Digital Securities and CBDCs

Traditional securities settlement processes is slow and involve multiple intermediaries. Digital securities refer to financial securities (e.g., stocks, bonds, and other financial instruments) that can be issued and traded digitally or tokenized on the blockchain or distributed ledger technology (DLT) platforms. CBDC-based settlement systems can reduce settlement times, lower costs, and enhance security.

CBDCs and digital securities settlement can modernise and improve the financial sector’s efficiency, security, and transparency. Together, they have the potential to streamline the issuance, trading, and settlement of digital securities while maintaining regulatory compliance and enhancing financial market stability.

CBDCs can be used to settle tokenised security transactions directly, bypassing intermediaries and reducing costs. CBDC platforms could act as efficient marketplaces for tokenised securities, facilitating liquidity and price discovery.

• Inclusive Investment Opportunities: CBDCs could enable broader participation in tokenized security markets, promoting financial inclusion and democratizing access to capital.
• Regulatory Compliance: CBDCs could provide a controlled environment for tokenized securities, facilitating compliance with regulations and investor protection measures.

The UK government demonstrated a comprehensive and committed approach to digital securities. They actively set up the regulatory framework, address challenges, and promote responsible innovation. The future of digital securities in the UK remains to be seen, but the government’s current stance suggests a strong foundation for their potential success.

• Digital Securities Sandbox: The government established a “Digital Securities Sandbox” in January 2024, allowing financial institutions to test and innovate with digital securities under regulatory supervision. This aims to facilitate responsible adoption and overcome technological and regulatory hurdles.
• Financial Services and Markets Act 2023: This legislation introduced provisions for regulating digital securities within the UK’s financial system, providing a legal framework for their issuance, trading, and custody.
• Future of Payments Review: The government published this review in November 2023, acknowledging digital securities as a key element in modernizing and streamlining payment system