Bank of England Consultation: Proposed Regulatory Regime for Sterling-Denominated Systemic Stablecoins

On 10 November 2025, the Bank of England published its long-anticipated Consultation Paper, “Proposed regulatory regime for sterling-denominated systemic stablecoins”. The paper represents a pivotal step in the UK’s ambition to bring digital settlement assets into the mainstream of financial services regulation. It outlines how the Bank intends to supervise stablecoin arrangements that could become “systemic,” that is, those used widely enough in payments to pose potential risks to financial stability.

This new framework will sit alongside the FCA’s proposed regime for the issuance and custody of non-systemic stablecoins and the Treasury’s broader work on digital securities and FMI reform. The combined effect is that, for the first time, stablecoin-based payments will be treated not merely as a form of cryptoactivity, but as part of the United Kingdom’s payments infrastructure.

Overview of the Regime

Under the proposals, only sterling-denominated stablecoins used widely for payments (whether by consumers, merchants or financial institutions) would fall within the Bank’s remit. The Treasury would formally designate which systems and service providers are “systemic,” triggering direct oversight by the Bank of England under the Banking Act 2009.  The Bank’s approach closely mirrors that applied to systemically important payment systems and financial market infrastructures. Its focus is on prudential soundness, resilience and confidence in redemption, rather than on investor protection or conduct, which remain the province of the FCA.

Stablecoin issuers deemed systemic will be required to hold high-quality, liquid assets fully backing their liabilities. The Bank proposes that at least forty per cent of these assets should consist of un-remunerated deposits held directly at the Bank of England, with the remainder in short-dated UK government securities. The intention is to ensure that each coin can be redeemed at par value in sterling at all times, even under stress. A central bank liquidity backstop is also under consideration to support redemption in disorderly conditions.

Issuers will not be permitted to pay interest to coinholders, reinforcing the status of the instrument as a payments medium rather than an investment product. During an initial period, the Bank proposes limits on the amount of systemic stablecoins that can be held, being £20,000 per individual and £10 million per business, to mitigate the risk of significant outflows from bank deposits. These limits are expected to be transitional until the Bank has assessed the implications for monetary and financial stability.

Non-UK issuers of sterling-denominated systemic stablecoins will need to establish a UK subsidiary that holds both the issuance function and the backing assets domestically. For non-sterling coins that become systemic in the UK, the Bank may defer to the home regulator if there are satisfactory cooperation and equivalence arrangements in place.

Once recognised, a systemic stablecoin arrangement will be subject to dual oversight. The Bank will supervise prudential and stability aspects, while the FCA will regulate conduct and consumer-facing activities. Firms may transition between the two regimes as their scale and usage evolve.

Implications for Issuers

For prospective or existing stablecoin issuers, the consultation marks a clear movement towards banking-style prudential regulation. Issuers will need to evaluate whether their products could fall within the “systemic” perimeter and, if so, begin aligning their governance, risk management and liquidity frameworks with Bank of England expectations.

The proposed composition of backing assets (a substantial proportion held as non-interest-bearing deposits at the Bank and the rest in short-term gilts) will have significant business model implications. The cost of maintaining such reserves, coupled with the prohibition on paying interest to coinholders, may affect the economics of issuance. Issuers must also ensure they can operationalise redemption at par, in sterling, at all times. This will require robust legal documentation defining the rights of coinholders and clear segregation of backing assets.

For issuers headquartered outside the UK, the requirement to operate through a domestic subsidiary with assets and capital held in the UK will be an important structural consideration. Early engagement with both the Bank and the FCA will be essential to understand the recognition and transitional pathways.

Implications for Custodians

Custodians supporting stablecoin arrangements will play a critical role in maintaining confidence and operational resilience. The Bank’s proposals envisage that backing assets must be held in the UK, which may necessitate changes for firms currently providing custody from other jurisdictions. Custodians will need to demonstrate strong controls over asset segregation, liquidity management and redemption processes, and may themselves fall within the regulatory perimeter as service providers to a systemic stablecoin arrangement.

From a practical perspective, custodians should review contractual frameworks with issuers to clarify responsibilities in relation to asset safekeeping, redemption events and business continuity. The Bank’s focus on resilience means that custodians’ governance, risk and audit processes will be scrutinised to standards closer to those applied to financial market infrastructures.

Implications for Payment Firms

Payment firms and wallet providers integrating stablecoins into their payment flows will face new operational and compliance challenges. The holding limits proposed by the Bank will require systems capable of monitoring balances per user and enforcing thresholds. Firms facilitating business-to-business payments may need to seek exemptions where commercial operations justify higher balances.

Equally, firms will need to provide clear disclosure of redemption rights and ensure that customer interfaces and terms of use accurately describe the nature of the stablecoin, its backing assets and its regulatory status. The Bank’s vision of interoperability between systemic stablecoins, tokenised bank deposits and central bank money also signals future convergence in the payments ecosystem. Payment institutions should therefore plan for integration with multiple “digital money” rails and ensure operational flexibility.

Implications for Exchanges

For exchanges and trading venues listing stablecoins, the immediate impact may be indirect but still material. Stablecoins that become systemic will be subject to stricter issuance and redemption standards, and exchanges may wish to prioritise listing those that are fully compliant with the Bank’s regime. Exchanges offering custody or wallet functionality will need to ensure that user holdings do not breach the proposed caps and that redemption rights are clearly articulated.

In due course, exchanges may find competitive advantage in supporting regulated, high-quality sterling stablecoins suitable for payments and settlement, rather than purely trading-oriented tokens. Alignment with the systemic regime could also help exchanges position themselves as trusted infrastructure providers within the UK’s evolving digital-money landscape.

Strategic Considerations

The Consultation underscores the UK authorities’ commitment to bringing digital settlement assets within a robust, trust-based regulatory perimeter.  The BoE’s proposals are deliberately conservative, emphasising safety, redemption certainty and public confidence in sterling-based money.  For industry participants, the direction of travel is clear: stablecoins intended for wide-scale use in payments will be regulated to standards comparable to bank deposits or payment systems. 

Issuers and service providers should therefore view compliance preparation as a strategic investment rather than a purely regulatory cost.  Those who engage early and design their products around the Bank’s principles are likely to benefit from first-mover credibility when the regime takes effect.

The consultation closes on 10 February 2026, after which the Bank intends to develop detailed Codes of Practice and final rules during the course of 2026.  Firms should take this period to conduct gap analyses, review business models, and submit responses highlighting operational realities and potential frictions.

Concluding Remarks

The Bank of England’s Consultation on systemic stablecoins marks a defining moment in the UK’s approach to digital money.  By positioning sterling-denominated stablecoins within the framework of critical payments infrastructure, the Bank has made clear that innovation must rest on stability and public trust.

For issuers, custodians, payment firms and exchanges, the message is unambiguous: systemic stablecoins will be treated as part of the financial system, not as speculative cryptoassets.  The firms that prepare now (by strengthening governance, aligning backing assets, ensuring redemption at par and building resilient operational models) will be best placed to thrive in the regulated era of digital sterling.