SEC Commissioner Peirce Proposes UK/US Digital Securities Sandbox

SEC Commissioner Hester Peirce recommended expanding the "Digital Securities Sandbox" proposed in a Bank of England and the Financial Conduct Authority consultation paper to include US domiciled firms and further cross border collaboration to facilitate innovation. The DSS would help the UK regulators explore whether distributed ledger technology ("DLT") could streamline the issuance, trading and settlement of securities.

Commissioner Peirce proposed that:

• the DSS be open to US-domiciled firms;
• the US and UK agree to share information to "enable both regulators to learn from activity undertaken in both jurisdictions" and help "address the concerns about lack of supervision over non-UK firms that led to the proposed exclusion of non-UK firms from the DSS;" and
• the SEC enact a "micro-innovation sandbox," which "would allow firms to experiment in the marketplace with specified technologies–such as using DLT to issue, trade, and settle securities–under their choice of regulatory requirements [like those of the DSS]." On this topic, Commissioner Peirce further said:
• a firm's "US[-based] activities would have to stay below predetermined monetary and customer ceilings and would be subject to the general anti-fraud provisions of the securities laws;"
• "[f]irms could participate in the sandbox for up to three years, while the Commission works with the participating firm to craft a no-action letter or exemptive order that covers its activities;" 
• the SEC's FinHub could help firms navigate the sandbox process and an "explicit metric of success for FinHub would be firm participation in the sandbox and successful exits to no-action or exemptive relief;" and 
• firms be able to "select a regulatory system that they believe protects investors and markets to maximize their longer-term success with the Commission."