The UK Treasury aims to deliver the Financial Market Infrastructure (FMI) Sandbox by 2023, with speakers at the recent Association for Financial Markets in Europe (AFME) conference in London optimistic that the move could lead to broad application.

FMI Sandboxes would enable firms designated to participate in them to test and adopt new technologies and practices such as distributed ledger technology (DLT) by temporarily adapting and modifying legislation for specific purposes.

The UK scheme has been compared to the EU’s Pilot Regime, but industry observers think it could go further.

Wider participation

“It’s similar, but not the same, and has the potential to be broader” said Elise Soucie, Associate Director, AFME. “I believe it would be beneficial to consider sandbox participation beyond MTFs (Multilateral trading facilities) and CSDs (Central securities depositories), as this could encourage wider participation in the UK sandbox which would in turn allow for more proposals to be tested, with a higher chance of the DLT being embedded across financial services.”

The FCA classifies MTFs as an investment firm, credit institution or a market operator, and a CSD as an institution that holds financial instruments, including equities, bonds, money market instruments and mutual funds.

The importance of proper regulation has become ever more pressing due to the spread of DLT, in particular blockchain and cryptocurrencies spun off of the technology.

Transform financial markets

“I believe that DLT provides an opportunity to truly transform the financial markets and improve infrastructure efficiencies,” said Soucie. “Overall, the industry welcomed the intention of the DLT Pilot Regime and it is positive that EU regulators are thinking deeply about how to foster innovation and experimentation.

“However, the true success of digital assets integration into the financial sector in both the EU and the UK will depend on how successfully regulation can be implemented across risks – the principle of same risks, same activities, same regulatory outcomes is key, and a robust digital economy will thrive within an appropriate regulatory perimeter.”

This is not a complete reproduction of what was said at this conference – it is an edited version based on the reporter’s understanding of what was relayed. This content has not been approved/endorsed by the speakers.