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The Bank of England’s (BoE) consultation on stablecoins, launched in November 2025, could represent a pivotal moment in determining how digital currencies will function within the UK financial system.
In sharing its proposed regulatory regime for sterling-denominated systemic stablecoins, the BoE is moving towards integrating stablecoins into the wider financial system while keeping financial stability in check.
This marks a major step in the UK’s ambition to be a leading global centre for digital asset innovation.
Among the key proposals is that the BoE will regulate sterling-denominated “systemic” stablecoins jointly with the Financial Conduct Authority (FCA).
The systemic designation applies to stablecoins widely used for retail and corporate payments. HM Treasury is responsible for deciding which payment systems and payment service providers (PSPs) are systemically important and thus subject to the proposed regime.
Non-systemic stablecoins will remain under the sole supervision of the FCA.
The BoE has also proposed temporary caps to manage financial stability risks: for individuals, £20,000 per stablecoin; and for businesses, £10m per stablecoin. Exemptions may apply for retail businesses such as supermarkets and intermediaries that need larger balances for operations.
In addition, the proposals include backing requirements: at least 40 percent of backing assets are to be held as deposits at the BoE; and up to 60 percent are to be held in short-term sterling-denominated UK government debt securities.
There is a transition pathway: new systemic issuers may initially hold 95 percent in gilts, tapering to 60 percent once a stablecoin reaches a scale where this level mitigates the risks of systemic importance without impeding the firm’s viability.
All holders are to be entitled to same-day redemption at par, subject to completed know-your-customer (KYC) checks. In addition, non-UK issuers of sterling-backed systemic stablecoins must establish a UK subsidiary and hold backing assets domestically.
The BoE has revised its approach in response to industry feedback, and its latest proposals represent a compromise between financial stability concerns and commercial viability.
The bigger picture
The Financial Services and Markets Act 2023 gave the BoE authority over “digital settlement assets”, a category that includes stablecoins and other tokenised forms of money, and the BoE outlined its initial proposals in a 2023 discussion paper.
Industry responses highlighted concerns about business viability and international competitiveness relative to other stablecoin hubs, and the latest consultation reflects how the BoE’s thinking has evolved based on stakeholder engagement.
Its goal is to let stablecoin-based payments develop while making sure they are subject to safeguards equivalent to those applied to traditional financial services.
The BoE’s core concern is that rapid outflows from traditional bank deposits into digital money could destabilise the banking system. It has developed a methodology to quantify these “digital bank run” risks, which informs the proposed holding limits.
The underlying worry is that stablecoins, if poorly backed or subject to loss of confidence, could trigger both runs on the stablecoins themselves and destabilising flows from traditional bank deposits.
The 40 percent unremunerated reserve requirement ensures immediate liquidity for redemptions, and the 60 percent gilt allocation allows issuers a modest investment return to support their operations.
The UK’s approach to regulating stablecoins contrasts with the regimes in other jurisdictions.
For example, the EU's Markets in Crypto-Assets (MiCA) Regulation is already in force, establishing comprehensive rules for crypto-assets including stablecoins.
MiCA requires stablecoins to maintain 1:1 backing with liquid reserves such as cash or government bonds, with a localisation requirement mandating that 60 percent of e-money token (EMT) reserves be held in EU bank accounts.
Unlike the UK's 40 percent unremunerated BoE deposits plus 60 percent gilts structure, MiCA allows full investment in liquid assets, but requires third-party custodian oversight.
MiCA also prohibits stablecoins from offering interest to prevent them from functioning as unregulated savings instruments, a restriction not present in the UK regime.
The US GENIUS Act, signed into law in July 2025, is aligned with the second Trump administration’s crypto-friendly outlook and focuses on promoting innovation.
It requires stablecoins to maintain 1:1 reserve backing with liquid assets, including US dollars, short-term Treasuries, repurchase agreements and bank deposits.
Unlike the UK's mandated 40 percent unremunerated central bank deposits, the GENIUS Act allows issuers flexibility in reserve composition as long as assets meet safety criteria, although regulators can impose tailored capital and liquidity requirements.
Like MiCA, the act prohibits stablecoin issuers from paying interest to holders.
Monthly public disclosure of reserve composition is required, and issuers must comply with Bank Secrecy Act (BSA) anti-money laundering and counter-terrorism financing (AML/CTF) requirements.
Hong Kong’s Stablecoins Ordinance, enacted in 2025, aligns digital asset regulation with traditional financial supervision and reflects the territory’s ambition to become a trusted digital finance hub.
The regime requires fiat-referenced stablecoins to be 1:1 backed by high-quality liquid assets such as cash, short-term government securities or bank deposits held with authorised Hong Kong institutions.
All reserves must be held within Hong Kong under Hong Kong Monetary Authority (HKMA) approved custodians. This contrasts with both MiCA’s partial localisation rule and the BoE’s focus on asset quality, liquidity and recoverability over strict on-shore custody of every reserve.
Issuers are prohibited from paying interest on stablecoins and must publish monthly, independently verified attestations of reserve holdings.
The framework also imposes stringent licensing and AML/CTF requirements aligned with Financial Action Task Force (FATF) standards, including real-time transaction monitoring and enhanced customer due diligence.
The UK is seeking to balance incentivising innovation with ensuring financial stability. However, this creates challenges. For example, cross-border operations become more complex when rules diverge, forcing issuers to navigate multiple regulatory frameworks.
This also introduces the risk of regulatory arbitrage, with firms choosing more favourable jurisdictions, potentially hindering the UK’s competitiveness, particularly if the final rules are considered overly restrictive.
The question is whether the UK can establish itself as a regulated hub for digital sterling while other jurisdictions take different approaches, or whether fragmentation will limit the development of truly global stablecoin payment systems.
Why should you care?
As the potential UK stablecoins regime takes shape, market participants will need to assess the likely impact on their operations and prepare their responses.
The planned dual supervision is intended to ensure both stability and consumer protection, while allowing innovation to progress.
Although unremunerated deposits at the BoE could affect issuer profitability, they should strengthen trust and systemic resilience, and the temporary holding limits will give the regulators space to monitor risks before adoption becomes widespread.
In addition, the location requirements are designed to reinforce UK control and boost consumer confidence.
Banks face the risk of deposit disintermediation if stablecoins gain traction for payments, but the proposed holding limits and strict backing requirements are in place to slow adoption and give them time to adapt.
Stablecoin issuers will need to assess the economics of the 60:40 backing split to determine whether the UK market is likely to be attractive to them. The £20,000 retail cap may limit network effects and the pace of adoption, although the transition pathway offers some flexibility for scaling.
For PSPs, the proposed regime would create opportunities for integration with regulated stablecoins. Intermediaries may qualify for exemptions from holding limits, allowing them to anticipate accelerated digital payment innovation.
Organisations preparing for the introduction of the UK’s stablecoins regime may want to consider the following steps:
- Participate in the consultation, focusing on providing responses on key areas of concern such as holding limits, backing requirements, transition provisions and cross-border implications.
- Model the business economics, including assessing whether the 60:40 backing structure supports viable operations for issuers or attractive use cases for users.
- Engage with the Digital Securities Sandbox, exploring pilot programmes for wholesale market applications.
- Evaluate systemic versus non-systemic strategy, determining which regulatory pathway is most appropriate for their business model.
- Monitor international developments, tracking how the EU’s implementation of MiCA and the US approach under the GENIUS Act evolve relative to the UK framework.
- Assess deposit retention strategies, modelling scenarios for the potential impact of stablecoin adoption.
- Plan for the transition, preparing for the potential move to joint BoE/FCA oversight.
The regime’s success will depend on whether stakeholders believe it strikes the right balance between enabling innovation and managing systemic risk.
Key indicators for organisations to monitor include:
- Consultation feedback trends and whether the BoE makes further concessions.
- HM Treasury's first systemic designations – which issuers get recognised.
- Major issuer commitments to the UK market.
- Any international coordination efforts or continued divergence.
The UK is positioning itself as a regulated hub for digital sterling, but the proof will come when issuers decide whether to build, scale or relocate based on these rules. The BoE’s consultation represents a critical window to shape that outcome.
Next steps
The consultation closes on February 10, 2026. The BoE and FCA will publish final rules and a detailed joint transition framework later in 2026.
