On May 29, U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce proposed the establishment of a shared digital securities sandbox between the United States and the United Kingdom.

The proposal aims to expand the Digital Securities Sandbox (DSS) jointly established by the Bank of England and the Financial Conduct Authority (FCA) to U.S. companies. The sandbox project was originally scheduled to start accepting applications from the UK this summer.

Digital Securities Sandbox Application Scenarios

Participants will be able to conduct sandbox activities under the same regulatory conditions in both countries, while the United States and the United Kingdom will reach an information-sharing agreement.

Participating companies will operate under their chosen regulatory standards and use the sandbox environment to build market cases for their products. In addition, they will be able to identify and improve possible design and execution flaws while serving real customers.

The sandbox will test whether distributed ledger technology (DLT) can facilitate the issuance, trading and settlement of securities without side effects.

Wide range of participation

The SEC will allow companies that have not been flagged as bad actors to participate in the sandbox program and develop a list of eligible activities based on public feedback. The program generally allows companies to participate for two years.

Companies participating in the agreement must publicly announce their intention to participate in the sandbox program and submit their application for participation through the SEC's Strategic Hub for Innovation and Fintech (FinHub). FinHub will provide support to these companies and help them complete the necessary formalities, including the application for no-action letters and exemption orders.

At the same time, the SEC will use existing anti-fraud regulations and set clear activity limits when monitoring whether participants comply with the conditions they self-declared.

Many benefits

Peirce’s proposal addresses potential objections, saying: “While allowing companies to choose their own regulatory conditions may cause anxiety in some regulatory circles ... companies must abide by reasonable conditions.”

Peirce's response was intended to convey that while companies are free to choose their own regulatory conditions, which may worry some regulators, companies still need to comply with some basic and reasonable conditions. This is to ensure that even under the self-selected regulatory framework, companies can maintain certain compliance and standards to avoid regulatory gaps or risks.

At the same time, she cited many advantages of the proposal, such as that companies that participated in the UK Financial Conduct Authority (FCA) sandbox program between 2016 and 2019 not only raised more funds but also survived longer than other companies. In addition, in a survey conducted in 2019, sandbox regulators also said that they generally supported this approach.

In terms of public benefit, Peirce said consumers will be able to access products that they wouldn't normally have access to because the program will allow companies to enter the market quickly.

The sandbox proposal comes as the SEC faces heavy criticism for its frequent enforcement actions against cryptocurrency businesses under Gary Gensler’s leadership and for questioning the SEC’s motivations for approving a spot Ethereum ETF, which could involve political factors.

Peirce made clear that her more relaxed proposal does not represent the SEC’s official position, but rather a work-in-progress response to conversations with parties looking to do business in the United States.

Peirce’s “safe harbor” proposal, which aims to provide temporary regulatory exemptions for token issuers, has not made any new progress since it was updated in 2021.

Conclusion:

Hester Peirce's proposal demonstrates an innovative and cooperative regulatory spirit, aiming to bring a more flexible and efficient regulatory environment to the field of digital securities through a shared sandbox. This proposal not only reflects the support and encouragement for emerging technologies, but also reflects the regulators' prudence and openness in the face of financial innovation.

Despite the criticism and challenges, the SEC and related regulatory agencies are still actively exploring how to better serve market participants, protect consumer interests, and promote the healthy development of the entire financial market. We hope that this proposal will further promote transatlantic financial cooperation and set a new benchmark for the development of the global digital securities market. #监管 #数字证券沙盒