Bank of England consult on regulations for systemic stablecoins

Why should I read this?

The Bank of England (BoE)’s consultation paper “Proposed regulatory regime for sterling-denominated systemic stablecoins”, published on 10 November 2025, is the latest in a series of consultations on connected matters from the BoE, HM Treasury and the FCA.

The BoE is trying to build a regulatory framework for the possible future use of stablecoins in real world payments and settlements.  It believes that the use of regulated stablecoins could lead to faster, cheaper retail and wholesale payments, with greater functionality, both at home and across borders.  It wants to support such a role for stablecoins as part of a ‘multi-money’ system alongside commercial bank money (including tokenised bank deposits), with central bank money continuing to be at the heart of the financial system.

The BoE wants to regulate to ensure that systemic stablecoins purporting to be money deliver stability of nominal value, robust legal claim, and can always be redeemed at par in fiat currency.

The proposed regime is designed to maintain financial stability and enable systemic stablecoin issuers to operate viable business models.  Issuers of sterling-denominated stablecoins within the scope of the proposed regime will be granted access to a deposit account with BoE and will be able to hold a portion of their backing assets in short-term UK government debt. BoE are also considering putting in place central bank liquidity arrangements to help backstop issuers’ ability to monetise those assets if needed.

The aim is to create a payment system that delivers interoperability between systemic stablecoins, traditional and tokenised bank deposits, and central bank money.

See our previous briefings:

• UK: FCA consultation on stablecoin issuance and custody
• UK: FCA consultation on a prudential regime for cryptoasset firms
• UK: HM Treasury and FCA propose new regulatory regime for cryptoassets

What do I need to know about the stablecoin proposals?

Purpose and scope

• The regime applies to systemic sterling-denominated stablecoins that are widely used for payments and pose financial stability risks

• Systemic stablecoins will be subject to joint regulation by the BoE and FCA:

• The BoE will regulate prudential matters and systemic risk

• The FCA will regulate conduct and consumer protection

• Further detail of the joint regulatory framework will be published in 2026

• HM Treasury (HMT) will determine which issuers and payment systems are to be recognised as systemic

Policy proposals

Backing assets

In its 2023 discussion paper on the regulatory regime for systemic payment systems using stablecoins the BoE suggested a model in which a stablecoin issuer would be unable to make a return on backing assets, contrary to emerging business models and internationally.  Without the return on backing assets, stablecoin issuers cannot generate the income required to meet their costs.

Following feedback, the BoE’s proposal in the consultation paper is for up to 60% of backing assets to be held in short term UK government debt securities.  The maximum maturity length of eligible securities has yet to be determined.  Those debt securities will generate an income for the stablecoin issuer.

The balance (40% or more) of the backing assets will be held in central bank deposits at the BoE in accounts that do not bear interest. 

The BoE does pay interest, at base rate, on regulatory deposits made by commercial banks because they play a role in the transmission of monetary policy.  Systemic stablecoins are intended as a means of making payments and thus will not play a significant role in the transmission of monetary policy.

Temporary deviations from the 40:60 split may be permitted for systemic stablecoin issuers to meet large unanticipated redemption requests, on the assumption that issuers will first use their central bank deposits to meet such redemptions.

For newly launched stablecoins, the BoE is proposing a step-up regime under which the issuer will initially be able to hold 95% of their backing assets in short term UK government debt securities, with that proportion falling to 60% as the stablecoin scales up.

Issuers will be permitted to generate liquidity by lending securities via repurchase agreements (repos), however, they will be prohibited from using repos to borrow.

The BoE is considering offering a backstop lending facility for solvent and viable systemic stablecoin issuers.

Capital and reserve requirements

The BoE proposal is for a risk-based approach using the Principles for Financial Market Infrastructures (PFMI) to  ensure systemic stablecoin issuers have sufficient resources against their business risks to continue operations and services as a going concern, or ensure recovery or orderly wind down, without disrupting critical services or causing losses to coinholders.

A stablecoin issuer will need capital equivalent to the higher of:

• six months’ operating expenses; and

• the cost of recovery from the largest plausible loss event.

Capital should be in paid up capital, share premium, retained earnings and disclosed reserves (equivalent to CET 1) and will includes the shortfall reserve. 

A stablecoin issuer will also need to hold a reserve of liquid assets to mitigate the financial risk of backing assets and to manage insolvency/wind down as required. These assets will be held on statutory trust and will constitute two separate reserves:

• Financial risk reserve covering the market risk of holding short-term UK sovereign debt securities, calculated by using the PRA’s proposed simplified standard approach for market risk, with the reserve at least equal to the applicable haircuts for securities eligible for the Bank’s lending operations under the Sterling Monetary Framework

• Insolvency/wind-down reserve covering the cost of appointing an insolvency practitioner, continuing the critical services and/or returning or transferring funds to coinholders, in line with a wind-down plan that issuers will need to maintain

Each of these reserves would need to be funded by high quality liquid assets of the same type as the short-term UK government debt component of permitted backing assets.

Holding limits

The BoE is concerned that as stablecoins are introduced two systemic risks might arise:

• large and rapid outflows of deposits from the banking sector

• from the scaling up of systemic stablecoins as payment systems

As an economy the UK relies heavily on the banking sector for the provision of credit.  Currently the banking sector relies upon deposits to a significant extent to fund that credit.  A significant reduction in available credit and/or an increase in the cost of credit would impede economic growth.

One reason for which depositors may choose to transfer money from deposits into stablecoins is that while stablecoins will not attract interest, because they will be 100% asset backed, in times of banking stress, they may well be perceived to be safer, particularly for deposits in excess of the FSCS limit. Stablecoins might also offer much greater functionality.

To ensure that the banking sector has the time to adjust to reductions in deposits, which will involve banks turning to the capital markets to raise money to lend, initially there will be holding limits:

• Individuals - £20,000 per systemic sterling-denominated stablecoin

• Businesses - £10 million per systemic sterling-denominated stablecoin

• with exemptions for large operational needs, eg large retailers, financial institutions.

It is expected that these limits will be raised over time and ultimately removed entirely.

The limits have come in for criticism from some market participants, who consider them too low (if they consider limits appropriate at all) and damaging to the UK’s chances of competing internationally as a jurisdiction in which to issue stablecoins.

Determining systemic importance

HMT will determine whether or not a stablecoin is systemic by reference to factors set out in the Banking Act 2009 (as amended).  Those factors are applied with reference to the following recognition criteria:

• The number and value of the transactions that the payment system presently processes or is likely to process in the future; the value of the services in relation to payment systems that the service provider presently provides or is likely to provide in the future

• The nature of the transactions that the payment system processes or the nature of the services in relation to payment systems that the service provider provides

• Whether those transactions or their equivalent could be processed by other payment systems or whether those services or their equivalent could be provided by others

• The relationship between the payment system and other systems or the relationship between the service provider and operators of payment systems that use digital settlement assets (DSAs) and other service providers

• Whether the payment system is used by the Bank in the course of its role as a monetary authority

The consultation paper sets out further guidance on the application of each of the recognition criteria in the form of more detailed indicators.

The legal claims of coinholders and the right to redeem

The BoE proposals in the consultation paper are that coinholders must have a robust legal claim for the value of their stablecoins against the issuer and should be able to withdraw their funds on demand at the face value of the stablecoins.  Issuers must meet redemption requests at par by the end of the business day on which the request is made and, if possible, in real time.  Issuers will be expected to directly access payment systems that support interoperability across different forms of money to support frictionless redemptions.  The BoE has retained these proposals from its discussion paper, notwithstanding concerns raised in the feedback that KYC and AML/CTF requirements may make same day redemptions challenging.

In the discussion paper, the BoE asked whether issuers should be prohibited from charging redemption fees.  It has decided to permit issuers to charge redemption fees provided that they are fair, transparent, and proportionate.  It seems unlikely that retail customers will tolerate paying redemption fees, given the UK’s tradition of largely free banking. However, business customers, who are used to paying fees for banking, will likely tolerate stablecoin redemption fees if these are commensurate with the level of charges they would otherwise pay for cash handling or card services.  The BoE are concerned that high redemption fees might lead to stablecoins trading below par on secondary markets, an outcome they want to avoid as it might undermine confidence in the stablecoin in question and stablecoins in general.

Safeguarding of backing assets and reserves

The BoE proposals are that backing assets and reserves must be held in the UK, in segregated accounts on statutory trust for coinholders.  The statutory trust will be based on similar principles to the FCA’s CASS client money rules.  Those backing assets not held as central bank deposits with the BoE will need be held by UK authorised and regulated third-party custodians.

The intention of these arrangements is to ensure that on the failure or insolvency of an issuer, coinholders will be made whole.  The BoE accepts that in the long run a specific insolvency regime, presumably in the form of a special administration regime, may be necessary to deal with the insolvency of systemic stablecoin issuers, including measures to protect coinholders’ interests, address financial stability risks and deliver equivalent outcomes to commercial bank money.

Ledgers and technology

The BoE is open to (the ownership of) systemic stablecoins being recorded on public permissionless ledgers, provided the risks, including accountability, settlement finality and operational resilience are mitigated and managed.  This is the same approach as the FCA has taken in its consultations on stablecoins and tokenisation.  Unfortunately neither the BoE or the FCA give any guidance on how a permissionless DLT system can be adapted to comply with regulations designed to deal with those risks. 

The BoE notes that use of permissionless DLT systems are currently not consistent with current regulatory regimes which are built around regulated intermediaries that are capable of assuming and complying with legal requirements.  The BoE are promising to set out what specific requirements they expect to see from issuers in relation to the use of public permissionless ledgers in forthcoming publications.

The BoE is also neutral as to what technology is used by issuers.  Just as the FCA has revised its Handbook to ensure that it is neutral as to the use of technology, with the outcome being the most important thing, we expect the BoE to draft its rules and guidance without specifying how compliance should be achieved.  The issuer will remain responsible for ensuring that the technology they choose to use can be operated in accordance with their regulatory obligations.

Operational resilience

The BoE proposes that the rules relating to operational resilience will apply in the same way to systemic stablecoin issuers as they do to other firms.  In the future, BoE may recognise service providers within the stablecoin ecosystem as critical third parties and bring them under direct regulation, in the same way in which they might recognise any other critical third party.  Further guidance on operational resilience will be provided in due course.

Stablecoin issuers will not pay interest on stablecoin balances

The BoE intends that stablecoins be used as a means of payment, not an investment. The BoE will therefore not permit interest to be paid on stablecoin balances.  The bar on interest may extend to prohibiting non-monetary incentives for usage, such as points or rewards linked to transaction volumes.

Location policy for sterling-denominated systemic stablecoin issuers

The BoE’s proposals are that issuers of sterling-denominated systemic stablecoins must have a close nexus with the UK:

• Non-UK issuers of sterling-denominated systemic stablecoins must establish a UK subsidiary and the subsidiary must carry out all business and issuance activities in the UK and with UK-based consumers

• Backing assets must be held in the UK

The wording of the consultation would appear to admit to the possibility of sterling-denominated stablecoins being issued outside the UK to non-UK persons and to this being outside the reach of the BoE.

The BoE is also concerned about non-UK, non-sterling denominated stablecoins that might achieve such penetration into the UK market that they pose systemic risks.  It is foreseeable that one or more US dollar or Euro denominated stablecoin might reach such levels.  If those foreign stablecoins were to be regulated in a manner equivalent to UK regulation in their home state, then BoE may defer to those foreign authorities in relation to the regulation of such stablecoins. The BoE does, however, note that if such a deferral were to put UK financial stability at risk, it would seek to apply some form of measures to the relevant issuer.

Custodianship of stablecoins

The BoE intends to rely on the FCA’s rules for custodial wallet providers to ensure that coinholders’ rights are protected at all times and their stablecoins can be redeemed reliably.  The BoE does not intend to regulate systemic stablecoin custodians directly provided that none of the providers become critical third parties.

While the BoE does not rule out the use of unhosted wallets, it notes that stablecoin issuers wishing to use unhosted wallets will need to satisfy themselves that they can meet the regulatory requirements relating to KYC and AML/CTF.

Supervisory approach

The BoE plan to supervise systemic stablecoin issuers using a framework that is consistent with the Bank’s existing approach to FMI supervision. 

Interoperability

The BoE’s vision for the future of the UK’s payments landscape is one of a ‘multi-money’ mixed ecosystem, with harmonised or compatible technical infrastructure and regulatory standards and in which different forms of digital money can be exchanged freely and at par.

Wholesale markets

The BoE is not keen on private money replacing central bank money as a means of settlement. However, it is exploring the use of stablecoins in the wholesale markets through the Digital Securities Sandbox (DSS) and how RT2, the BoE’s renewed real time gross settlement (RTGS) system, can be integrated into wholesale market settlements. 

What else do I need to know about the stablecoin proposals?

Developments since the discussion paper

Scope of Reform

The consultation paper has a wider scope than the BoE’s original discussion paper and suggests broader structural changes, including tax incentives and governance reforms.

Implementation Approach

While the discussion paper suggested incremental changes based on international standards, the proposals in the consultation paper are for a UK-specific model.

Relationship with a UK central bank digital currency (CBDC)

The BoE has recently cooled somewhat on the possibility of a UK central bank digital currency (CBDC).  It believes that well-regulated UK stablecoins could potentially meet the need that a CBDC would otherwise fulfil.  The regulatory and prudential regime as envisaged by FCA consultation paper CP25/15 “A prudential regime for cryptoasset firms” should deliver UK stablecoins that meet that need.

Use case of buying cryptocurrency

The BoE is not seeking to support the use of stablecoins to buy and sell cryptoassets, including cryptocurrency, of which the Bank, like all the other UK regulators, continues to be wary.

Next steps

The consultation on 10 February 2026. 

Responses to the consultation should be emailed to: CP-systemicstablecoin@bankofengland.co.uk.

We are available to assist you with drafting your response to the consultation. 

The BoE intends to issue a policy statement and finalise and consult on Codes of Practice setting out the specific rules and expectations for systemic stablecoins as well as the BoE-FCA joint approach to regulation in H1 2026.  It intends to publish final rules and its supervisory approach in H2 2026.

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Related articles in our stablecoin and cryptoassets regulatory series

• FCA consultation on stablecoin issuance and custody 
• FCA consultation on a prudential regime for cryptoasset firms