British and U.S. regulators have agreed on the broad aims of a transatlantic effort to smooth access for firms operating across both markets, but they are at odds over how to experiment with tokenised versions of financial securities, according to participants in the discussions.
The two countries unveiled a taskforce in September designed to reduce regulatory barriers for companies seeking to operate on each other’s markets and to bolster cooperation on digital assets. That shared agenda includes moves toward closer alignment of rules governing stablecoins, digital tokens that are backed by conventional currencies.
Despite those common objectives, a fault line emerged in meetings earlier this year over whether trialling blockchain-based stocks and bonds should happen inside a UK-style regulatory "sandbox" or via a U.S. approach known as "exemptive relief." Two attendees at a January session of the Transatlantic Taskforce for Markets of the Future described the disagreement and requested anonymity because the talks were private.
The UK position, as described by the sources, favours using a regulatory sandbox to pilot tokenisation projects. The sandbox model, which the UK financial regulator has used to test innovative financial products, creates a live but controlled environment in which firms can trial new ideas while supervisors monitor risks and outcomes. The UK Financial Conduct Authority said sandboxes can be valuable as the two countries work on capital markets and payment system developments, adding that the framework helps regulators understand emerging risks and opportunities.
At the January meeting, a representative of the U.S. Securities and Exchange Commission raised concerns about the sandbox option, according to the sources. The SEC official reportedly questioned whether participation in a sandbox would be commercially viable for firms and cautioned that it could affect innovation. The SEC is instead considering exemptive relief - a regulatory pathway that would allow tokenisation pilots under specific exemptions - an approach the U.S. crypto industry supports, the sources said.
The SEC told Reuters it would continue to work with the UK "to build consensus and harmonize rules for international market participants," and said there was "significant opportunity to align our frameworks to support the future of finance." The Bank of England and the UK finance ministry declined to comment. The U.S. Treasury did not respond to a request for comment.
Supporters of tokenisation argue it can improve efficiency and reduce costs when trading and settling financial assets. But regulators have warned that tokenised equities and bonds introduce novel investor risks and could pose threats to market integrity if not carefully managed. The two sources involved in the taskforce discussions said reciprocity is also an objective - so that firms authorised in one jurisdiction could transact in tokenised securities in the other with limited extra checks.
Participants expect the taskforce to issue recommendations by the summer. Until then, the split over sandbox testing versus exemptive relief is likely to shape how quickly and in what form any bilateral pilot programmes proceed.
Contextual note: The disagreement demonstrates how global financial regulators must reconcile differing domestic stances on digital assets. The U.S. has taken steps to ease regulation and to encourage broader cryptocurrency adoption, while the UK is seeking to expand its digital asset sector even as some UK institutions, including the Bank of England, urge caution about moving too rapidly.