Unpacking the Bank of England’s proposed regime for stablecoins

It’s been a big year for stablecoins.

The GENIUS Act has had a profound impact, with research from J.P. Morgan showing the US dollar-denominated stablecoin market, which makes up around 99% of the global stablecoin market, has grown rapidly to $225 billion. 

In the UK, we’re now finally seeing the regulatory movement that will ultimately help UK firms to tap into the new opportunities on offer. 

The Bank of England, which has shaken off its scepticism and accepted that digital assets can co-exist with fiat money, has now released its proposals for a regime for sterling-denominated systemic stablecoins, and has encouragingly invited industry feedback to help shape it further.

The paper has a clear focus – the use of stablecoins in payments at mass scale – and introduces the possibility of dual Bank of England and Financial Conduct Authority (FCA) supervision for large GBP stablecoin issuers. It sits alongside the FCA’s crypto roadmap, and like those activities, it’s enabled by – and ultimately dependent on the final adoption of – HM Treasury’s (HMT’s) Statutory Instrument on cryptoassets. 

At present, the paper is forward-gazing theory. Sterling stablecoins don’t exist at systemic scale (or indeed at any meaningful scale). 

But it’s clearly signposting the direction of travel: the discussions raised by the central bank anticipate a time when sterling stablecoins are used in the UK payments chain at systemic scale, and may be interoperable with any other type of existing or emerging money. 

The key takeaways

• Bank of England/FCA localisation divergence: While the FCA’s stablecoin issuer supervision is limited to those who issue from the UK (with no restriction on issuance from overseas), the Bank of England proposals make it clear that, as soon as a sterling-backed stablecoin is assessed as systemic, the issuer of that coin will be expected to have a legal entity in the UK and hold backing assets and capital in the UK, regardless of where it’s based.

• Banks excluded from issuance: The proposals expect that systemic stablecoins will be issued by non-banks, with deposit-taking institutions expected to limit their activity to deposit-based money, and only being able to issue stablecoins by creating a separate non-deposit-taking entity with differentiated branding. This leaves the market open to fintech challengers and is a different operating context to, for instance, the EU, where major financial players such as Societe Generale have stepped into the stablecoin space, alongside major bank consortiums. 

• Systemic is not just issuers: While FCA stablecoin rules are narrowly focused on UK-based stablecoin issuers, the Bank of England has explicitly retained the right to designate entities along the stablecoin payments chain as systemic. This means that the ‘systemic’ supervision is a future consideration not only for potential systemic stablecoin issuers, but also the infrastructure providers – exchanges, wallets, payments processors – that handle such coins.

• Advocacy for direct redemption model: Currently, a feature of the (retail) stablecoin market is that consumers are removed from primary issuers, generally on and off ramping into the stablecoin via market intermediaries, most often trading platforms. The Bank of England’s proposals centre around the user’s right to request redemption at par directly from the issuer at any time, something that generally has been restricted to wholesale entities. Not only does this pose a new challenge to the way stablecoin issuers operate, it also questions the role intermediaries will play in the stablecoin chain in future. 

• Direct Bank of England accounts for issuers: The Bank of England proposes to give systemic stablecoin issuers direct accounts with the central bank so that 40% of stablecoin backing is secured via central bank money. Moreover, it’s even considering providing a backstop lending facility. This is a step that hasn’t been taken anywhere else so far – notably the EU and the US in their respective regimes – and means that prospective systemic sterling stablecoins will have a robustness of backing unmatched in other jurisdictions. On the other hand, it starts to make such coins look like partial Central Bank Digital Currencies (CBDCs), to the extent that two-fifths of the backing assets will be central bank money. Does this provide even less incentive for a retail-oriented CBDC, if even private sector equivalents have potentially major state backing? 

• Opening the door to an extended timeline: Consultation and rule-making on the topic will run into the second half of 2026. Like the FCA cryptoasset regime, the rules are dependent on the final adoption of HMT’s Statutory Instrument, which was published in draft format in April with an intention to finalise within 2025. At present, there is still no indication that this has taken place. With Bank of England stablecoin rules inevitably overlapping with FCA stablecoin drafting, the question is whether the FCA regime – final policy statements for which are expected in Q2 2026 – could reasonably come into play before 2027?

Keeping up the momentum

The Bank of England’s systemic stablecoins proposals arguably go beyond what has been seen in other jurisdictions in drawing together existing financial and new money systems. It’s demonstratively proactive in preparing and laying the foundations for a future where stablecoins are used in payments at mass scale.

At the same time, the approach taken is inevitably cautious and conservative.  Aside from the well-publicised holding limits proposed to be applied, this also includes a forced 40% of unremunerated issuer holdings with the central bank, which will no doubt challenge issuer business models developed heavily on the proposition of generating yield from backing assets. 

The Bank of England is also unwelcoming to – though it has not gone as far as to prohibit – self-custodial models, expecting to apply existing intermediary-based regulation that may challenge such use cases. The vision for the future is therefore one of stablecoins as an added payment rail tacked onto existing systems and subject to existing requirements rather than one of any disruptive innovation. 

As the wheels continue to turn, I’d urge those active across the industry to feed into the consultation ahead of the 10 February 2026 deadline so that we can together shape a more progressive approach.