U.K. Launches Sandbox to Test TradFi Asset Tokenization

U.K. financial regulators launched a sandbox to explore the capabilities of DLT systems and test the issuance and trading of tokenized securities and other TradFi assets in a controlled environment.

The U.K.’s Financial Conduct Authority (FCA), in partnership with the Bank of England (BoE), launched the Digital Securities Sandbox (DSS), an innovative platform that will be used to develop financial technology in the country and explore the potential for TradFi asset tokenization.

The main objective of the DSS launch is to enable local companies to explore distributed ledger technology (DLT) and test the issuance, trading, and storage of digital assets in a secure and controlled environment. The DSS will enable testing of the issuance of tokenized securities and other traditional financial instruments, including:

• equities;
• corporate and government bonds;
• money market instruments such as commercial paper and certificates of deposit;
• units in collective investment schemes;
• carbon credits.

According to Sarah Breeden, Deputy Governor for Financial Stability, one of the key objectives of the DSS is to create more efficient and transparent processes for managing digital assets, changing the traditional way of financial market interaction. She believes the DSS will enable future DLT systems that reduce operational risk, improve transaction transparency and speed up the settlement process.

As part of the initiative, the FCA and the BoE will support firms developing digital asset infrastructure in every way possible. In particular, the regulators will advise developers of DLT solutions on compliance with regulatory requirements and investor protection principles.

Asset tokenization is recognized in the U.K. as one of the technologies that can strengthen the country’s position as a global financial hub. Financial regulators of the United Kingdom are actively involved in various projects related to RWA testing and even began to prepare for the implementation of asset tokenization of investment funds.