UK finance minister announces legislation to boost the nation's digital asset sector

The digital asset sector in the UK received a boost in the nation's "mini-budget" announcement on Wednesday.

UK Chancellor of the Exchequer Jeremy Hunt outlined 110 measures for growing the nation's economy in his Autumn Statement. This included a governmental initiative to facilitate the expansion of the digital assets sector.

The UK's Digital Securities Sandbox

The UK government will pass legislation to implement the Digital Securities Sandbox (DSS), which aims to facilitate the adoption of digital assets across financial markets. "The government will lay a statutory instrument to implement the Digital Securities Sandbox, delivering on the Edinburgh Reform announcement to implement a Financial Market Infrastructure Sandbox in 2023," the budget statement said.

It is expected that the DSS initiative will begin in the first quarter of 2024. The UK government also plans to publish its response to a consultation on the DSS that was launched in July.

The DSS is an important development in the evolution of the securities industry, according to Zodia Markets General Counsel Dina White.

"We are seeing a continual progression of digitalization across a range of financial instruments, and this represents a critical step in the adoption of new technologies as they are applied to traditional financial assets," White told The Block.

Wider adoption of digital asset infrastructure

The Zodia Markets General Counsel added that the sandbox will allow firms to use digital asset technology to establish and operate critical financial market infrastructure, such as central securities depositories or trading venues.

"It will also allow for a wide range of assets to interact with wider financial market activities, such as being used as collateral, or as part of repo transactions. Given that these will include both 'digitally native’ securities and digital representations of traditional instruments, this represents an exciting time for experimentation in a well-established industry," White added.

Copper Head of Public Affairs Eva Gustavsson called the UK finance minister's plan "a significant commitment." She added that controlled environments like that of the DSS that test products and services can produce unique solutions that add to the UK’s reputation as a home for innovation.

"The announcement is an encouraging commitment from the government, and we look forward to learning more about the Digital Securities Sandbox in due course," Gustavsson told The Block.

The FCA's Digital Sandbox

The upcoming Digital Securities Sandbox will differ from the already functioning Digital Sandbox, which was launched by the UK's Financial Conduct Authority this August.

The FCA's Digital Sandbox aims to support firms in the early stages of digital product development. However, according to a speech made by FCA Head of Capital Markets Helen Boyd at the CCData Digital Assets Summit in October, the DSS will have "a new rule set that would allow it to do new things with digital securities."

According to the UK's DSS consultation paper, the initiative will give companies an opportunity "to set up financial market infrastructures that utilize digital asset technology, which can perform a number of activities in relation to digital securities under a temporarily modified legislative and regulatory framework."

The DSS will be enacted via a statutory instrument, which is a type of legislation in the UK that allows an Act of Parliament to be brought into force without Parliament having to pass a new Act.