The U.S. Securities and Exchange Commission is studying implementing a regulatory sandbox to provide crypto exchanges with space to test tokenized securities under temporary exemptions from current securities laws.
This framework would allow companies to run tests on new blockchain financial services while enjoying brief suspensions of existing securities regulations.
SEC officials discussed the proposal at their second digital assets roundtable that concentrated on crypto trading. The regulatory direction demonstrates the agency’s updated approach to handle the growing finance technologies in the market.
Exemptions could support innovation in blockchain finance
Tokenized securities are digital representations of traditional financial assets such as stocks and bonds. These are issued and traded on blockchain networks. Under the new proposal, platforms like Coinbase may offer tokenized securities alongside cryptocurrencies through limited exemptions.
Acting SEC Chair Mark Uyeda encouraged firms to share input on where such exemptions may be useful. He proposed a “time-limited, conditional exemptive relief framework” that would allow unregistered exchanges to develop and test services while longer-term rules are developed.
SEC Commissioner Hester Peirce approved this measure with her fellow commissioners throughout the agency. The commissioner confirmed that firms operating within this sandbox could demonstrate their effective business and technical operational frameworks. Based on Hester Peirce’s view, these initiatives would improve the direction of regulatory decisions in coming years.
Previous sandbox ideas struggled to gain traction
Peirce previously proposed a joint sandbox project with the UK to test cross-border digital securities processes. The initiative failed to move forward under SEC Chair Gary Gensler, who has taken a more cautious approach toward the crypto sector.
Other nations, including Colombia, have already launched their own crypto sandboxes to promote innovation. The U.S. has used similar strategies in traditional finance, including in loan underwriting, but applying them to crypto remains controversial.
Concerns over potential market risks remain
Not all commissioners support the idea. Democratic Commissioner Caroline Crenshaw raised concerns about allowing crypto exchanges not registered with the SEC to test securities products. She warned that combining multiple functions under one platform creates risks not present in traditional regulated exchanges.
Crenshaw added that these risks could affect individual investors and pose systemic threats to the crypto sector and the broader financial system. She cautioned that regulatory flexibility must not compromise financial stability or investor protection.