The Bank of England and the Financial Conduct Authority (FCA) are consulting on their proposed approach to the operation of the Digital Securities Capital (DSS).
The DSS is a regulatory initiative that will help facilitate the adoption of innovative technology in digital assets in the UK.
The DSS will amend regulations in the UK to allow financial market participants to use new technology – such as Distributed Ledger Technology (DLT) – to trade and settle digital securities such as shares and bonds. Successful applicants to the DSS will be able to provide securities depository and settlement services and operate a trading venue under these amended regulations.
For the first time, they will be able to provide these services from a single legal entity. The DSS will be open to a wide range of companies, including providers of new financial markets infrastructure (FMIs), to maximize opportunities for learning and for the UK financial system to benefit from private sector innovation and competitive business models .
The DSS represents an important step in exploring innovation in digital assets in the UK and could lead to faster and cheaper ways for these securities to be traded, settled and used between financial market participants. The adoption of new technology in this area, if done safely, could lead to a technological transformation that will promote greater efficiency as well as greater resilience in the financial system in the long term.
Alongside the Bank’s work to explore and develop innovation in wholesale payments, including enhancing real-time gross settlement services (RTGS), DSS puts the UK in a strong position to build a comprehensive digital wholesale infrastructure that embraces new technology.
The SAA will last five years and may lead to a new permanent securities settlement regulatory regime under which companies could operate in the future. The government has the tools to implement permanent changes fairly quickly. In order to protect financial stability, activity on the SSA during this period will be subject to restrictions.
The consultation invites the views of interested participants on how the SAA should work in practice in order to maximize the potential benefits of the technology while protecting financial stability and market integrity.
Comments for the consultation is open until May 29, 2024. Subject to comments, the regulators are proposing to issue final guidance to companies and open the DSS for applications in the summer of 2024.