Britain will begin live testing of crypto blockchain technology for traditional market activities such as trading and settlement of stocks and bonds next year as part of a drive to become a global “crypto hub”, the finance ministry said on Tuesday.
Gwyneth Nurse, the ministry’s director general for financial services, said the use of distributed ledger technology (DLT), which underpins cryptoassets, is a key priority for making financial market infrastructure more innovative and efficient for users.
Britain will launch a financial market infrastructure “sandbox” next year for testing DLT projects under control of regulators, Nurse said, a model UK regulators pioneered for nurturing fintech firms. A sandbox is a testing environment for projects involving real customers.
In financial markets, the trading of stocks, bonds and other assets traditionally involves three distinct activities of trading, clearing and settlement. Using DLT could change this and allow financial assets such as bonds or stocks to be issued in hours rather than days or weeks.
“The government may also want to test how trading and settlement might be brought together,” Nurse told the annual IDX derivatives conference in London.
“A sandbox will allow to test new regulatory best practices and make permanent changes to ensure market users benefit.”
The sandbox will be introduced, along with regulation for stablecoins – cryptocurrencies backed by traditional financial assets, under a new financial services bill before parliament this year.
Industry officials told Reuters last month that a digital currency will be needed to reap the full benefits of DLT in market infrastructure.
The finance ministry and Bank of England are jointly assessing a digital pound with a further public consultation later this year, Nurse said.
But a digital pound would not be available until the second half of the next decade even if a decision is taken to go ahead with a so-called central bank digital currency or CBDC – which other central banks are also looking at – Nurse said.
The European Union is finalising its own sandbox for markets and new rules for crypto markets.
“The EU is making a lot of progress,” said Julia Kolbe, Head of Markets Policy, Government & Regulatory Advocacy at Deutsche Bank.