SEC Commissioner Hester Peirce has publicly shared a comment on a consultation in the UK. Launched last April, the proposal is for a Digital Securities Sandbox (DSS) initiated by the UK Financial Conduct Authority and the Bank of England. The deadline for feedback from interested parties was May 29, 2024.
The UK has long been recognized as a top innovator in the financial services sector. As financial services are a very important sector of the economy, policymakers understand they must support emerging Fintech technology. The support of the private sector by elected and appointed officials has fostered a global Fintech hub in the UK.
As for digital securities, leveraging technology like distributed ledger technology (DLT) or Blockchain may streamline the creation, issuance, and management of securities. At the same time, a new world of novel assets could be made available to the investing public. No one we know of does not foresee a future that incorporates digital securities.
As for Commissioner Peirce, she has long been supportive of Fintech innovation, including digital assets. The Commissioner has also been highly supportive of smaller investors and smaller firms in need of capital. Commissioner Peirce states that the proposal is a “commendable commitment to incorporating innovation into the financial system.” She believes that including the US as part of the DSS would serve all constituent parties: regulators, investors, and market participants.
Commissioner Peirce explains:
“A cross-border sandbox could be even more transformative than a solely domestic one. The US and UK are well paired for such an experiment due to our shared commitment to capital markets as a vital building block of a growing and dynamic economy. Additionally, we have well-integrated financial markets, a shared role as global financial service providers, and a reputation for being financial technology hubs. A cross-border sandbox would allow US and UK innovators to benefit from simultaneously serving markets in two jurisdictions. It also would benefit regulators by producing more data on how complex emerging technologies operate in different contexts than would be possible with a single jurisdiction sandbox. A cross-border sandbox also could benefit the British and American public as it could prompt firms domiciled in one jurisdiction to expand their product and service offerings to the other.”
The Commissioner adds that a DSS for the experimentation of the issuance, trading, and clearing of securities is “ripe for exploration.” She is spot on. While multiple firms globally operate in the digital security realm, a UK/US partnership would add an immediate shine of credibility, vaulting the inevitable transition forward.
While Commissioner Peirce is supportive of the DSS and digital securities in general, the missing voice is from SEC Chairman Gary Gensler, who has long focused on regulation by enforcement for all digital assets, which he believes are all securities (except Bitcoin). Any partnership today with the UK would require his backing. Some observers believe that Gensler’s inability to embrace digital securities has left him on the wrong side of history: An opportunity lost that could have burnished his legacy as opposed to being viewed by many as a highly political operator more focused on his future instead of the opportunity to transform markets for the better.
