BOE Regulatory ‘Cultural Change’ May Open Door to New Technology.

The Bank of England (BoE) and the Financial Conduct Authority (FCA) are to adopt a “proactive” and flexible regulatory approach through the Digital Securities Sandbox (DSS). According to BOE Executive Director Sashi Mills, this initiative represents a “culture change for regulators.”

At City Week 2024, Mills discussed financial markets, the role of innovation in maintaining financial stability and DSS to “support innovation”.

“So our attitude to innovation is important. This is a culture change for regulators, and it means thinking differently.

The DSS operates under a “more flexible manual” that can adapt based on “observations of activities within the DSS.” Mills says this allows regulators to pursue new methods, maximize the benefits of innovation and “manage risks to financial stability.”

“As long as the basic processes are still intact, reactive regulation is still an effective tool to address emerging risks. But for completely new innovative approaches, we think it's important to be actively involved in the development phase.”

Mills said this “hands-on approach” would allow the BoE and FCA to allow companies to use “emerging technologies that would not otherwise be permitted”. This includes the use of digital ledger technology (DLT) – a technology that enables the issuance, trading and settlement of securities through DSS.

Related: Bank of England and FCA launch digital securities sandbox for DLT trial

“This will address new technology and approaches to regulated activities under a flexible and balanced regulatory framework. There will be limited restrictions on activity within the DSS to maintain broad financial stability and market integrity.”

Firms known as Digital Securities Depositories (DSDs) operating in DSS are limited in the value of securities they are permitted to hold. These limits will be adjusted when companies demonstrate their ability to meet regulatory standards.

Through DLT, DSS aims to reduce vulnerabilities in “post-trade environments,” Mills said, “reducing barriers to entry for providers” and improving financial market resilience.

Mills said in a May 8 statement from FCA chief executive Matthew Long about the use and implications of DSS that the regulator will combine “the best of traditional finance” with decentralized finance (DeFi).

Magazine: If Bitcoin Doubles, Stack Will Be 4x By 2025: Daan Crypto Trades, X Hall of Flame