Tokenized Asset Exchanges Will Test New UK Regulations

In Brief

• The UK Treasury has launched a sandbox to test transfers of tokenized instruments it believes will transform markets.
• The Digital Securities Sandbox will not support cryptocurrencies but allow settlements of tokenized assets with CBDCs.
• The project is open to regulated entities and new entrants in the UK, including exchanges and depository institutions.
  
  

The UK Treasury has proposed a sandbox to test exchanges of tokenized assets that could “transform” financial markets and existing securities regulations.
His Majesty’s Treasury’s new test bed will tailor transactional limits based on volumes, activities, and sandbox performance.

No Cryptocurrencies Included in Asset Transfer Sandbox
Despite the recent passage of the Financial Services and Markets Bill, the Digital Securities Sandbox will not support crypto assets. Rather, it will harness the bill’s approval of regulatory sandboxes that build on projects the Bank of England completed with the Bank for International Settlements.

The BoE recently ran pilots to test a real-time settlement system for interbank transfers and a retail central bank digital currency exchange between peers.

Similarly, the sandbox will allow settlements of tokenized assets with tokenized money through links to payment systems. A single institutional entity can fulfill the roles of both the cash securities depository and the exchange platform. The project is now open to regulated entities in the UK.

The Treasury can amend securities regulations without the standard legal process for the duration of the sandbox.

Last week, the BIS released a new risk plan to protect central bank digital currencies from cyberattacks.

UK Follows Singapore’s Lead on Tokenized Asset Exchanges
National efforts to tokenize real-world assets are in progress in Singapore through Project Guardian. Sygnum’s Singapore branch recently created a new digital asset brokerage and custody company to offer institutions access to tokenized assets. DBS Bank in Singapore also rolled out digital yuan settlements over a private network.

Learn here about the growing trends in asset tokenization.

In the meantime, the UK’s FSM bill, granted Royal Assent by King Charles last month, legalized crypto trading. In addition to treating stablecoins like other payments in the country, the bill also introduces rules about crypto promotions.

The founders of Gemini, a US-based exchange, said in May it is considering a second base in London. American venture capital company a16z recently said it would open a Web 3 branch in London.

The largest VC investment in the Web3 industry in the past year went to UK-based Gensyn AI, which uses blockchains to develop artificial intelligence.

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Disclaimer
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