The Proposal for a Shared Digital Securities Sandbox by SEC Commissioner Hester Peirce

In a recent move, SEC commissioner Hester Peirce has put forward a proposal for the establishment of a shared digital securities sandbox between the US and the UK. This initiative aims to extend the existing joint digital securities sandbox (DSS) operated by the Bank of England and the Financial Conduct Authority (FCA) to include US firms, providing a platform for innovative fintech experimentation under a common regulatory framework across both the US and the UK.

Key Features of the Proposal

Under the proposed shared digital securities sandbox, participating firms would have the opportunity to engage in sandbox activities under self-chosen regulatory conditions. This would allow them to test and refine their products in a controlled environment while gaining valuable insights into the market feasibility of their offerings. The sandbox would focus on exploring the potential of distributed ledger technology (DLT) in facilitating securities issuance, trading, and settlement processes without facing immediate regulatory repercussions.

The SEC would play a pivotal role in overseeing the shared digital securities sandbox, ensuring that participating firms comply with the specified regulatory conditions and adhere to the program guidelines. While all firms meeting the criteria of not being designated as bad actors would be eligible to participate, the SEC would also establish a list of eligible activities based on public feedback to streamline the sandbox operations. Participating firms would be required to disclose their involvement in the sandbox to the public and submit formal notices of participation to the SEC.

Commissioner Peirce highlighted several key benefits of the proposed shared digital securities sandbox, citing previous success stories from the FCA sandbox in the UK. Firms that participated in the FCA sandbox between 2016 and 2019 reportedly raised more capital and demonstrated higher survival rates compared to non-participating firms. Additionally, consumers are expected to benefit from increased access to innovative products that may not be readily available in the market, thus fostering competition and driving market efficiency.

Context and Criticism

The proposal for a shared digital securities sandbox comes at a critical juncture for the SEC, as the regulatory body faces growing scrutiny and criticism under the leadership of Chair Gary Gensler. Critics have raised concerns about the SEC’s enforcement actions against crypto companies and alleged political motivations in its decision-making process. However, Commissioner Peirce emphasized that her proposal is a collaborative effort and not an official SEC initiative, signaling a willingness to engage with industry stakeholders and explore innovative regulatory approaches.

The proposal for a shared digital securities sandbox by SEC Commissioner Hester Peirce represents a proactive step towards fostering regulatory innovation and collaboration between the US and the UK. By creating a common platform for fintech experimentation and regulatory dialogue, the shared sandbox presents an opportunity for both regulators and industry participants to test new ideas, address regulatory challenges, and drive sustainable growth in the digital securities space.