UK Digital Securities Sandbox

Regulation 3 creates the DSS under the financial market infrastructure sandbox powers in the Financial Services and Markets Act 2023. Rather than establishing a general cryptoasset regime, the instrument permits approved, UK-established entities to operate within a temporarily modified statutory framework. Activities may include operating a trading venue and performing the notary, maintenance and settlement functions associated with securities depositories. Approved ancillary activities, users and service providers may also participate in connection with a sandbox entrant.

Recognised investment exchanges, recognised central securities depositories and certain operators of multilateral or organised trading facilities are expressly eligible to apply. The appropriate regulator may also permit other UK-established persons to apply. An approved entrant receives a Sandbox Approval Notice (SAN) specifying its permitted activities and any conditions, limits, restrictions or recording and settlement requirements. Entrants must make the extent of their approval publicly available.

Regulatory responsibility follows the activity undertaken. The Financial Conduct Authority oversees trading-venue activity, the Bank of England oversees depository functions, and both regulators act where an entrant combines them. The 2025 amendment refined the appropriate-regulator provisions and made further changes, including temporary modifications to the application of the UK Money Laundering Regulations for relevant DSS activity.

The Schedule modifies parts of the UK Central Securities Depositories Regulation, the Financial Services and Markets Act 2000, the Companies Act 2006 and the Uncertificated Securities Regulations 2001. Within that framework, the regulators may make, disapply, modify or waive rules; adjust technical standards; supervise entrants; require information; direct activities; and modify, suspend or cancel a SAN. HM Treasury may direct the regulators to impose overall limits, while the Bank and FCA must maintain arrangements for cooperation.

The DSS supports live market activity rather than simulation. A firm does not gain permission to conduct live business merely by passing the first entry gate; go-live requires the relevant Gate 2 approvals. Activity can then scale through later gates under regulatory limits. The regulators also caution that a Digital Securities Depository may not initially meet the same standards as a conventional central securities depository, which can create higher operational and failure risk for users.

Official regulator materials identify equities, corporate and government bonds, money-market instruments, fund units and emissions allowances as examples of instruments that may be issued and traded in the DSS. The trading and settlement of unbacked cryptocurrencies such as Bitcoin and of derivative contracts are outside the sandbox’s scope, although market participants may write derivatives referencing securities issued inside it. The regime therefore concerns tokenised forms of eligible securities and related market infrastructure, not cryptoassets generally.

The Regulations were made on 14 December 2023 and came into force on 8 January 2024. The Bank and FCA opened the DSS for applications on 30 September 2024. S.I. 2025/93 amended the framework with effect from 3 March 2025. On 18 May 2026, the authorities reported that 16 firms had passed the first stage and were working toward go-live; Gate 1 status alone does not authorise live activity. The application window is expected to close around March 2027. HM Treasury’s statutory report date is 10 January 2028, and the Regulations are due to cease on 8 January 2029 unless extended. Any permanent successor regime would require further legal action informed by the sandbox’s operation.