The DSS will modify regulations in the UK to enable financial market participants to use new technology - such as distributed ledger technology - in the trading and settlement of digital securities such as shares and bonds.

Successful applicants to the DSS will be able to provide securities depository and settlement services and operate a trading venue under those modified regulations. For the first time, they will be able to provide these services from a single legal entity.

The government has already received 19 expressions of interest from incumbent financial market infrastructures, banks and new entrants to participate in inaugural tests of the sandbox, which is slated to last for five years.

Now, the Bank of England and FCA have published draft guidance for these firms, including details of how the Bank proposes to allow them to scale their activities once authorised to undertake live activity.

Interested parties now have the chance to provide feedback on how the sandbox will operate in practice.

Sasha Mills, executive director, financial market infrastructure, BofE, says: “The Digital Securities Sandbox is an important tool for regulators to learn how we need to react to benefit safely from developments in technology and changes to vital financial market processes such as securities settlement."

Sheldon Mills, executive director, consumers and competition, FCA, adds: “The new Digital Securities Sandbox reshapes how we regulate by allowing firms to test regulatory changes using real world situations before these changes are made permanent. We hope this will be a more effective, collaborative and quicker way of delivering regulatory change."