A project by UK regulators to unlock what analysts call a $14 trillion opportunity — the tokenisation of financial assets — is open for business.

The Bank of England, and the Financial Conduct Authority on Monday opened applications for their Digital Securities Sandbox. They urged UK-based firms to sign up.

The sandbox essentially allows the firms that provide the plumbing of the financial markets — stock exchanges, for instance — to take advantage of exceptions to existing financial regulation so they can tinker with blockchain technology.

Financial institutions believe blockchain could speed up settlement, the processes that happen after the sale of a financial asset, reducing risk and making transacting cheaper for investors.

Blockchain could “improve efficiency and reduce costs in wholesale markets, benefiting industry and investors,” the FCA said.

Since this tech could introduce new risk, experiments should be done in conjunction with regulators, the watchdog added.

Firms’ blockchain experiments will be “live,” the FCA said, and regulators intend the wider financial ecosystem to engage with them as they would with normal services.

If these experiments are successful, the regulators will make their changes to the rules permanent.

Huge potential

Regulators and the private sector see huge potential for blockchain technology in making financial markets more efficient.

Financial giants like BlackRock, as well as central banks, are getting excited about tokenisation.

And no wonder. Consultant Oliver Wyman estimates that tokenised assets could top $14 trillion by 2030.

The UK regulators announced the sandbox in January, and consulted with the financial industry on how it would work.

It’s important to get it right — a parallel project in the EU has been largely a failure. That’s partly because of design flaws, as the project did not allow for tokenised settlement.

Crypto market movers

  • Bitcoin is down 3% today to trade at $63,823.

  • Ethereum is down 1.2% in the last 24 hours, trading at $2,620.

What we’re reading

  • Gary Gensler Reiterates in Speec that Coinbase, DeFi Should be Defined as ‘Exchanges’ — Unchained

  • MicroStrategy’s Stellar Performance Won’t Lead to S&P 500 Inclusion Anytime Soon — Milk Road

  • FTX Bankruptcy Estate Reveals Up to $230 Million Will be Set Aside for Certain Shareholders — Unchained

  • China’s ex-finance minister calls crypto ‘crucial aspect’ of digital economy — DL News

Joanna Wright is a regulation correspondent at DL News. Got a tip? Email at joanna@dlnews.com.