time when the SEC is under scrutiny for its enforcement actions against crypto companies and perceived political motives. Critics have raised concerns about the SEC’s leadership under Gary Gensler, particularly in relation to the approval process for spot ETH ETFs. Peirce clarified that her proposal is not an official SEC initiative but a response to stakeholders expressing interest in engaging with the US. Despite the positive reception of her Safe Harbor Proposal for token issuers, progress on this front has been relatively slow since 2021.
The shared digital securities sandbox proposed by Hester Peirce presents a collaborative and innovative approach to fostering regulatory compliance and technological development in the securities industry. By facilitating cross-border cooperation between the US and UK, the sandbox has the potential to drive growth, encourage market participation, and enhance consumer access to financial products. While facing criticism and challenges, Peirce’s proposal represents a step towards regulatory modernization and industry adaptation in the digital era.
