Nikolas Sargeant
US Securities and Exchange Commissioner Hester Peirce is advocating for a joint digital securities sandbox between the US and the Bank of England. This initiative aims to allow businesses to experiment with innovative financial tools in a controlled environment, utilizing technologies like distributed ledger technology (DLT).
Peirce, known for her strong support of cryptocurrency innovation, stated that the initiative will test the potential of DLT to enhance the efficiency of issuing, trading, and settling securities while ensuring investor protection, market integrity, and financial stability.
“Experience in the UK and elsewhere has shown that sandboxes can help innovators ‘try out their innovations under real-world conditions,’” Peirce said. She emphasized that a sandbox can provide a pathway for smaller, disruptive firms to enter highly regulated markets and compete with larger incumbents.
US-UK Sandbox Aims to Simplify Regulation Across Jurisdictions
Peirce’s proposal would allow companies to test their ideas in a sandbox with consistent regulations in both the US and the UK, removing the challenge of navigating different regulatory frameworks.
Participants would choose which regulations to operate under within the sandbox, providing a chance to identify and correct any design or implementation flaws before wider deployment.
The SEC plans to make the sandbox accessible to most companies, excluding those with a history of wrongdoing. It will seek public input to create a clear list of allowable activities within the sandbox. Participation would typically last for two years.
The SEC’s FinHub will assist firms in submitting participation notices and obtaining necessary approvals. Companies will need to publicly disclose their involvement in the sandbox program.
Anti-Fraud Measures and Activity Limits Ensure Security
The SEC will oversee the program, applying existing anti-fraud regulations and limiting the scope of activities within the sandbox.
“While allowing firms to select their own regulatory conditions may cause anxiety in some regulatory quarters, to maximize their chances for permanent exemptive or no-action relief, firms would have to adhere to reasonable conditions,” Peirce said. Firms would choose a regulatory system they believe protects investors and markets to ensure their longer-term success with the Commission.
Peirce has previously criticized the SEC’s reliance on enforcement actions for regulation, especially regarding crypto. She has advocated for establishing clear guidelines upfront rather than relying solely on enforcement, suggesting that proactive regulation would foster innovation by allowing open compliance discussions without fear of punishment.
