US Securities and Exchange Commissioner Hester Peirce is pushing for a collaborative digital securities sandbox between the US and the Bank of England. This initiative would allow businesses to test innovative financial tools in a controlled environment.
The sandbox would provide firms with access to technologies, including distributed ledger technology (DLT), for their experiments.
Peirce, known for her vocal advocacy of cryptocurrency innovation, said in a statement Wednesday that the initiative aims to test if DLT can improve efficiency in issuing, trading, and settling securities while safeguarding investors, markets, and financial stability.
“Experience in the UK and elsewhere has shown that sandboxes can help innovators ‘try out their innovations under real-world conditions,’” she said. “A sandbox can provide a viable path for smaller, disruptive firms to enter highly regulated markets to compete with larger incumbent firms.”
US-UK Sandbox Aims to Simplify Regulation Across Jurisdictions
Under Peirce’s plan, companies could test their ideas in the sandbox with consistent regulations across both the US and the UK. This would eliminate the hurdle of navigating different rules in each jurisdiction.
Firms participating in the sandbox would have the flexibility to choose a set of regulations to operate under. The sandbox environment also provides a valuable opportunity to identify and fix any design or implementation weaknesses before a wider rollout.
The SEC plans for the sandbox to be open to most companies, excluding those with a history of wrongdoing. It will also be seeking public input to establish a clear list of activities that can be tested within the sandbox. Participation will typically last for two years.
Meanwhile, the SEC’s FinHub will assist firms with submitting participation notices and obtaining necessary approvals for their experiments. Companies will need to publicly disclose their involvement in the sandbox program.
Anti-Fraud Measures and Activity Limits Ensure Security
The SEC will maintain oversight throughout the program, applying existing anti-fraud regulations and setting limits on the scope of activities allowed 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,” Pierce said. “Firms would select a regulatory system that they believe protects investors and markets to maximize their longer-term success with the Commission.”
Peirce has previously voiced her disapproval against the SEC’s reliance on enforcement actions for regulation, particularly regarding crypto. She also criticized the lengthy wait times for approvals of investment vehicles like spot Bitcoin ETFs.
She has also argued for establishing clear guidelines upfront rather than relying solely on enforcement actions after the fact. This emphasis on proactive regulation, she suggests, would foster innovation by allowing companies to have open discussions about compliance without fear of punishment.
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