The Bank of England has unveiled its proposed regulatory framework for systemic sterling-denominated stablecoins, signaling a significant shift in how these digital assets will be managed within the UK’s financial system. In a recent policy statement and draft Code of Practice, the central bank has opted against imposing specific holding limits, instead introducing a temporary guardrail capping the issuance of any single stablecoin at £40 billion ($52.9 billion).
This framework targets what the BoE terms “systemic sterling stablecoins”—those widely utilized in payment systems whose disruption could pose risks to financial stability or public confidence. Stablecoins not meeting this systemic designation, often used primarily for cryptocurrency transactions (such as USDT and USDC), will continue to fall under the sole regulatory purview of the Financial Conduct Authority (FCA).
Key Takeaways
- The Bank of England has replaced proposed holding caps for systemic stablecoins with a £40 billion issuance limit per stablecoin.
- The central bank has adjusted requirements for backing assets, allowing for a higher percentage in short-term UK government debt.
- Strict redemption processing times and prohibitions on interest payments for coin holders are established.
- Systemic stablecoin issuers must maintain capital reserves and utilize trust structures for asset protection.
- Industry feedback on the draft code is being accepted until September 22, with finalization anticipated by the end of 2026.
Significant revisions have been made to the proposed composition of backing assets. Issuers will now be permitted to hold up to 70% of backing assets in short-term UK government debt with a residual maturity of up to six months, an increase from the previously proposed 60%. The remaining 30% must be held as unremunerated deposits at the Bank of England, a reduction from the earlier proposal’s 40% requirement.
Furthermore, systemic stablecoin issuers will be mandated to maintain capital reserves equivalent to the higher of six months of operating expenses or the estimated cost of recovery and orderly wind-down. Reserve assets must be held within trust structures designed to safeguard coin holders’ interests throughout both normal operations and in the event of issuer failure. Redemption requests are to be processed promptly, ideally within 24 hours of a full request, defined by the receipt of the request, completion of anti-money laundering (AML) and know-your-customer (KYC) checks, and receipt of the relevant coins by the issuer.
A notable provision is the prohibition for systemic stablecoin issuers to pay interest on coin holdings. However, the framework permits activity-based rewards and non-interest-bearing incentives, provided they align with the stablecoin’s intended use as a means of payment.
Industry reactions, such as that from Katie Harries, Head of Policy for Europe at Coinbase, acknowledge the robustness of the proposed regime, highlighting aspects like reserve composition, capital requirements, access to central bank deposits, and liquidity backstops as particularly strong. However, Harries also pointed to ongoing considerations, including the definition of “temporary” for the issuance cap and the potential impact on the UK’s ambitions for tokenization if stablecoins cannot be used for settlement in core wholesale markets.
The Bank of England is currently soliciting industry feedback on the draft Code of Practice, with submissions due by September 22. The central bank aims to finalize the code by the end of 2026, paving the way for recognized systemic stablecoin issuers to commence operations under the new regulatory regime in 2027.
Potential Regulatory Precedent
The Bank of England’s approach to regulating systemic stablecoins may set a significant precedent for other jurisdictions grappling with similar questions. By moving away from strict holding caps towards an issuance guardrail, the BoE appears to be balancing the need for stability with the potential for innovation and scale. The detailed requirements for reserve composition, capital adequacy, and redemption processing provide a clear blueprint for operational integrity. The distinction drawn between systemic and non-systemic stablecoins also offers a nuanced regulatory model that acknowledges varying risk profiles. This measured yet firm stance could influence how global regulators balance consumer protection, financial stability, and the development of digital asset markets in the future. The emphasis on clear redemption timelines and capital reserves directly addresses key concerns around liquidity and issuer solvency, critical factors in the stability of any fiat-backed digital currency.
According to the portal: www.theblock.co