The Bank of England has announced the publication of a consultation paper setting out its proposed regulatory regime for sterling-denominated systemic stablecoins.
Following this announcement, this initiative marks a significant step in the process of preparing for a future where new forms of digital money can be widely used for payments alongside existing ones, aiming to offer a valuable choice for the public.
The proposals build on feedback received on the November 2023 Discussion Paper and currently reflect the Bank’s role in the process of maintaining public trust in money as development in payments accelerates. Furthermore, they set out a regime that’s secure, future-proof, and aligned with the overall wider National Payments Vision and the Payments Vision Delivery Committee’s strategy to modernise UK retail payments. However, the Bank’s regime would not cover stablecoins used as assets for non-systemic purposes, such as the procedure of buying and selling of cryptoassets, which is the predominant use of stablecoins today. Those will be supervised by the Financial Conduct Authority (FCA).
More information on the Bank of England’s launch of a consultation on regulating systemic stablecoins
According to the official press release, key policy proposals covered in the consultation paper include banking assets, as systemic stablecoin issuers are expected to be permitted to hold up to 60% of backing assets in short-term UK government debt. In addition, for the remaining 40%, the Bank will, as previously proposed, offer issuers unremunerated accounts at the Bank of England, ensuring robust redemption and public confidence, even under stress. Those issuers considered systemic at launch, or transitioning from the FCA regime, are expected to initially be able to hold up to 95% of backing assets in short-term UK government debt, to support their viability as they grow. In a new proposal, the institution will also consider central bank liquidity arrangements to support systemic stablecoin issuers in times of stress. These arrangements are set to reinforce financial stability by delivering a backstop should systemic issuers be unable to monetise their backing assets in private markets.
Furthermore, the paper will include the process of holding limits, as the Bank is proposing temporary holding limits of GBP 20,000 per coin for individuals and GBP 10 million for businesses (with an exemptions regime to allow the largest businesses to hold more if required) in order to safeguard continued access to credit as the financial system is gradually adapting to new forms of digital money. These limits would be removed once the transition no longer poses risks to the overall provision of finance to the real economy, while also not applying to stablecoins used for settling wholesale financial market transactions in the Bank and FCA’s Digital Securities Sandbox.
At the same time, the Bank published an approach to quantifying the risks to the provision of finance to the economy from potentially significant and rapid outflows of bank deposits into new, secure forms of digital money. Moreover, the analysis has shaped the proposed holding limits, and the overall consultation paper also invites feedback on alternative mechanisms for managing these risks.
Furthermore, non-systematic stablecoin issuers are expected to be regulated by the FCA. If recognised as systemic by HM Treasury (HMT), they will transition into the Bank’s overall regime and will be jointly regulated, with the institution focusing on the process of overseeing prudential and financial stability risks, and the FCA continuing to supervise conduct and consumer protection. The Bank and the FCA are expected to publish a joint approach document in 2026 to clarify the manner in which the rules will apply in practice and support a secure and efficient transition between regimes.
