- The UK crypto-asset hub aspirations move forward.
- The Bank of England reveals plans for its Digital Securities Sandbox (DSS).
- This sandbox will not support cryptocurrencies.
The UK’s ambitions to establish itself as a leading global crypto hub have recently suffered notable setbacks. From imposing competency tests on retail investors accessing crypto exchanges to a largely hostile banking sector, characterized by reports of banks shutting down accounts and refusing payments to and from crypto platforms, the country’s aspirations have been met with skepticism and ridicule.
Despite these setbacks, the government has continued to promote digital asset innovation to position the UK as a frontrunner in this space. The latest development in this pursuit is the Bank of England and Financial Conduct Authority’s joint consultation on their proposed approach to operating the Digital Securities Sandbox (DSS).
Bank of England Reveals DSS Plans
Advancing the UK’s crypto-asset hub aspirations, the Bank of England and the Financial Conduct Authority are consulting on their proposed approach to operating the DSS. The DSS initiative will amend UK regulations to enable financial firms to leverage new technologies like distributed ledger technology (DLT) for trading and settling digital securities such as stocks and bonds.
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Approved DSS entities will be able to provide securities depository and settlement services and operate a trading venue under those modified regulations. The central bank stated that the DSS represents a pioneering move, allowing entities to consolidate these functions for the first time for better scale and efficiency.
The DSS is being touted as a major step forward in the UK’s exploration of digital asset innovation and its ambitions to develop an end-to-end digital wholesale financial infrastructure while highlighting its commitment to embracing technological advancements in the financial sector.
While the consultation is open for feedback until May 29, 2024, the DSS will last five years until around 2029. It’s important to note that the press release explicitly stated that this system will not support cryptocurrencies, limiting its scope to legacy asset classes and their digital representations or tokenized versions.
Crypto Hub Skepticism
The UK’s crypto hub ambitions were sold on the idea of legislating to attract and encourage crypto firms to set up operations in the country, yet the DSS, a key initiative in this pursuit, will not support cryptocurrencies, raising questions about the government’s commitment to its stated goals.
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“Derivative contracts that require settlement on a settlement system, and unbacked cryptoassets such as Bitcoin, are not in scope for the DSS,” clarified the Bank of England.
The crypto hub concept set forth by the Treasury in April 2022 included many “crypto-inclusive” proposals, such as stablecoin regulation and potentially favorable tax reforms for the industry. Yet, the government has yet to meaningfully advance these initiatives, further fueling skepticism about Downing Street’s crypto aspirations.
Grassroots reports continue to paint a bleak picture for crypto users in the UK, including a recent announcement from KuCoin that it was excluding Brits from an airdrop to comply with FCA rules on promoting digital assets, as well as continued reports of banking difficulties when interacting with crypto exchanges.
On the Flipside
- Global competition is intensifying as other nations make strides in crypto-friendly policies.
- The IMF forecasts just 0.6% real GDP growth for the UK in 2024, making it the second lowest rate among the G7 nations.
Why This Matters
The DSS represents a crucial step in embracing crypto and blockchain technology in the UK. Its outcomes will shape the country’s position in the global crypto landscape and serve as a litmus test for regulators grappling with fostering innovation while mitigating risks worldwide.
Read more about the divergence between government rhetoric and the grassroots experience of UK crypto users here:
UK Chancellor’s “Global Crypto Hub” Claim Draws Skepticism
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