Leaders of the UK Treasury laid a set of rules called Digital Securities Sandbox (DSS) regulations before parliament on Dec. 18.

A related memo explains that these regulations aim to create a controlled environment. This allows companies and regulators to test new technology in financial markets, overcoming existing regulatory obstacles and potentially fostering innovation in the crypto industry.

The rules allow the Treasury to disapply, modify, or apply new legislative requirements. They also permit the Bank of England (BoE) and Financial Conduct Authority (FCA) to run and supervise a sandbox if the Treasury grants powers. Furthermore, it will be possible for sandbox findings to be permanently brought into law through cooperation between the Treasury and Parliament.

The memo explicitly mentions that the rules are meant to allow for tests involving distributed ledger technology (DLT) and technology underpinning digital assets. Specifically, those tests could use the above technology to perform the roles of central securities depositories and trading venues.

The memo only refers to cryptocurrency in passing: it notes that DLT originated with crypto assets but emphasizes other uses of DLT. The memo does, however, note that crypto exchanges are among the firms looking to use sandboxes.

The Digital Securities Sandbox (DSS) rules result from the Treasury exercising powers from the Financial Services and Markets Act 2023, which was signed into law in June. The sandbox rules will come into force on Jan. 8, 2024.

UK is strict but open to crypto

The UK is otherwise recognized for several harsh crypto policies. The FCA introduced extensive advertising rules in October. This has led numerous firms to reduce services — most recently Revolut, which halted UK business services today. Other firms, such as Poloniex, have been put on a warning list.

Additionally, a Travel Rule came into force on Sept. 1, 2023. This requires some UK companies to collect and share information related to crypto transfers.

Despite those restrictions, the UK government has expressed the goal of creating a “safe jurisdiction” for crypto activity. The Bank of England, meanwhile, has laid out a financial innovation roadmap with a partial focus on allowing stablecoins.