SEC Commissioner Hester Peirce suggested on May 29 that the U.S. and the UK collaborate on a shared digital securities sandbox.

The proposal would allow U.S. firms to join the Bank of England and FCA's digital securities sandbox (DSS), which is set to accept UK applications this summer.

Participants could operate under the same regulatory conditions in both countries, with the US and UK sharing information.

Firms in the sandbox could choose their regulatory conditions and use the sandbox to build a market case for their products, identify design and implementation issues, and serve real customers. The sandbox aims to determine if distributed ledger technology (DLT) can facilitate securities issuance, trading, and settlement without negative consequences.

Broad participation allowed

The SEC would allow any firm not labeled as a bad actor to join the sandbox and create a list of eligible activities based on public input.

Firms would generally participate for two years and would need to submit and publicly disclose notices of participation. The SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) would assist firms with participation notices and help with no-action letters and exemption orders.

The SEC would enforce anti-fraud measures and monitor compliance with the participants' self-set conditions.

Numerous benefits highlighted

Peirce addressed potential concerns, asserting that while letting firms choose their regulatory conditions might worry some regulators, they would need to adhere to reasonable conditions.

She noted that firms in the UK FCA sandbox from 2016 to 2019 raised more capital and lasted longer than other firms, with regulators supporting the approach in a 2019 survey.

Peirce highlighted public benefits, saying consumers would gain access to new products quickly as firms could enter the market faster.

The proposed sandbox comes amid criticism of the SEC under Chair Gary Gensler, with complaints about enforcement actions against crypto companies and alleged political motivations in approving spot ETH ETFs.

Peirce emphasized that her proposal is not an official SEC initiative but a "work-in-progress" responding to interested parties. Her Safe Harbor Proposal, suggesting temporary regulatory exemptions for token issuers, has not advanced since its last update in 2021.