SEC Commissioner Hester Peirce proposed on May 29 the creation of a shared digital securities sandbox between the US and the UK.

This proposal aims to expand the Bank of England and FCA’s upcoming digital securities sandbox (DSS) to include US firms.

Participants would operate under the same regulatory conditions in both countries, with an information-sharing agreement between the US and UK.

Firms in the sandbox could choose their regulatory conditions and use the sandbox to develop market cases for their products, address design and implementation flaws, and serve real customers.

The sandbox would assess the viability of distributed ledger technology (DLT) in securities issuance, trading, and settlement.

Wide range of participation

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

Generally, firms would be allowed to participate for two years.

Participants would need to submit notices of participation and publicly disclose their involvement. The SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) would assist firms with participation notices and provide help with no-action letters and exemption orders.

The SEC would enforce anti-fraud measures and monitor compliance with participants’ self-determined conditions.

Numerous benefits

Peirce addressed potential concerns, stating:

“While allowing firms to select their own regulatory conditions may cause anxiety in some regulatory quarters … firms would have to adhere to reasonable conditions.”

She highlighted the benefits, noting that firms in the FCA sandbox between 2016 and 2019 raised more capital and had higher survival rates. A 2019 survey also showed strong support for the sandbox approach.

Public benefits include giving consumers access to innovative products quickly, as the program would enable firms to enter the market faster.

Peirce’s proposal comes as the SEC faces significant criticism, particularly under Chair Gary Gensler’s leadership, for its enforcement actions against crypto companies and alleged political motivations.

Peirce stressed that her proposal is a “work-in-progress” and not an official SEC proposal, emerging from discussions with stakeholders interested in engaging in the US.

Her previous Safe Harbor Proposal, suggesting temporary regulatory exemptions for token issuers, has not advanced since 2021.