Part 1: Regulatory Framework Financial market infrastructure: piloting powers Section 13: Testing of FMI technologies or practices
This section provides for the temporary disapplication and modification of legislation to allow FMI to innovate with certain technology and new practices in the activities they perform in a controlled environment. This will ensure that any modification or disapplication of legislation is fit for purpose before any permanent changes are enacted in general law.
	Subsection (1) provides HM Treasury with a power to make provision in regulations to allow for the creation of one or more iterations of an FMI sandbox. This is intended to test, for a limited period, the efficiency or effectiveness of engaging in FMI activity in a particular way, as permitted by the regulations in accordance with Subsection (2) to (11). It also provides an opportunity to assess if any relevant enactments may need amending permanently in general law and, if so, in what form.
	Subsection (2) provides that carrying on FMI activity in a particular way is intended to include the use of developing technology or the adoption of new and different practices. For example, in a particular part of the trading, clearing, and settlement cycle.
	Subsection (3) provides that regulations allowing for the FMI activities permitted within this section will be referred to as an FMI sandbox.
	Subsection (4)(a) and (b) provide that the creation of an FMI sandbox will consist of a regulatory framework that will specify or otherwise make provision for the type of FMI activities, FMI entities and "other persons" that can participate in a particular iteration of the FMI sandbox. "Other persons" shall include, for example, persons either connected with or otherwise peripherally engaged with an FMI entity’s FMI activities in a particular iteration of an FMI sandbox arrangement. One such example being "users" of an FMI entity’s services within an FMI sandbox. This is because if changes are made to requirements for FMI entities, it may also be desirable or necessary to make changes to requirements for their related users.
	Subsection (4)(c) provides expressly that an FMI sandbox is not intended to operate indefinitely. An FMI sandbox can be determined by reference to a particular date, time frame or some other trigger in connection with its cessation.
	Section 84 contains a general power that allows for a regulation to impose different requirements on different persons. This would be helpful in the above respect, particularly as it relates to different types of participants operating within or engaging with an FMI sandbox.
	Subsection (5) makes provision for regulations to confer functional powers on the regulators in connection with the creation and operation of an FMI sandbox. For example, the provision could confer on the regulators a functional, rule-making power in connection with winding-down an FMI sandbox. This would include provision for regulations conferring discretionary powers on regulators under section 16(1). It would not extend to conferring functional powers on regulators that are legislative in nature because these operational powers would fall to HM Treasury. In this respect, HM Treasury could exercise a general power to make regulations under section 84 of the Act to ensure a smooth transition between the temporarily modified legislation in an FMI sandbox and those provisions that are adopted in general law.
	Subsection (6)(a) and (b) allow for a framework of legislation to be temporarily disapplied or modified, from the list of relevant enactments, for the purpose of testing the compatibility of FMI activities against this within an FMI sandbox. Subsection (6)(b) allows for new provisions to be added to support new practices or technologies that are not covered by existing legislation. For example: in the context of DLT, new provisions may be required for so-called smart contracts, which automate the execution of certain activities when certain pre-conditions are met. New provisions may be required to address new risks, such as around cyber security. Subsection (6)(c) allows for the application of legislation that would otherwise not apply to a particular FMI entity and other persons (such as "users"), were it not permitted to engage in a particular activity within an FMI sandbox. For example, an FMI sandbox could allow a trading venue to perform securities issuance, settlement and maintenance (in addition to trading). Under current legislation, these activities are performed only by a CSD and not a trading venue. This section would also enable further relevant enactments to be temporarily disapplied, modified or applied during an FMI sandbox so that any new and unforeseen legislative obstacles or risks identified during an FMI sandbox could be assessed in a timely manner. This subsection also makes clear that any disapplication, modification or alternative application of legislation within an FMI sandbox is non-textual and not intended to amend, repeal or revoke legislation, subject to it being implemented permanently by HM Treasury under section 15.
	Subsection (7) makes provision in regulation that would allow a regulator to exercise powers under Subsection (6) if a relevant enactment contains rules or standards instruments made by regulators. For example, the regulator may want certain formalities connected with its rule making powers, such as a duty to consult in a relevant enactment such as FSMA 2000 to not apply when making or modifying rules or technical standards for purposes of an FMI sandbox. This section is intended to supplement and not undermine either powers that may be conferred on regulators in subsections (5) or (6) when read together with section 16(1) or otherwise the operation of their powers in general law.
	Subsection (8) refers to Schedule 1 which serves as an indication of how an FMI sandbox might be structured and operate.
	Subsection (9) makes provision for more than one iteration of an FMI sandbox to operate at any one time which may be different, similar or the same to an existing or previous FMI sandbox either in terms of function or effect.
	Subsection (10) provides that regulations made under this section are subject to the negative statutory instrument procedure.
	Subsection (11)(a) defines FMI entities that are eligible to apply and participate in an FMI sandbox and makes provision to amend the list of FMI entities to beyond what is listed. Subsections (11)(b) and (11)(c) are self-explanatory.