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SEC Commissioner Peirce proposes UK-US DLT Sandbox for TradFi

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The UK recently conducted a consultation about its Digital Securities Sandbox (DSS), which eases legal requirements for central securities depositories. The aim is to enable tokenization initiatives to issue, trade and settle digital securities. One of the surprising respondents was Hester Peirce, the SEC Commissioner. She proposes that the UK and US consider conducting an international sandbox together. However, she acknowledged that she doesn’t necessarily have the backing of the Commission and this proposal isn’t as immediately actionable compared to other UK consultation responsess.

Currently, the DSS is restricted to UK firms, but Commissioner Peirce suggests expanding that to US companies.

Her proposal makes a lot of sense because one of tokenization’s distinctive features is that it encourages more global trading and investment. If there’s a technology that demands a multinational sandbox, this is it.

Commissioner Peirce noted that a sandbox “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.”

To work, the SEC would have to enact a micro-innovation sandbox, and the Commissioner shared what that might look like. A two year sandbox would allow entrants to select which rules they want to temporarily waive. However, they’d have to show how to mitigate risks. She suggests restrictions on the number of clients and monetary amounts, but they should be flexible enough that a company can prove its business case.

Commissioner Peirce also outlined some of the sandbox benefits from a recent study. It found participants in the UK FCA’s sandbox raised 15% more capital. Plus, they are 50% more likely to raise capital and have a 25% higher chance of survival.

Meanwhile, in 2019 the Global Financial Innovation Network (GFIN) formally launched. It was proposed as a global sandbox with both the FCA and SEC as members. Last year it ran the GFIN Greenwashing Techsprint. However, for a global sandbox, its profile is a little low key, which might mean few startups are aware of its existence.

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