Bank of England modifies plans for UK stablecoin regulation

The proposals were outlined in a recent consultation paper, which sets out the Bank of England’s plans for regulating sterling-denominated systemic stablecoins after a 2023 discussion paper prompted feedback that its proposed approach to stablecoin regulation was inconsistent with comparable jurisdictions and incompatible with stablecoin revenue models.

Following industry feedback, the bank says it has revised its policy approach across a number of areas. In particular, its initial proposal to restrict backing assets solely to central bank deposits has been substantially modified. It now proposes that at least 40% of backing assets are to be held as central bank deposits, while as much as 60% of backing assets are to be held in short-term sterling-denominated UK government debt securities – a move which the bank says will be more "consistent with emerging regulatory regimes internationally."

David Heffron, a financial services regulation expert at Pinsent Masons, said the proposals, which also include a modified approach to capital and reserve requirements, would help safeguard financial stability in the UK financial markets. “The Bank of England’s reserve requirements for systemic stablecoins are among the most robust globally, mandating a significant portion of backing assets be held at the central bank,” he said. “While this approach is more prescriptive than those in the US or EU, it reflects a clear priority on financial stability.”

The paper clarifies the bank’s policy approach on systemic importance; holding limits; legal claim and redemption; safeguarding backing assets and reserves, ledgers; operational resilience and approach to service providers.

Financial services regulation expert at Pinsent Masons, Josie Day, said it was also important to note that the bank is proposing transitional holding limits on stablecoins which would require issuers to implement per-coin holding limits of £20,000 for individuals and £10 million for businesses. “The bank illustrates how this would work with an example it gives in the consultation of an individual holding £80,000 in total across four different systemic stablecoins at a given time,” said Day. “Policy drivers for the bank here are supporting an orderly transition to systemic sterling-denominated stablecoins, with an eye also on reining in potential outflows from bank deposits, as rapid outflows could have a detrimental effect on banks’ ability to provide credit and potentially also increase its cost.”

The bank says some larger retail businesses, such as supermarkets or crypto asset trading platforms, could be exempted from the business limit if normal business requires a higher balance, and that it expects “to loosen, and ultimately remove, such limits” once “financial stability risks have been suitably understood and mitigated.” The bank says it is also considering making a central bank lending facility available to provide a backstop to support eligible, solvent and viable systemic stablecoin issuers, if needed.

Heffron said the £10m holding limit on most businesses set the UK apart from other jurisdictions, but offering a potential exemption for large businesses would be welcome. “The exemption for retailers and intermediaries is a notable divergence, recognising the operational needs of certain market participants,” he said. “It will be interesting to see how this approach works in practice, particularly as the market adapts and the regulatory framework evolves.”

The following policies outlined in the 2023 discussion paper remain unchanged: that systemic stablecoin issuers are not to pay interest to coinholders; UK location policy for non-UK based systemic sterling-denominated stablecoin issuers; joint regulation with the Financial Conduct Authority to be consulted on jointly next year; stablecoin custodianship and supervisory approach. The paper also highlights three new areas of focus within the new regime: interoperability in money and payments; approaches to innovation in wholesale markets and cross-border arrangements.

The consultation will run until 10 February 2026. The bank will consider feedback, carry out further consultation and expects to finalise rules for the UK’s systemic sterling-denominated stablecoin regulatory regime later in 2026.

Heffron said the bank’s modified approach would provide transparency and welcome flexibility for new entrants. “The Bank of England’s stance on stablecoins has clearly evolved – from initial scepticism and stringent proposals to a more nuanced, innovation-friendly approach,” he said. “By engaging with industry feedback and signalling openness to new technology, the bank is positioning itself to both safeguard financial stability and foster a dynamic digital payments landscape. The willingness to adapt its regulatory framework as the market develops is a positive sign for the future of digital finance in the UK.”

However, Heffron warned that the unique holding limits and compliance demands may “test the competitiveness” of the UK’s future systemic stablecoin regime.