Bank of England: CP published on proposals for systemic stablecoin regime

Introduction

On 10 November 2025, the Bank of England (the BoE) published its consultation paper (the CP) setting out its policy proposals for a regulatory regime governing systemic stablecoins. This follows the BoE’s discussion paper (the DP) in November 2023 on the proposed regime and the extensive feedback that the BoE received from industry and other stakeholders. As a result of this engagement (as well as a shifting geopolitical backdrop), certain key policy positions (namely, on backing assets and capital and reserve requirements) have been revised and “softened” in some cases. The BoE has also left other policy positions unchanged, or has sought to provide clarifications (such as holding limits, and the definition of systemic importance). In this note we discuss (i) the scope of the proposed regime, (ii) some of the key changes made since the DP and (iii) certain issues that still need to be worked through.

Whilst there are still areas that will require close engagement with the industry (and in particular ensuring that the right balance is struck between financial stability and innovation), the notable shift and positive tone of the CP and the relaxation of some of the more stringent constraints set out in the DP is helpful. Market participants should take this opportunity to continue engaging on the proposals. With three months before the CP closes on 10 February 2026, the CMS team would be happy to discuss and assist with any responses.

The scope of the proposals set out in the CP

The CP covers the BoE’s proposals in relation to sterling-denominated systemic stablecoins. A stablecoin is deemed systemic where (i) it is widely used in payments and therefore may pose risks to UK financial stability (or may do so in the future); and (ii) Her Majesty’s Treasury (HMT) (which is required to consult the BoE as part of this process) has made a recognition order as such.

The CP provides a useful overview of how the broader stablecoin regulatory regime could apply by reference to the relevant regulatory body with responsibility for different expected use cases. In particular:

• all sterling-denominated systemic stablecoins – whether used for retail or wholesale payments – will be subject to joint regulation by the BoE and the FCA;
• those systemic stablecoins used in cross-border settings will also be subject to the home authority’s regime;
• stablecoins used in core wholesale financial markets by financial market infrastructures (FMIs) regulated by the BoE will, if usage in the Digital Securities Sandbox (DSS) proves successful (please see below), be subject to joint regulation by the BoE and the FCA;
• stablecoins used for settlement in non-core wholesale markets by firms that are not FMIs regulated by the BoE will be subject to FCA regulation only; and
• non-systemic stablecoins used for payments will be subject to FCA regulation only.

Notably, the potential entities who may be recognised by HMT and therefore caught by the BoE’s regime are not limited to stablecoin issuers. Other entities such as systemic service providers, or those entities providing essential services to a systemic payment system or systemic service provider, may also be captured by the BoE’s regime. 

The key changes

1. Backing assets
   A backing asset is a specified asset or basket of assets which stablecoins use to maintain a stable value against that asset. The DP initially proposed that backing assets were to be held entirely in unremunerated deposits at the BoE. This was subject to significant pushback by the industry on the basis that it was inconsistent with other comparable jurisdictions; was incompatible with stablecoin revenue models; and created an uneven playing field for stablecoin issuers compared with other financial service providers. This has helpfully changed in the CP. The BoE now proposes to allow systemic stablecoin issuers to receive a return on a proportion of their backing assets, with issuers permitted to hold up to 60% of their backing assets in short-term sterling-denominated UK government debt, with at least 40% needing to be held as unremunerated deposits at the BoE.
    
2. Holding limits
   In line with the proposed approach in the DP, the BoE has proposed in the CP to require issuers to implement per-coin holding limits of £20,000 for individuals and £10 million for businesses. However the BoE has taken on-board feedback that the limits may be too low for a number of business models. It proposes to introduce a flexible regime where limits can be adjusted for certain types of retail businesses (such as supermarkets) or intermediaries servicing retail customers (such as cryptoasset trading platforms). The BoE has also emphasised that these holding limits are intended to be temporary, and will be loosened and ultimately removed as the risks of systemic stablecoins are better understood.
    
3. Capital / reserve requirements
   The DP proposed to use existing international standards (the CPMI-IOSCO Principles for Financial Market Infrastructures - PFMI) as the baseline for capital requirements for general business risk. This proposal remains in place, with modifications to account for shortfall risk to coinholders and a lack of comprehensive arrangements to manage an issuer’s failure. The BoE has revised the capital requirements to account for the general feedback received. In particular:
   - it has removed the previous reserve requirements in respect of operational risk, taking the view that capital against general business risk should be sufficient to recover from the largest plausible loss event or equal to current operating expenses for six months (whichever is higher); and
   - the CP also now includes a proposal that issuers hold a reserve of liquid assets to mitigate the financial risk of backing assets and to manage insolvency/wind down as required. These assets should be held on statutory trust.
    
4. Arrangements to support systemic stablecoin issuers
   - Direct access to payment systems: the BoE expects systemic stablecoin issuers to have direct access to payment systems to enable on- or off-ramping, and payments from commercial bank accounts into stablecoin accounts (and vice versa) to be conducted frictionlessly and settled in central bank money – a key part of the BoE’s toolbox in achieving its financial stability objective.
   - Central bank liquidity arrangements: the BoE is also – as a new proposal - considering central bank liquidity arrangements to support eligible systemic stablecoin issuers in times of stress. The details of this are not confirmed in the CP, but this is a notable development.
    
5. Use of stablecoins in the DSS
   The BoE has confirmed it will seek to explore the use of stablecoins in the DSS, particularly in the context of wholesale settlement via FMIs. Depending on the outcome of this testing, the BoE may recommend that HMT recognise FMI issuers of stablecoins used for settlement in core wholesale financial markets.
    
6. Issuance of stablecoins by banks
   The CP notes that banks remain subject to the existing banking regulatory regime. This includes the PRA’s 2023 Dear CEO letter, which requires banks, when issuing regulated stablecoins to retail users, to establish separate entities from their deposit-taking businesses for this purpose, to mitigate the risk of contagion.
    
7. Overseas issuances
   The BoE proposals in the CP require overseas issuers of systemic sterling-denominated stablecoins recognised by HMT to establish a separate UK-based subsidiary. This entity will then be subject to the BoE’s backing assets and capital reserve regime. Additionally, the BoE has confirmed that its supervisory approach to overseas non-sterling-denominated stablecoin issuers will entail engagement with the issuer’s home authority. Following such engagement, if the BoE considers the home authority’s regime would result in “broadly similar outcomes” with effective bilateral arrangements in place between the regulators, the BoE may choose to defer to the home authority’s regulatory regime. This is notably different from the FCA’s approach so far – which currently keeps overseas issuers outside of its regulatory regime.

Questions to be worked through…

1. Cliff edge risk
   One of the biggest concerns from the industry is the cliff edge risk of moving from being a non-systemic stablecoin issuer to a systemic stablecoin issuer, and in particular the different requirements around backing assets composition. To address this, the BoE has proposed to allow firms “stepping up” to initially hold 95% of their assets in short term UK government debt as they transition to being a systemic stablecoin issuer.
   
   Whilst this will undoubtedly be welcomed by the market, further detail on when a systemic stablecoin issuer will be deemed systemic, and on how any transition from the FCA regime to the jointly regulated BoE / FCA regime will be managed is essential. A stablecoin issuer’s recognition as systemic will fundamentally change the parameters within which the issuer may operate – and, as feedback to the DP suggests, may pose an obstacle to achieving meaningful competition and innovation in the market. Whilst further guidance has been provided on the criteria and factors that would feed into a decision to recognise a stablecoin issuer or service provider as systemic (such as (i) the nature (i.e. wholesale, retail, and risk profile), number and value of the transactions processed by a payment system (at present, or on a forward-looking basis); (ii) whether the payment system or service provider could be substituted by other providers or systems to process their transactions; (iii) whether the BoE uses the payment system as part of carrying out its statutory objectives as monetary authority; and (iv) the interconnectedness of the payment system or service providers with other entities in the market) such guidance remains relatively high level, which is perhaps inevitable given the relatively small size of the UK stablecoin market at present. Given this is a key concern for the market however, further thinking may be needed by the BoE and industry on the transition process to systemic status to reassure market participants and allow firms to prepare accordingly.
    
2. Holding limits
   The BoE considers the proposed limits are needed for systemic stablecoins to mitigate the financial stability risks stemming from large and rapid outflows of deposits from the banking sector, and the risks posed by newly recognised systemic stablecoins as they are scaling. Whilst some market participants may still consider these limits too low, the BoE’s proposal to enable it to exempt certain business if the business requires balances above it in the course of doing normal business is helpful. However, further detail on who these exemptions might apply to, and how the BoE would exercise its discretion would be hugely beneficial.
    
3. Yield
   The proposed prohibition on issuers offering interest to coinholders remains in place. Further clarity from the BoE around whether and how issuers may be permitted to offer incentives or other rewards would be helpful.
    
4. Redemption
   The BoE has proposed to maintain the position set out in its DP around redemption requirements. Issuers are expected to be able to meet all redemption requests of all amounts on an end-of-day basis at a minimum (and in real-time where possible), and the issuer will be legally responsible to coinholders for such redemption. Whilst the BoE has confirmed it will not prohibit the charging of fees, provided this is done on a proportionate basis, the proposed requirements around the end-of-day redemption process will continue to be a key practical and operational challenge for many issuers.
    
5. Composition of backing assets
   The CP seeks further feedback on the nature of required backing assets for systemic stablecoins. This is because while there are benefits to restricting UK sovereign debt holdings to short maturities, the BoE notes that the current size, structure and purpose of that segment of the UK sovereign debt market may not – in the long term – support large demand and activity by systemic stablecoin issuers.
    
6. Public blockchains.
   The BoE recognises the complexities around public permissionless blockchain ledgers, and the absence of a single, central entity responsible for their governance as being an inherent feature. Whilst the BoE is not in principle opposed to the use of such ledgers, it has reaffirmed that their use in the stablecoin market is contingent on a ledger meeting expectations around accountability, settlement finality and operational resilience. The BoE plans to continue working with industry to further explore these issues.

Conclusion

The proposals set out in the BoE’s CP take into account a number of the key strands of feedback provided by the industry following the DP. The tone of the CP should indicate that the direction of travel is a positive one for the stablecoin market, and industry should continue to take the opportunity to engage constructively with a sensible and comprehensive regulatory approach to a rapidly growing and ambitious market.

This article was previously published by Reuters Regulatory Intelligence.