Exploring Bank of England’s Sterling Stablecoin Regime

The Bank of England has published its proposed regulatory framework for sterling-denominated systemic stablecoins, establishing requirements for backing assets, holding limits and prudential oversight ahead of anticipated implementation next year.

The regime targets stablecoins that could be used for retail payments and wholesale settlement, while non-systemic stablecoins used primarily for cryptoasset trading will remain under Financial Conduct Authority (FCA) supervision.

The consultation paper follows feedback to the central bank's November 2023 discussion paper and forms part of the National Payments Vision strategy to modernise UK retail payments. 

The proposals address how new forms of digital money might operate alongside existing payment methods while maintaining financial stability.

Backing asset requirements adjusted

Systemic stablecoin issuers will be permitted to hold up to 60% of backing assets in short-term UK government debt, with the remaining 40% held in unremunerated accounts at the Bank of England. 

This represents a shift from earlier proposals, following industry feedback on the economic viability of issuers holding large proportions of unremunerated reserves.

Issuers deemed systemic at launch or transitioning from the FCA regime will initially be able to hold up to 95% of backing assets in short-term UK government debt to support their commercial viability during growth phases. 

The central bank is also considering liquidity arrangements to support systemic stablecoin issuers during periods of market stress, providing a backstop if issuers cannot monetise backing assets through private markets.

The Bank has published a methodology for quantifying risks to credit provision from potential outflows of bank deposits into digital money. This analysis underpins the proposed holding limits and the consultation invites feedback on alternative mechanisms for managing these risks.

Temporary holding caps proposed

Individual users would face £20,000 holding limits per coin, while businesses would be restricted to £10m (US$13.1m), with exemptions available for larger corporates. These temporary restrictions are designed to safeguard credit provision as the financial system adapts to digital money. 

The limits would not apply to stablecoins used for wholesale financial market settlement in the Bank and FCA's Digital Securities Sandbox.

Sarah Breeden, Deputy Governor for Financial Stability, says the proposals mark progress towards implementing the UK's stablecoin regime next year. “Our objective remains to support innovation and build trust in this emerging form of money,” she says. 

“We've listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England.”

Industry responses highlight concerns about international competitiveness and operational constraints. Janine Hirt, CEO of Innovate Finance, says the UK needs to move forward rapidly as US and EU regimes advance. 

“These proposals still mandate that longer-term stablecoin issuers should hold a portion of backing assets as cash deposits with the Bank of England without receiving interest,” Hirt says. 

She argues these measures risk constraining issuers' ability to invest in infrastructure and regulatory compliance.

Nick Jones, Founder and CEO of Zumo, says the proposals signal intent to help UK firms enter the stablecoin market. 

“The Bank of England is finally signalling its intent to help UK firms start making more inroads into this exciting growth market,” Nick says. 

He notes the central bank's proposal to offer issuers direct accounts represents a unique approach compared to EU and US regimes.

Teresa Cameron, Group CEO of Clear Junction, says the consultation confirms a direction that regulated institutions have been preparing for. “A clear regime for backing assets, holding limits and prudential oversight is essential if stablecoins are to play a meaningful role in UK payments and settlement,” Teresa says.

Joint regulatory approach

Non-systemic stablecoin issuers will be regulated by the FCA. If HM Treasury recognises them as systemic, they will transition to the Bank's regime under joint regulation, with the Bank overseeing prudential and financial stability risks while the FCA continues supervising conduct and consumer protection. 

The Bank and FCA will publish a joint approach document in 2026 clarifying how rules will apply in practice and supporting the transition between regimes.

The consultation remains open until 10 February 2026. Following consultation, the Bank will consider feedback before consulting on and finalising Codes of Practice later in 2026, which will establish detailed requirements for systemic stablecoins. 

“These proposals are fit for a future where stablecoins play a meaningful role in payments, giving the industry the clarity it needs to plan with confidence,” Sarah says.