The Bank of England’s Proposals for Sterling-Denominated Systemic Stablecoins

Overview

The Bank of England’s consultation on systemic stablecoins published in November 2025 sits alongside the Financial Conduct Authority’s  proposals in CP25/14 and CP25/15 as part of the UK’s coordinated programme to establish a comprehensive regulatory framework for digital assets. 

While CP25/14 and CP25/15 set out the firm‑level requirements for issuing, safeguarding and capitalising qualifying stablecoin and cryptoasset firms, the Bank’s consultation addresses the system‑level rules that would apply where stablecoins become sufficiently widely used in payments to raise financial stability concerns.

Taken together, the three consultation papers provide a clear picture of how regulatory responsibilities will be shared between the Financial Conduct Authority (FCA) and the Bank of England (BoE) to support consumer protection, market integrity, and financial stability across the developing stablecoin ecosystem.

Introduction

Following the expansion of the BoE regulatory remit under the Financial Services and Markets Act 2023 (FSMA 2023) to cover digital settlement assets (DSAs) (including systemic stablecoins), and building on its November 2023 discussion paper, the BoE issued a consultation paper setting out its response to that feedback and outlining the proposed regulatory framework for sterling‑denominated systemic stablecoins.

Systemic stablecoins are those that are widely used in payments and therefore may pose risks to UK financial stability.

Forming part of the broader cross-authority framework for innovation in payments, systemic stablecoins will be dual regulated by the BoE and the FCA, once designated as systemic by HM Treasury (HMT). Non-systemic stablecoins remain under the FCA’s remit, and further information on the FCA’s proposals in relation to stablecoins can be found in the following articles CP25/14: Stablecoin Issuance and Cryptoasset Custody, and CP25/15: Capital and Liquidity Requirements for Cryptoasset Firms.

The BoE’s consultation paper details proposals that aim to support the role of systemic stablecoins in real world payments and settlements, while preserving financial stability and public trust in money. 

The Proposals

Some of the key proposals and updates in the consultation paper are summarised below.

Backing Assets

One of the most significant revisions from the Bank's 2023 discussion paper concerns how systemic stablecoin issuers must back their coins. 

Further to the FCA’s proposed regulation for qualifying stablecoin backing assets under CP 25/14, the BoE proposes that systemic stablecoin issuers would be permitted to hold up to 60% of backing assets in short-term government debt securities, with the remainder constituting unremunerated central bank deposits. 

This proposal has been revised in response to industry feedback that the former approach contemplated in the 2023 discussion paper (that backing assets be restricted to unremunerated central bank deposits only) would not enable viable business models. 

The BoE expects central bank deposits to be used to meet redemption requests and therefore has acknowledged that temporary deviations from the 40:60 ratio may occur to meet large unanticipated redemption requests.

Step-Up Regime

Additionally, the BoE proposes a ‘step-up’ regime be utilised such that stablecoin issuers recognised as systemic at launch by HMT could be permitted to hold up to 95% of their backing assets in sterling denominated UK government debt as they scale, reducing to 60% once appropriate for risk mitigation. It is expected that non-systemic issuers transitioning from the FCA regime to the BoE regime would follow a similar transition. 

The BoE in particular has queried whether the proposed 60:40 ratio provides an appropriate balance for financial stability and business model viability, and asked for comments on the ‘step up’ regime.

Redemption Requirements & Liquidity Backstops 

To enable seamless operations for redemption requests, the BoE expects stablecoin issuers to have direct access to payment systems and those without access to payment systems will need to hold cash balances at commercial banks as a ‘float’ to facilitate redemption requests.

The BoE is also considering providing central bank liquidity arrangements to support issuers during stress events, reinforcing financial stability. Part of the proposals include access to a backstop lending facility for eligible, solvent and viable systemic stablecoin issuers.

In addition, systemic stablecoin issuers will be permitted to lend securities via repurchase agreements to generate liquidity. However, borrowing securities via repurchase agreements will not be permitted.

Capital & Reserves Requirements

The BoE’s consultation paper removes the operational risk buffer previously proposed and sets capital at the higher of: 

• the cost of recovery from the largest plausible loss event; or 

• six months of current operating expenses. 

Capital is to be held in paid up capital, share premium, retained earnings and disclosed reserves (largely in line with CET1). Assets used for capital are to be sufficiently liquid and of high enough quality to mitigate risks. 

In addition, systemic stablecoin issuers will be required to hold on statutory trust two reserves of liquid assets to: (1) top up shortfalls in backing assets due to financial risk; and (2) meet the cost of continuing critical services and distributing or transferring coin holders’ assets in the event of issuer's failure.

Transitionary holding limits

One of the more contentious proposals involves limits on how much individuals and businesses can hold in systemic stablecoins. 

The BoE proposes to introduce holding limits per systemic stablecoin in order to reduce the risks associated with significant outflows of deposits from banks. Per-coin holding limits of £20,000 for individuals and £10 million for businesses would apply, with exemptions contemplated for businesses that require balances over that limit in the ordinary course of their business.

The BoE’s rationale for introducing such limits is to provide for an orderly transition to the widespread adoption of systemic stablecoins and to mitigate risks to UK credit economy, with holding limits being transitional measures. As the transition to systemic stablecoins progresses and risks to financial stability are mitigated, the BoE expects to relax and ultimately remove these holding limits. 

Trust Arrangements

Backing assets are to be held in the UK (in line with the location policy) on statutory trust for the benefit of coin holders. The ‘trust model’ will confer beneficial interests in the safe guarded assets to coin holders, which will be supplemented by a residual unsecured debt claim against the issuer for any shortfall. Issuers will be required to appoint qualified independent third parties for the safeguarding of backing assets, unless held with the BoE itself.

Subsidiary Requirements

The BoE considers that the best way to mitigate risks to UK financial stability is to apply the BoE's systemic stablecoin regime directly by requiring subsidiarisation. Thus, non-UK based sterling-denominated systemic stablecoin issuers, irrespective of their location, must establish a subsidiary in the UK to carry out business and issuance activities in the UK and with UK-based consumers, and that subsidiary shall hold their backing assets and assets funded by capital in the UK.

Cross-Border Arrangements

For non-sterling-denominated systemic stablecoins issued from non-UK entities, the BoE considers the first step is to engage with the stablecoin issuer's home authority, and one option could include deferring to the home authority's regulatory and supervisory framework if their framework delivers broadly similar outcomes to the BoE’s regime.

When deciding whether to defer to the home authority, the BoE expects to consider the authority's regulatory requirements, risk mitigation measures, supervisory approach, failure arrangements, and co-operation arrangements.

What This Means for Your Business

The BoE’s proposed regime marks a significant shift for the UK’s payments landscape. For systemic sterling denominated stablecoin issuers, compliance will require a UK presence, stringent capital and reserve structures, and careful consideration of business model viability. 

For businesses exploring stablecoins, the framework offers opportunities for faster, cheaper payments with strong redemption protections, though initial holding limits for systemic stablecoins may constrain some use cases. Financial institutions should note the regime’s focus on safeguarding credit provision and ensuring interoperability, with joint oversight from the BoE and FCA. 

Timeline and Next Steps

This consultation closed on 10 February 2026. The BoE is considering the responses and intends on finalising the Codes of Practice containing detailed requirements later in 2026. 

Separately, the FCA has announced that the authorisation gateway for cryptoasset activities falling within the new perimeter will open on 30 September 2026, with the application period running to 28 February 2027. 

The FCA has also indicated that a pre‑application support service (PASS) will open in July 2026. The new cryptoasset regime commences on 25 October 2027, firms that apply within the gateway window are expected to benefit from transitional arrangements while their applications are determined. 

Final rules and related Policy Statements are expected later this year.

This article forms part of our series exploring the UK’s new crypto‑asset regime. You can read related content from us by clicking the below links:

• The Digital Asset Ecosystem: A potted history and some terminology 

• DP25/1: Staking as a Service, Affordability Checks and Decentralisation Audits

• CP25/14: Stablecoin Issuance and Cryptoasset Custody

• CP25/15: Capital and Liquidity Requirements for Cryptoasset Firms

• CP25/28: A deeper dive on fund tokenisation in the UK

• CP25/40 – CP25/42: FCA Publishes Three Major Cryptoasset Consultation Papers

• CP25/25 and CP26/4: FCA Consults on the Handbook's Application to Regulated Cryptoassets

The information provided in this article is intended for general information purposes only and does not constitute legal advice. Firms should seek specific legal and regulatory advice based on their individual circumstances. For more information or to discuss anything in this article, please contact our Digital Assets team by emailing [email protected].

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