Bank of England: Regulating Systemic Stablecoins to Drive Innovation and Ensure Financial Stability Explore the Bank of England's strategic approach to regulating systemic stablecoins, designed to promote innovation within the financial sector while safeguarding overall financial stability. The Bank's regulatory framework aims to create a balanced environment that encourages technological advancement and protects market integrity. Learn how these measures can impact the future of digital...
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The Bank of England has unveiled a consultation paper detailing its approach to regulating systemic stablecoins linked to the pound sterling. This initiative marks a significant step in the adoption of digital currencies, aimed at maintaining a stable value for use in retail transactions and larger settlement processes.
By embarking on this path, the Bank is positioning itself for a future where digital currencies coexist with traditional payment systems, broadening the options available to consumers.
These proposals respond directly to feedback from a Discussion Paper released in November 2025.
This highlights the Bank’s commitment to maintaining public confidence in monetary systems as payment technologies evolve. The regulatory framework aims to be both resilient and adaptable, aligning with the broader National Payments Vision to modernize payment systems in the UK.
Proposed regulations for systemic stablecoins
A key aspect of the proposed regulations is the distinction between stablecoins intended for systemic purposes and those used for non-systemic activities. Currently, most stablecoins are primarily employed for trading other cryptoassets, which will continue to be regulated by the Financial Conduct Authority (FCA). The Bank’s primary focus is on stablecoins that could significantly impact financial stability due to their extensive use in transactions.
Asset backing and liquidity arrangements
The Bank intends to permit systemic stablecoin issuers to allocate up to 60% of their backing assets in short-term UK government debt. The remaining 40% will be maintained in accounts at the Bank of England. This approach ensures that issuers can uphold their commitment to stability, even during periods of economic stress. For issuers identified as systemic from the outset or those transitioning from Financial Conduct Authority (FCA) oversight, there is an allowance to hold as much as 95% of their backing in government securities. This provision aims to strengthen their operations as they expand.
Furthermore, the Bank is considering the establishment of central bank liquidity arrangements. These arrangements would support issuers during crises, acting as a safety net to preserve financial stability in the event they encounter difficulties converting their backing assets into cash.
Access limitations and risk management
To adapt the financial system for the growing presence of digital currencies, the Bank has proposed temporary limits on holdings. Individuals would be restricted to £20,000 per stablecoin, while businesses would face a cap of £10 million. However, larger enterprises may qualify for exemptions, allowing them to hold more if necessary. These limitations will remain in place until it is determined that the transition to digital currencies no longer poses a threat to credit availability within the economy.
Feedback and future consultations
Sarah Breeden, Deputy Governor for Financial Stability, emphasized the significance of recent proposals for a stablecoin regulatory framework in the UK. She stated that these initiatives represent a crucial advancement in ensuring public trust in emerging forms of money while promoting innovation. The Bank of England will consider feedback from the ongoing consultation before finalizing the Codes of Practice, which will outline specific requirements for systemic stablecoins.
The consultation period is open until February 10, 2026. The Bank invites stakeholders to share their insights, which are essential for refining the proposed regulations. Coordination between the Bank of England and the Financial Conduct Authority (FCA) is also key, as joint regulation is anticipated for systemic stablecoin issuers recognized by HM Treasury.
The evolving role of stablecoins in the UK economy
The Bank of England is taking significant steps to integrate stablecoins into the financial ecosystem. This comprehensive approach aims to enhance interoperability between these digital assets, traditional banking systems, and central bank money. The Bank envisions a future where stablecoins enable faster and more cost-effective payment solutions for both consumers and businesses.
As the regulatory landscape continues to change, stakeholder engagement will be a priority for the Bank. This engagement ensures that the framework for systemic stablecoins supports innovation while maintaining the integrity of the UK financial system. A joint approach document from the Bank and the Financial Conduct Authority (FCA) is expected to be released in the foreseeable future, offering clarity on the regulatory framework and aiding a smooth transition to the new system.
