The Bank of England has initiated a public consultation on its proposed regulatory framework for sterling-denominated stablecoins, marking a significant step towards integrating this new form of digital money into the UK's financial system. The central bank aims to finalize these rules by the end of 2026, aligning with international developments and ensuring robust oversight.
Key Takeaways
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The Bank of England is consulting on regulations for systemic stablecoins.
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Final rules are anticipated by the end of 2026.
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The proposed regime aims to balance innovation with financial stability and consumer protection.
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Systemic stablecoin issuers will have specific requirements for backing assets and liquidity.
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Non-systemic stablecoins will be regulated by the Financial Conduct Authority (FCA).
Proposed Regulatory Framework
The Bank of England's consultation paper outlines a comprehensive regime designed to govern stablecoins that could become systemic, meaning their failure could impact the broader financial system. This framework is intended to foster trust in digital money while ensuring it complements existing payment systems. The proposals build upon feedback from previous discussions and align with the UK's National Payments Vision.
Backing Assets and Liquidity
Under the proposed rules, issuers of systemic stablecoins will be permitted to hold a significant portion of their backing assets in short-term UK government debt, up to 60%. For the remaining 40%, issuers will be provided with unremunerated accounts at the Bank of England to ensure robust redemption capabilities, even during times of stress. Issuers deemed systemic at launch or transitioning from the FCA regime will initially be allowed to hold up to 95% in short-term UK government debt to support their growth.
Furthermore, the Bank is considering central bank liquidity arrangements as a backstop for systemic issuers facing difficulties in monetizing their backing assets in private markets. This measure aims to reinforce financial stability by providing an additional layer of security.
Holding Limits and Risk Management
To prevent potential disruptions to credit provision as the financial system adapts to digital money, the Bank is proposing temporary holding limits. Individuals would be limited to holding £20,000 per stablecoin, while businesses would face a £10 million limit, with exemptions for larger enterprises. These limits are intended to be temporary and will be removed once the transition to digital money no longer poses risks to the real economy's financing.
The Bank is also exploring mechanisms to quantify and manage risks associated with rapid outflows from bank deposits into new digital currencies. Feedback is being sought on alternative approaches to managing these risks, alongside the proposed holding limits.
Timeline for regulation on sterling-denominated stablecoins by the Bank of England: BoE
Joint Regulation with the FCA
Stablecoins not deemed systemic will fall under the purview of the Financial Conduct Authority (FCA). If a stablecoin is recognized as systemic by HM Treasury, its issuer will transition to the Bank of England's regime. In such cases, regulation will be joint, with the Bank overseeing prudential and financial stability risks, while the FCA will continue to manage conduct and consumer protection. A joint document clarifying the practical application of these rules and facilitating a smooth transition between regimes is expected from the Bank and FCA in 2026.
Next Steps
The consultation period for these proposals will remain open until February 10, 2026. Following the review of feedback, the Bank of England will proceed with further consultations and the finalization of Codes of Practice later in 2026, which will detail the specific requirements for systemic stablecoins.
Sources
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Bank of England launches consultation on regulating systemic stablecoins, Bank of England.
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UK Stablecoin Regulation Targets 2026 Implementation, Yahoo Finance.
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UK Targets End-2026 for Stablecoin Rules to Keep Pace With US, Bloomberg.com.
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