Proposed regulatory regime for sterling-denominated systemic stablecoins

This consultation paper sets out the Bank’s policy positions for a proposed regulatory regime for sterling-denominated systemic stablecoins for UK payments, issued by non-banks.^{footnote [11]}

The consultation paper is part of the broader policy development process for the UK’s stablecoin framework, complementing the ongoing initiatives by HMT and the FCA. It is not intended to provide detailed implementation requirements at this stage. Instead, it clarifies the Bank’s proposed policy positions and lays the groundwork for the next phase of our work, which will culminate in Codes of Practice setting out the specific rules and expectations for systemic stablecoins. We plan to consult on and finalise the draft Codes of Practice next year (Figure 1).

This phased approach is designed to support ongoing stakeholder engagement and refinement, helping ensure the regime remains proportionate, risk-based, and practical to implement.

We also set out our current thinking on the use of sterling-denominated stablecoins as a settlement asset in wholesale financial markets, and our approach to non-sterling denominated stablecoins that could become systemic in the UK in Sections 2.5.2 and 2.5.3, respectively.

2.1: Overview of industry feedback and our response

We received 46 responses to our 2023 discussion paper on our proposed regime for systemic stablecoins from a broad range of stakeholders (Appendix 1).^{footnote [12]} These included banks, non-bank payment service providers, payment system operators, trade associations, academia, and individuals. Their feedback, alongside insights from our industry engagement sessions, has been central to informing the proposals in this consultation paper.

Respondents broadly welcomed the discussion paper and appreciated the opportunity to engage with the Bank on the future regulatory framework for systemic stablecoins. They supported the initiative from the Bank to provide clarity and certainty to support responsible innovation in payments. Many respondents emphasised the importance of ensuring interoperability between public and private forms of money to preserve trust in the monetary system.

Respondents raised some concerns. Many noted that our initial proposal for backing assets to be held entirely in unremunerated central bank deposits would not support a viable business model and was inconsistent with the prevailing business models of stablecoin issuers. Some respondents highlighted a potential trade-off between innovation and financial stability in relation to holding limits. Others noted transition risks when moving from the FCA’s non-systemic regime to the Bank’s systemic regime, which could create regulatory uncertainty. Some respondents expressed concern that divergence between the UK regime and those in other jurisdictions could pose challenges for cross-border operations and establishing operations in the UK.

We are grateful for this feedback. It has informed our revised proposals and, where appropriate, we have provided further clarity to address the issues raised.

2.2: Policy revision

2.2.1: Backing assets

In the discussion paper, we proposed that systemic stablecoin issuers back their liabilities (coins in issuance) with 100% deposits held at the Bank, which would not be remunerated. While most of the respondents agreed with the assessment of the role the backing assets play in the stability of value, most respondents disagreed strongly with the proposal. They highlighted that the proposal would:

• Present challenges for stablecoin issuers whose revenues are mainly derived from backing assets, to set up a commercially viable business model in the UK. It may also predominantly benefit firms that are large from the start and can leverage network effects, ie generate revenue through data or processing fees. As a result, this could constrain innovation and limit exploration of new use cases.
• Create an uneven playing field between systemic stablecoin issuers and other financial institutions. For example, non-systemic UK stablecoin issuers are permitted to hold remunerated assets under the proposed FCA regime. The difference between the Bank’s systemic regime and the FCA’s non-systemic regime could create transition challenges and pose significant transition risks.
• Diverge from other comparable jurisdictions. The proposed backing model was arguably stricter compared to other jurisdictions, which could limit the possibility for issuers to establish, operate, innovate, and scale in the UK market given the cross-border nature of digital assets.

We have considered this feedback carefully and made substantial changes to our proposals on backing assets.

We propose to allow systemic stablecoin issuers to receive a return on a proportion of their backing assets. Systemic stablecoin issuers would be allowed to hold up to 60% of their backing assets in short-term sterling-denominated UK government debt. At least 40% would need to be held as unremunerated deposits at the Bank.

Our proposal aims to ensure that systemic stablecoin issuers have enough liquid assets to meet unanticipated and rapid redemptions requests. We believe this can be achieved via central bank deposits, which provide an issuer with immediate access to funds if coinholders seek to redeem large volumes of stablecoins in a short period of time. Without this, systemic stablecoin issuers may struggle to meet redemption requests promptly, leading to a loss of trust and confidence in the stablecoin, including the risk that the value of the stablecoin falls below par. The proposed threshold of at least 40% unremunerated deposits held at the Bank aligns with our estimates of possible short-term redemption requests. These estimates are based on outflow rates that have occurred during stress events in traditional and cryptoasset markets.

We considered whether the proportion of sterling-denominated UK government debt securities in backing assets could be higher than 60% to further support innovation in the UK and business model viability. We concluded that a higher percentage for a systemic stablecoin could affect trust and confidence in money by increasing the chances that issuers may not have sufficient liquidity to meet rapid withdrawals. We considered this threshold appropriate in the current context of the UK financial system and had regard of the size of the UK short-term government bond market.

We also considered a lower percentage of sterling-denominated UK government debt securities but concluded that while this was more likely to support confidence and trust in money, it would not provide sufficient support for innovation in the UK.

Consistent with emerging regimes internationally, we are proposing to restrict holdings of sterling-denominated UK government debt to short-term maturities only.

We believe that restricting holdings of sterling-denominated UK government debt to short-term maturities only will minimise market risk – the risk that the market value of backing assets falls below the value of coins in issuance – as market prices of short maturity debt are more stable than those with a longer maturity. Lower market risk means that issuers can put aside lower shortfall reserves (Section 2.2.2: Capital and reserve requirements).

The risks to the Bank are also reduced if the Bank lends to systemic stablecoin issuers against collateral with a more stable value, through the backstop lending facility being considered by the Bank. Short-dated debt holdings with regular maturities would support issuers’ liquidity management by allowing them to replenish deposits held at the Bank if required. We propose to allow systemic stablecoin issuers to monetise securities via repurchase agreements to generate liquidity. The short maturity would make it easier for issuers to monetise backing assets in private markets through outright sales or repurchase agreements to meet redemption requests. We do not propose allowing issuers to buy securities via repurchase agreements.

While there are benefits to restricting UK sovereign debt holdings to short maturities, we recognise that the current size, structure and purpose of that segment of the UK sovereign debt market may not support large demand and activity by systemic stablecoin issuers. Secondary market activity in UK Treasury Bills and short-term gilts is currently low, as these are typically buy-to-hold securities for liquidity management purposes and may therefore not support issuers selling outright or through repurchase agreements in private markets to a sufficient extent.

This consultation paper seeks feedback on required backing assets for systemic stablecoins. The Bank makes no assumption or suggestion as regards the future supply of a particular qualifying asset, although we recognise that such questions will be relevant as and when systemic stablecoins develop in the UK. The UK authorities need to consider carefully the consequences of this proposal on short-term UK sovereign debt markets as a result of increased demand and activity by systemic stablecoin issuers. The Bank would look to specify the maximum maturity of eligible assets in the draft Codes of Practice to be published next year.

The proposed approach creates a framework that supports innovation by supporting business model viability and ensures closer alignment between the Bank and FCA regimes and with those of other comparable jurisdictions. The combined requirements of central bank deposits and short-dated government debt ensure that issuers hold sufficient liquid assets to meet redemption requests under both normal and stressed conditions, thereby preserving trust and confidence in money.

Temporary deviations from the 40:60 split would be permitted for firms to meet large unanticipated redemption requests. Enforcing the requirement at all times would require a stablecoin issuer facing net daily redemptions having to access same-day liquidity (likely via repo operations in private markets), or needing precautionary buffers of central bank deposits on top of the prescribed 40%. We propose that systemic stablecoin issuers will need to notify the Bank if the requirement of holding at least 40% in central bank deposits is breached and provide a plan to rebalance backing assets in a reasonable timeframe. We intend to provide more guidance on our expectations with regards to maintaining the 40:60 split in the next phase of the consultation planned for 2026.

In line with the principle that systemic stablecoins should be primarily used for payments, issuers are expected to play a very limited role in the transmission of monetary policy, as they would not engage in lending. Since participation in the transmission of monetary policy is the primary rationale for remunerating central bank reserves held by commercial banks, the Bank therefore proposes that the central bank deposits held by systemic stablecoin issuers as backing assets should not be remunerated. Further, in line with its view that systemic stablecoins should not be used as a means of investment, the Bank considers that issuers under its regime should not pay interest to coinholders (Section 2.4.1: Remuneration for coinholders).

Our proposals enable systemic stablecoin issuers to earn some return on backing assets. The Bank believes the proposal would allow systemic stablecoin issuers to be commercially viable while safeguarding financial stability.

To support long-term business model viability, systemic stablecoin issuers would need to ensure their business models are robust to different interest rate environments. While a high interest rate environment allows issuers to earn significant income from UK sovereign debt holdings, lower interest rate levels would reduce their income significantly and could make those business models that are overly reliant on income from backing assets unviable. Issuers should therefore ensure their business models are able to maintain viability over the long term. We encourage focusing stablecoin business models on the generation of revenue by payments-related activities and building new use cases that drive efficiency, reduce cost, and enhance functionality.

We expect systemic stablecoin issuers to have direct access to payment systems.

This would enable operations such as on or off-ramping^{footnote [14]} and payments from commercial bank accounts into stablecoin accounts (and vice versa) to be conducted frictionlessly and settled in central bank money. If systemic stablecoin issuers are unable to access such payment systems directly, they may need to hold some cash balances at commercial banks strictly as a ‘float’ to facilitate redemption requests. Our views on the benefits of direct access to payment systems is further explained in Section 2.3.3: Legal claim and redemption.

In light of the changes to the backing asset proposals above, we are considering to provide access to a backstop lending facility for eligible, solvent, and viable systemic stablecoin issuers. This would allow them to lend against sterling-denominated UK government securities in a limited set of circumstances.

The Bank will also continue working with HMT and the FCA to consider the most appropriate interim and comprehensive long-term solutions for managing failure of a systemic stablecoin issuer.

In line with our risk-based, proportionate approach to regulation, we propose a ‘step-up’ regime for stablecoins recognised as systemic at launch.

We propose allowing stablecoin issuers which are recognised as systemic at launch, to temporarily hold up to 95% of their backing assets in sterling-denominated UK government securities. The percentage would be reduced to 60% once the stablecoin reaches a scale where this is appropriate to mitigate the risks posed by the stablecoin’s systemic importance without impeding the firm’s viability. This aims to balance risk mitigation with the issuer’s viability.

While the Bank will be required to assess the specific facts at the relevant time, we acknowledge that financial stability risks are likely to be lower for stablecoin issuers recognised by HMT as systemic at launch and could be managed appropriately, if needed, by mobilisation limits. These are temporary limits designed to ensure that firms operate in a controlled and low-risk manner while they complete their set up and work towards meeting supervisory expectations. This would help to support a viable business model in the early stages while mitigating against risks. When and how an issuer is required to reduce the percentage of sterling denominated UK government debt securities to 60% would be determined on a case-by-case basis as firms scale.

The Bank is also working with the FCA to manage the transition for issuers that grow to be systemic, including the arrangement for how they would meet our requirements on backing assets without impeding the issuer’s viability.

2.2.2: Capital and reserve requirements

Capital and reserve requirements for systemic stablecoin issuers aim to mitigate risks to the firm as well as risks to the coinholders. Such requirements would ensure systemic stablecoin issuers have sufficient resources against their business risks to continue operations and services as a going concern, or ensure recovery or orderly wind down, without disrupting critical services or causing losses to coinholders.

Respondents to the discussion paper were largely positive on our risk-based approach to capital. Some respondents raised concerns about the proposal to allow issuers to deduct the shortfall reserve (held on trust) from the capital held for general business risk, noting this would reduce the issuer’s on-balance sheet capital. They also sought clarity on the proposal for wind-down costs to be held on trust, as such a requirement would be costly to the issuer and would diverge from current industry practice. Respondents also sought further detail on the types of capital instruments that would be considered eligible.

Considering this feedback and the proposed changes to the backing assets model in this consultation paper, we have revised our proposals for capital and reserve requirements accordingly.

We propose that issuers hold capital against general business risk and reserves to mitigate financial risk and wind-down costs.

We continue to propose a risk-based approach that reflects each issuer’s business model and risk profile, as opposed to having a fixed, asset-based capital ratio. We believe this proposed approach is proportionate, flexible and accounts for the potential differences in business models across firms.

The Bank proposes to use existing international standards (ie the PFMI) as a baseline for the capital requirement for general business risk. In addition, to reflect the proposed change in backing assets requirements and to account for the absence of a comprehensive regime to manage stablecoin failure (for example, in the banking regime there is a resolution regime and Financial Services Compensation Scheme (FSCS) protection), we propose that issuers hold a reserve of liquid assets which aims to mitigate the financial risk of backing assets and ensure coinholders can recover the full nominal value of their systemic stablecoins holdings, in the event of a failure of the issuer. These reserves should be held on trust, for the benefit of coinholders and also insolvency practitioners where reserves relate to the cost of continuing critical services and the distribution or transfer of assets to coinholders. Taking account of feedback to this consultation and market developments, we will continue to work closely with HMT and the FCA on what comprehensive issuer-failure arrangements for systemic stablecoins may be. Subject to that work, we expect to revisit the reserve requirement.

We propose 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).

General business risk capital should cover risks that systemic stablecoin issuers may face during normal business operations. This includes operational or cybersecurity incidents or mismanagement, infrastructure failure, fraud, technology risks, and risks arising from third-party arrangements. To avoid doubt, general business risk excludes financial risks of backing assets and the cost of insolvency/wind down, and are to be met by the reserves of liquid assets below.

We propose this requirement to be set as the higher of:

• Six months’ of current operating expenses; or
• The cost of recovery from the largest plausible loss event.

Systemic stablecoin issuers are expected to identify the largest plausible loss event by modelling a range of severe but plausible loss scenarios relevant to their business. As mentioned above, such scenarios should consider risk events stemming from operational, technology and infrastructure sources including those arising from and/or due to failures of critical infrastructure, and service providers such as third-parties safeguarding backing assets.

In line with the PFMI,^{footnote [20]} we propose that the regulatory capital of systemic stablecoin issuers is comprised of paid-up capital, share premium, retained earnings and other disclosed reserves. For reference, this is largely similar to CET1 capital instruments. This is to ensure capital of systemic stablecoin issuers can absorb losses on an ongoing basis and should be permanently available for this purpose. Also, we propose that issuers ensure the assets funded by capital are high quality and sufficiently liquid for their intended uses.^{footnote [21]}

In addition to the capital held for general business risk, we propose 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.

Having considered the responses to the discussion paper, we no longer propose that systemic stablecoin issuers hold an ‘operational buffer’ in a shortfall reserve held on trust. Instead, we expect issuers to meet such shortfalls via capital for general business risk, as set out above. This will increase the amount of capital held by the issuer on balance sheet to support their business activities and reduce the complexities involved with accessing trust assets to absorb shortfalls due to business-as-usual risks.

To preserve trust and confidence in money and support full redemption in both going-concern and wind-down scenarios, we also propose that systemic stablecoin issuers should hold on statutory trust two reserves of liquid assets to: (1) top up shortfalls in backing assets due to financial risk;^{footnote [22]} and (2) meet the cost of continuing critical services and distributing or transferring coinholders assets in the event of issuer’s failure.

• Financial risk reserve, covering the market risk of holding short-term UK sovereign debt securities as permitted under the backing asset policy and the price impact when monetising^{footnote [23]} such assets under stress.
  • Market risk – we propose to use relevant parts of the proposed simplified standardised approach of the Prudential Regulation Authority (PRA) (including the multiplier for interest rate position risk, currently at 1.3).
  • Price impact when monetising against short-term UK government debt securities – we propose the amount of reserves held for this purpose to be at least equal to the applicable haircuts for securities eligible for the Bank’s lending operations under the Sterling Monetary Framework (which is currently set at 0.5% of the fair value of such assets).
  • To illustrate the potential cost, for a systemic stablecoin issuer with 60% of backing assets in short-term UK government debt securities with, for example, 93 days of remaining maturity, the reserve requirement for financial risk would amount to approximately 0.46% of total backing assets (including those held in deposits with the Bank).
  • We propose the quality and liquidity of reserve assets to largely follow those of the short-term UK government debt component of permitted backing assets.
• Insolvency/wind-down reserve, covering the cost of appointing an insolvency practitioner, continuing the critical services and/or returning or transferring funds to coinholders. The cost of wind down could vary significantly and is likely to depend on the set up of issuers’ operations, including the choice and number of blockchains used, and outsourcing arrangements, among other factors.
  • Issuers would be required to keep wind-down plans up to date and validated by external auditors. Issuers would be required to identify the estimated costs of wind down as the basis to calculate the reserves required for this element.
  • The assets held for insolvency/wind-down purposes should be of high quality but could be of slightly higher maturity profiles than those held for financial risks, in line with the intended use.
  • We anticipate that the cost of wind down can be reduced by organisational arrangements, robust record keeping and using industry best practices.
  • Some of the choices we have made on key elements of the proposed regime – such as restricting backing assets to short-term UK government debt securities, providing deposit accounts at the Bank, expecting issuers to have direct access to payment systems and the possibility of a backstop lending facility – will result in lower reserve requirements than would otherwise be required.
• An issuer would be entitled to retain any income or gains from these two reserves provided that in doing so it complies with its obligations as a trustee and any other legal or regulatory obligations to which the issuer is subject. Consistent with our policy that coinholders will not receive remuneration on their holdings, such income or gains (for example, as a result of gains made on the underlying assets) could not be passed on to coinholders.

We think the proposed capital and reserve requirements, including the use of statutory trust, will provide the right protections for coinholders under current arrangements. The authorities will continue to work closely to determine the appropriate interim and comprehensive long-term issuer-failure arrangements for systemic stablecoins. Subject to that work, we expect to revisit these requirements.

We propose to maintain the Bank’s expectations on risk management as set out in the discussion paper. Systemic stablecoin issuers would be expected to notify the Bank as soon as practical if their capital, reserves, or the value of backing assets fall, or are likely to fall below the regulatory requirements. We also propose that they must have a credible plan to restore levels of capital, reserves, and backing assets within a reasonable timeframe. Systemic stablecoin issuers may wish to develop early warning indicators to help themselves and supervisors identify risks in advance. Where appropriate, the Bank may require recovery actions such as halting new issuance, raising capital, or preparing for a solvent wind down. More detail on our supervisory approach will be set out in a separate publication next year.

2.3: Policy clarification

2.3.1: Systemic importance

As set out in Section 1: Introduction, Part 5 of the Act enables the Bank to regulate payment systems and service providers recognised by HMT. A service provider could fall under the Bank’s regime because it is systemic in its own right (for example, a custodial wallet that provides services to multiple payment systems or stablecoin issuers) and is therefore recognised by HMT as a service provider, or because it provides essential services to a recognised payment system or a service provider.

In considering whether an entity meets the recognition criteria, HMT must have regard to a list of factors set out in the Act. HMT may also make regulations about recognition orders and recognition criteria for systemic payment systems and service providers, including those using stablecoins.^{footnote [24]} The Bank will consider the recognition criteria and the indicators set out below when providing information and advice to HMT in relation to a recommendation that an entity should be recognised.^{footnote [25]}

• The number and value of the transactions that the payment system presently processes or is likely to process in the future; the value of the services in relation to payment systems that the service provider presently provides or is likely to provide in the future. Some of the indicators that the Bank would consider include:
  • the number and forecast number of coinholders;
  • the number and forecast number of the value and volume of transactions/services provided;
  • the value of stablecoins in, or likely to be in, circulation; and
  • whether an issuer already has an established network that could be used to facilitate uptake of their stablecoins (for example, whether they are a big retail or technology firm).
• The nature of the transactions that the payment system processes or the nature of the services in relation to payment systems that the service provider provides. Some of the indicators that the Bank would consider include:
  • the nature and risk profile of an entity’s activity, including the type of coinholders and the time criticality of the transactions/services provided;
  • wholesale or retail nature of transactions – the use or purpose of transactions/services provided such as whether a stablecoin is used for cross-border payments, financial transactions/investments, monetary operations, or foreign exchange transactions; and
  • the organisational structure, including the governance arrangements, business model and branding plans.
• Whether those transactions or their equivalent could be processed by other payment systems or whether those services or their equivalent could be provided by others. The Bank would consider:
  • whether the payment system or service provider is substitutable – this includes whether or not other systems or services are readily available, and potential constraints that may hinder a payment system or service provider continuing the operation or service provision.
• The relationship between the payment system and other systems or the relationship between the service provider and operators of payment systems that use DSAs and other service providers. Some of the indicators that the Bank would consider include:
  • an entity’s interconnectedness with other systemically important financial market infrastructures and institutions and with the real economy and governments (eg, whether the stablecoin is used to settle transactions for governments, important financial markets or other financial market infrastructures); and
  • institution-specific exposures including cross-ownership/cross-institution linkages.
• Whether the payment system is used by the Bank in the course of its role as a monetary authority.
  • The Bank would also consider whether, by virtue of its links, the system could call into question the integrity of fiat money in the UK.

In addition to the above indicators, the Bank would also consider the use of the stablecoin as money or store of value, in particular with regards to the number and forecast number of the value of transactions/services provided, as well as the nature of the transactions/services provided. The Bank considers this of particular relevance when assessing the systemic importance of stablecoin issuers.

Some respondents to the discussion paper asked for quantitative thresholds to be published to clarify when a stablecoin might be considered systemic. We acknowledge that quantitative thresholds could be helpful in some circumstances, but we view that a single hard quantitative threshold risks sending false market signals. It could result in the recognition of stablecoin issuers that the Bank would otherwise not propose to HMT to be systemic. For example, a stablecoin facilitating cryptoasset trading could grow large enough to meet predefined thresholds, but would be unlikely to be proposed to HMT as systemic while the interconnectedness of unbacked cryptoassets markets with the real economy and financial sector remains relatively limited (a stylised example is in Box D).

The Bank’s assessment of entities in systemic payment chains is a holistic judgement made on a case-by-case basis. Qualitative factors, such as substitutability and interconnectedness with other systems, are among key factors which may determine a firm’s systemic impact in a stablecoin payment chain (as covered by the statutory recognition criteria). This approach therefore prepares us for a world where the likely scale and nature of the use of stablecoins for everyday payments is unknown.

We recognise that more information on how the Bank assesses systemic importance is important for the industry, especially given possible differences between the Bank and FCA regimes (eg backing assets requirements, potential holding limits). To provide more clarity around the Bank’s regulatory perimeter for payments in the context of stablecoins, we are providing three illustrative examples on how the Bank will assess systemic importance in the context of stablecoins and make a recommendation to HMT for recognition.

These examples are fictional and for illustrative purposes only. They are intended to illustrate how the Bank assesses the impact, or likely impact, of stablecoin payment firms on UK financial stability. The scenarios do not indicate specificities of business models or types of firms which the Bank may consider likely to be or become systemic. Any inferred similarities of these stylised examples to existing payment firms, service providers, or stablecoins are coincidental.

2.3.2: Holding limits

The Bank is committed to supporting innovation in payments and money. We recognise the transformative potential of technology associated with stablecoins and the important role that non-bank entities can play in a mixed payments ecosystem.

We recognise that confidence in money underpins both monetary and financial stability. In particular, a disorderly transition to widespread adoption of systemic stablecoins could pose risks to provision of credit to the UK economy. In contrast to some other comparable jurisdictions, where capital markets may play a larger role, UK households and businesses continue to rely heavily on the banking sector for credit provision. Given the current market structure, the provision of credit to households and businesses in the UK is particularly vulnerable to rapid deposit outflows from the banking sector. We recognise the potential for growth in funding directly from financial markets and non-bank financial institutions to support the provision of credit to UK businesses. We welcome higher competition in this space.

Our focus remains on safeguarding the continued provision of stable and regular credit to the UK economy, as we adapt to the growing role of systemic stablecoins used for retail payments in the UK. We expect the system to adjust over time, recognising that this could be over an extended period. If this transition is not carefully managed, there could be a sharp reduction in overall credit provided, or an increase in the cost of credit, which could have implications on the UK’s economic growth prospects.

As noted in the Bank’s 2021 discussion paper on new forms of digital money, a number of risks could arise as the market transitions to stablecoins. A disorderly transition to widespread adoption of digital money could pose risks to provision of credit to the UK economy. This consultation focuses on two different types of disintermediation scenario:

Disintermediation in the transition to steady state

As systemic stablecoins gain traction, there could be a reduction in bank deposits as funds are increasingly allocated to stablecoin-based activities. The degree to which this decoupling of payments and credit takes place could reduce the availability of bank funding, potentially increasing the cost or reducing the quantity of banks’ credit provision over time, to the extent that banks have not yet adjusted their funding sources or business models. This could be particularly pronounced if it happens rapidly or is disorderly, which may be a greater risk in a period where individuals, businesses and financial institutions are adjusting to these new forms of money. Given the important role of the banking sector in providing credit to households and businesses in the UK, it will be crucial to ensure that the transition does not cause undue disruption to the supply of credit and to support the real economy as it adjusts. We want to avoid undue disruption to the real economy during a transition to new forms of money.

Disintermediation in stress

Stablecoins regulated under this regime are intended to be a new safe form of money – sharing some properties of cash. Under the proposed Bank regime, systemic stablecoins would be backed by a combination of central bank money and short-term sterling-denominated UK government debt securities, and would have access to central bank lending. Unlike the banking system, they will not undertake lending to the real economy. In previous stress scenarios, such as the global financial crisis, we observed depositors rapidly moving funds from some banks into other banks which were perceived to be safer, as well as into cash and other safe assets. In future banking stress, digital money could provide additional perceived safe havens^{footnote [27]} for depositors to move money into, potentially at speed. The banking sector could prove unprepared to withstand rapid large outflows of deposits and sterling money markets may also face disruptions – which could amplify stress with potential implications on availability and resilience of credit. Over time, banks would be able to take steps to ensure operational readiness, such as pre-positioning collateral to enable borrowing from the Bank during periods of stress.

Previous publications, including the Bank’s 2021 discussion paper and its responses, have made a case for the role of holding limits to manage financial stability risks in periods when the financial system is adjusting to digital money.

We have published a separate paper that considers both the potential for distributional effects across the banking system and potential outflows from the banking system in a stress scenario. Building on the analysis in 2021, it outlines a methodological approach for quantifying the risk of reduced lending to businesses and households, which will help to inform how the Bank assesses and mitigates the broader financial stability risk.

We are clear on the outcomes we want to achieve: avoiding a disorderly transition that undermines financial and monetary stability and access to credit, while at the same time, not stifling innovation in payments and money.

We will carefully monitor adoption of stablecoins to assess the potential for disorderly disintermediation and the potential impact on lending to the UK economy. This would allow the Bank to learn more about the extent of bank disintermediation associated with their use and the resulting impact on the cost and availability of credit. The impact is uncertain and depends, among other things, on the speed and scale of adoption of stablecoins.

The Bank understands that some of the potential use cases for stablecoins include their use as a settlement asset in high-value wholesale financial markets. This requires a separate set of considerations that we intend to explore via the DSS, where holding limits do not apply. This is explained further in Section 2.5.2: Approaches to innovation in wholesale markets.

Recognising the risks from disorderly transition and in line with the intended policy outcomes, we propose that issuers implement per-coin holding limits of £20,000 for individuals and £10 million for businesses. Systemic stablecoin issuers would need to comply with this proposed requirement, which is intended to be temporary. It would be loosened and ultimately removed as the market for credit adjusts to the new ecosystem, and risks to monetary and financial stability subside.

Holding limits would cap potential outflows of bank deposits to systemic stablecoins in aggregate and so limit the potential impact on credit availability. Our internal analysis indicates that the proposed holding limits could mitigate the financial stability risks identified above, as the UK economy transitions to widespread adoption of systemic stablecoins. Box E tries to illustrate such a scenario. Holding limits would be implemented on a per-coin basis, and so, for example, an individual would be able to hold £80,000 in total across four different stablecoins at a given time.

We recognise that holding limits would need to be suitable for the intended use cases for stablecoins, reflective of transaction volumes and holdings by the general public. We also recognise that the introduction of holding limits would need to be balanced against other considerations, including usability of stablecoins and potential implications for innovation. We consider that per-coin holding limits at the proposed levels would continue to allow stablecoins to be usable for the vast majority of retail payments.

Our separate paper also conducted additional analysis on the ability of households to use systemic stablecoins (‘usability’), which is important for unlocking their potential innovation benefits, measured as the ability of households and businesses to use digital money accounts to spend, receive and hold money.

Ensuring broad usability is important for systemic stablecoins, as this can help a larger share of payments benefit from innovations offered by Distributed Ledger Technology (DLT) technologies – such as automation and programmability.

Our internal analysis, guided in part by this paper, identified a range of £10,000 to £20,000 for holding limits, which would facilitate key usability criteria, with reference to being able to use the systemic stablecoin in a similar way to a current account. This analysis accounted for behavioural effects such as users building in a buffer to avoid exceeding their limit, which leads to lower effective usability for any given limit. Applying the limit at the top of that range increases usability – the higher the holding limit, the greater number of use cases for new forms of money, and the greater scope for a range of higher value transactions to benefit from programmability and other innovative use cases. For example, with a £20,000 holding limit, 94% of users would currently be able to receive their regular salary payments, and 90% of users would be able to hold their full current account balance.^{footnote [28]}

We also considered the size of the proposed holding limit for businesses (£10 million) in the context of usability. Our judgement was that such limits should support a wide range of potential business-to-business use cases, similar to those seen today in commercial bank money. However, we did recognise that such limits may be too low for some business users. For example, if large numbers of individuals in the UK choose to pay for their shopping using stablecoins in the future, supermarkets could build up balances larger than £10 million. We therefore propose to put in place an exemptions regime – which could be implemented through issuers – to allow limits to be adjusted in such cases.

We recognise that it is difficult to predict the pace and volatility of adoption of stablecoins. As part of our monitoring period, we intend to regularly assess the uptake of stablecoins against these limits, which would inform when we choose to raise or lift them. This includes considering whether the trajectory of adoption is sufficiently high such that holding limits at their current amount are likely to bind in the future, and whether there is demand for temporary high holdings to facilitate higher value purchases in a single coin.

Engagement with industry since the Bank’s 2023 discussion paper identified the possibility of operational challenges in implementing holding limits for individuals and businesses. These include fundamental changes to stablecoin smart contracts which could affect their ability to interact with other parts of the system and a lack of technical solutions to monitor holdings across multiple wallets. In light of the proposed calibration of per-coin holding limits, this consultation welcomes further views on the specifics of these challenges from respondents and how they might be addressed.

Recognising the potential for challenges in implementing holding limits, we have also considered other types of limits, including aggregate and transaction limits. As set out in the 2023 discussion paper, aggregate limits for each stablecoin could lead to the price of stablecoins deviating from par if demand for a single coin outstripped its supply, although the extent of any deviation might depend on the availability of perceived substitutes and how the limits were set. In the extreme, large and persistent deviations from par might undermine trust and confidence in money. Transaction limits restrict the size or frequency of stablecoin transactions but would not prevent repeated daily transactions and rapid and sizeable bank deposit disintermediation. In light of the proposals in this consultation, we welcome views on the relative merits of these options – holding, aggregate, and transaction limits – along with other potential mitigants.

We also considered whether using tools reactively might be better suited to avoiding the scenarios highlighted above. These include imposing caps on the overall size of stablecoins if we see risks materialising, or loosening liquidity requirements on the banking sector to prevent a tightening in credit conditions. The challenges with using our tools in this way are that these may be less effective after a stress event has begun.

A further challenge we recognised when designing the policy on holding limits is the transition between the Bank and FCA regimes. This would happen where a stablecoin may start off in the FCA regime but then be brought into the scope of the Bank regime when recognised as systemic by HMT.

These transitional challenges are twofold. First, issuers would be required to make changes to the technical stablecoin smart contract and possibly other features of their business to implement and comply with the policy. Second, there could be an impact on businesses and consumers who would be faced with a holding limit when the stablecoin they use is recognised as systemic. Consumers would not have faced such changes to their terms and conditions or the usability of different payment methods when other payment systems were recognised as systemic by HMT and brought into the Bank’s remit previously. Such transition challenges could be managed carefully during any transition process to ensure readiness on the issuer side and prepare consumers. We welcome your views and suggestions for how any transitional challenges could be managed.

The holding limits proposed above are intended to be transitional. The Bank would expect to loosen, and ultimately remove, such limits as we gain sufficient comfort that financial stability risks have been suitably understood and mitigated. This approach reflects the Bank’s commitment to supporting innovation while maintaining trust and confidence in money and payments.

2.3.3: Legal claim and redemption

Respondents expressed mixed views on the proposed redemption process, including the direct legal claim against the issuer for all coinholders. Many called for greater clarity on how ‘end of day redemption’ would work, especially for customers who have not completed the onboarding process (AML/KYC). Respondents also highlighted concerns around operational challenges outside of RTGS operating hours and the practicality of having redemptions obligations fulfilled by intermediaries. Some respondents suggested a principles-based approach to redemption timelines and conditions.

There was general support for the Bank’s proposal to either prohibit or keep redemption fees proportionate. Those in favour of prohibition argued that fees could act as ‘haircuts’, thus undermining the ability of stablecoins to trade at par and compromising trust and confidence in money. Others cautioned that banning fees might lead to costs being shifted to other areas, such as maintenance charges. Some respondents suggested allowing fixed percentage add-ons to cover operational costs, and some sought clarity on how charges users pay to process and validate cryptoassets transactions (‘gas fees’) would be treated under the proposed framework.

We propose to maintain our policy that all coinholders have a robust legal claim on the issuer for the funds they hold. Issuers must honour redemption requests by the end of the business day on which a valid request is made, ensuring timely access to funds.

We propose to maintain all our previous policy proposals, providing further clarification on fees, and a new expectation on access to payment systems.

We continue to believe that all coinholders must have a robust legal claim against the issuer for the value of their stablecoins. This should be understood as giving all holders the right to redeem their coins on demand at face value without undue constraint and cost. We consider this to be one of the key elements of the framework that supports stability of value of the coin and contributes to maintaining trust and confidence in money.

In the discussion paper we set out a requirement that redemptions should be processed by the end of the day on which a valid redemption request is made. This is aligned with international standards (ie PFMI) that apply to all systemic payment systems and further PFMI guidance for stablecoins. Respondents requested further clarification on what a ‘valid request’ means. We propose that the issuer should initiate the transfer by the end of the day on which a redemption request is made, provided that coinholders have submitted in advance necessary documentation required for AML/KYC verifications. Issuers should have processes in place to ensure timely checks and verification are completed in time to meet the proposed 'end of day' requirement. In order to satisfy this end-of-day requirement, issuers should make clear ex-ante to coinholders the documentation required to be submitted with or in advance of a request.

The issuer remains responsible for meeting the regulatory requirements for redemption including fulfilling direct redemptions if requested. Use of intermediaries does not discharge issuers from this obligation.

The Bank recognises that there could be different ways in which redemptions are fulfilled and some issuers may use intermediaries (eg cryptoasset-fiat exchanges) to facilitate redemptions on their behalf. In line with the outcomes-focused approach, we do not propose to prevent or restrict any model, provided that issuers can demonstrate to us that risks are sufficiently mitigated and all coinholders can redeem in normal and stress times.

Outsourcing redemptions creates an additional dependency, and we would expect the issuer to manage risks related to indirect redemption as they would for any outsourcing arrangement. Irrespective of the model, the issuer remains responsible for meeting the regulatory requirements for redemption including fulfilling direct redemptions if requested. Use of intermediaries does not discharge issuers from this obligation.

We have reviewed the responses to the discussion paper on the proposal to either prohibit or allow proportionate fees for redemptions. We are proposing not to prohibit fees, recognising that fees are an integral part of payment chains and they also exist in current payments arrangements in commercial banking. Excessive fees, however, create frictions in the redemption process, prompting coinholders to sell stablecoins in secondary markets. During periods of stress, this could lead to stablecoins trading away from par value, increasing run risk and amplifying financial instability. Therefore, we propose that issuers should provide redemptions free of charge, where possible, and any fees charged should be fair, transparent, and proportionate to the costs incurred.

Fees should not be used as a mechanism to disincentivise the redemption of the coins. Issuers must not use fees to pass on any costs or losses arising from the sale of assets in the backing asset pool as part of meeting redemptions.

In addition to the above requirements discussed in the discussion paper, we propose to set a new expectation that systemic stablecoins should directly access payment systems to support frictionless redemptions, as well as interoperability across different forms of money, rather than through a sponsoring participant. Accessing payment systems directly reduces tiering and counterparty risks, brings down concentration risks, and limits single points of failure. It also supports interoperability – in the sense that all forms of money can be easily interchanged with each other – and therefore supports trust and confidence in money.

2.3.4: Safeguarding of backing assets and reserves

We consider that, in the long run, comprehensive arrangements to manage the failure or insolvency of systemic stablecoin issuers may be needed, including measures to protect coinholders’ interests, address financial stability risks, and deliver equivalent outcomes to commercial bank money. We are working closely with HMT and the FCA to identify appropriate arrangements^{footnote [30]} to safeguard coinholders’ interests in such scenario. Until such arrangements are in place, our proposed safeguarding regime for the insolvency/ wind-down reserve alongside other requirements^{footnote [31]} aims to ensure that coinholders’ rights are protected and trust and confidence in money is maintained.

We propose that the safeguarding regime focus on two key elements, namely, segregation and statutory trust, and robust safeguarding rules.

• Segregation and statutory trust: In the discussion paper, we stated that the statutory trust model would provide better protection^{footnote [32]} to coinholders in insolvency compared to a debt model. The ‘trust model’ draws from the FCA’s Client Assets Sourcebook and would confer on coinholders a beneficial interest in the safeguarded assets held on statutory trust by the systemic stablecoin issuer, supplemented by a residual unsecured debt claim against the issuer itself to the extent of any shortfall. This would mean that coinholders’ proprietary claims against issuers (as trustees) for the par value of their stablecoin holdings are protected in both going and gone concern.^{footnote [33]} We propose to maintain this proposal, consistent with the FCA’s approach for non-systemic stablecoins.
  • As trustee, the issuer would have fiduciary duties to act in the best interest of the beneficiaries (coinholders).
  • For the safeguarding of backing assets other than those held in deposits with the Bank, we are proposing that issuers should be required to appoint a qualified third-party custodian, who is a separate legal entity. However, as trustee, issuers would remain legally responsible for backing assets, including managing redemption requests and resolving discrepancies.
  • We propose that the third-party custodians appointed must be authorised and regulated in the UK for the purpose of safeguarding client assets. We expect issuers to exercise due skill, care and diligence when selecting such third parties and ensure risks from such third parties are managed and provided for in capital for general business risks.
  • We propose that the statutory trust should also hold reserves of liquid assets to mitigate shortfall risks to backing assets due to financial risks and to support costs of insolvency/wind down (Section 2.2.2: Capital and reserve requirements). The reserves would be held on similar terms to the backing assets, as described above.
• Robust safeguarding rules: These rules would ensure that coinholders and supervisors have confidence that systemic stablecoin issuers maintain sufficient backing assets to meet redemption obligations at all times and to ensure an orderly wind down. The rules would cover the segregation of backing assets and reserves, the reconciliation of these assets with issued stablecoins, addressing discrepancies, shortfalls, and removing excess from the backing asset and reserves pool. The rules would also cover the organisational controls over the issuance, transfer, and holding of these stablecoins, as well as reporting on issuers, stablecoins, and backing assets.

We will consult further on the detailed design of the safeguarding regime in 2026, working closely with the FCA, HMT, and industry, including on any necessary enabling provisions for the Bank with regards to the statutory trust powers.

2.3.5: Ledgers

Our approach remains outcomes focused. We are open to the use of public permissionless ledgers, provided the risks relating to operational resilience (including cybersecurity), lack of accountability, and settlement finality can be managed in a way that ensures trust and confidence in money. We do not consider other ledger types – such as private permissioned ledgers – to be inherently risk-free and acknowledge that simple distinctions between ledger types can be misleading, particularly in relation to cross-cutting risks such as operational resilience and settlement finality.

We remain open to the use of public permissionless ledgers, but we maintain our view as set out in the discussion paper that public permissionless ledgers currently do not provide a clear locus of accountability and could result in heightened risks around operational resilience (including cybersecurity) and settlement finality. We want to continue working with industry to understand these risks and potential mitigants better.

Using public permissionless ledgers that do not have a clear locus of accountability is not consistent with current regulatory regimes which are built around regulated intermediaries that are capable of assuming and complying with legal requirements. While we do not seek to regulate public permissionless ledgers themselves, the key challenge is assigning accountability for any issues that might arise.

In terms of accountability, we will deem systemic stablecoin issuers responsible for achieving the standards and policy outcomes set out by the Bank with their technology choices in a robust manner. To emphasise, we are outcomes-focused and recognise that the relationship between issuers and public permissionless ledgers are likely to be different compared to existing practices that we observe among current FMIs. Such an approach is also consistent with ensuring that risks are managed prudently, and standards are maintained across different types of technology. We will do further work to set out what specific requirements we would expect to see from issuers in relation to the use of public permissionless ledgers. These will be clarified in upcoming publications.

Public permissionless ledgers may not be able to guarantee legally robust and clear settlement finality. This could mean that transactions are reversed despite the parties' perception that they were final, creating settlement risk. Industry efforts have been focused on achieving technical settlement finality and the Bank is also aware that there are gaps in the legislation to translate technical settlement finality to legal finality for DLT-based systems. HMT and the Bank are considering the legislation around settlement finality (Settlement Finality Regulations) to account for DLT, which may help to address some of these gaps.

We are also aware that the industry has made considerable effort to put in place mitigants for these risks. More generally, risk mitigants have evolved to address concerns around accountability and settlement finality with solutions around asset controls, fallback mechanisms, as well as broader business continuity and operational resilience approaches.

We note the current preference across existing stablecoin issuers to use public permissionless ledgers. We will therefore continue to monitor developments in ledger technology and assess their implications for financial stability. This includes looking carefully at the growing use of multiple public permissionless blockchains and the additional risks this could create. We will work closely with industry to identify emerging risks and explore potential mitigants for both existing and new risk areas.

We are particularly interested in exploring accountability mechanisms and operational resilience, including cybersecurity. This includes how different solutions approach operational resilience holistically, what mitigation mechanisms are present to compensate for the lack of a centralised accountability body, and what guarantees they provide in the event of system failures, and how they protect against asset losses.

The Bank sees multiple avenues for engagement and experimentation with the industry, including:

• The joint Bank-FCA DSS, which allows firms to test different ledger solutions;
• The Bank’s DLT Lab, which has hosted initiatives such as the DLT Innovation Challenge between September and October 2025;
• Roundtables and technology sprints with the industry; and
• Further engagement with industry focusing on specific themes and questions related to the mentioned risk areas.

2.3.6: Operational resilience and approach to service providers

The Bank’s approach to the regulation and supervision of systemic payment systems is based on the international standards set out in PFMI. We aim to ensure that systemic payment systems are financially and operationally resilient; and can oversee, assess and control for the risks along the entire payment chain that could threaten their operations and ability to meet their regulatory expectations.

The Bank has used its powers under Part 5 of the Act to set binding rules based on those international standards via Codes of Practice. These include requirements on operational resilience, third-party outsourcing risk management, and governance. The payment system operator of the recognised payment system is responsible for ensuring that those rules are complied with, and that international standards are adequately adhered to.

In the previous section we have set out some of the challenges with regards to meeting our expectations when using DLT technology. Ultimately, we will hold issuers and/or service providers to account for meeting the standards we set and managing the risks of the technology they use. This is in line with the approach the Bank takes for the existing FMIs in our remit who also rely on third-party technology as part of their operations. But we are open to different approaches by issuers to achieve these outcomes, recognising that the relationship between issuers and public permission ledgers is likely to be very different to those in place across existing FMIs.

Depending on the activity performed and the risks posed, HMT may decide to recognise service providers within systemic stablecoin chains and bring them under the Bank’s supervision. This is to ensure that these entities do not undermine the ability of firms in the chain to meet regulatory expectations.

Systemic stablecoin issuers may rely on a broader set of service providers to perform their activities. These include activities that are critical to the delivery of the issuance, transfer and/or custody functions, which could be outsourced to a third party.

The activities of those service providers may bring additional operational risks. The failure or outage of one entity may have repercussions for the ability of other entities along the payment chain to perform their activities. In turn, this may affect coinholders’ ability to complete payment transactions, including redeeming their stablecoins at full value, in a timely manner.

Specified service providers could include other entities across the stablecoin payment chain. They may include, for example, technology providers like cloud outsourcing providers, as well as privacy, security and encryption software providers, or firms providing the infrastructure to enable the operation of the ledger, among others.

Feedback to the discussion paper was broadly supportive but respondents requested greater clarity on the following:

• The scope of the then-proposed regulatory regime for CTP and whether it would extend to service providers and other third parties. The Bank, PRA, and FCA have since finalised the CTP regime in 2024.
• Delineation of responsibilities under the joint regulation model between the Bank and FCA, while also considering the practical implications of regulating entities such as DSA custodians.

At this stage, we do not expect to introduce a separate framework for service providers. Instead, we intend to leverage existing regulatory tools, including Codes of Practice and supervisory statements.

We will continue to engage with stakeholders to refine expectations and provide clarity on the regulatory scope, particularly regarding co-ordination with the FCA.

2.4: Policy unchanged

2.4.1: Remuneration for coinholders

In line with the principle that systemic stablecoins should primarily be used for payments and not as a means of investment, the Bank proposes that systemic stablecoin issuers should not pay interest to coinholders.

We propose to maintain our initial proposal set out in the discussion paper that coinholders should not be remunerated. The proposal received general agreement from respondents, although responses to this question were limited. This would align the treatment of systemic stablecoins with e-money and a potential digital pound, as well as with the FCA’s proposed rules on non-systemic stablecoins.

We take note that existing payments providers offer incentives for usage, such as points or rewards linked to transaction volumes. The Bank will consider further whether this practice would be permitted for systemic stablecoins usage.

2.4.2: Location policy for sterling-denominated stablecoins

The Bank received mixed responses to our initial proposal requiring systemic stablecoins issuers to establish a subsidiary in the UK to carry out business and issuance activities in the UK, and with UK-based consumers, and to hold all of their backing assets and capital in the UK.

Several respondents strongly supported this policy, highlighting the benefits of legal clarity particularly in insolvency scenarios. Some respondents argued this may discourage the growth of stablecoins in the UK. They requested clarity as to how this requirement may be applied and highlighted the challenges of its application given the global nature of stablecoin operations. Some respondents suggested that an equivalence regime should be considered instead.

Having considered the feedback, we propose that non-UK based sterling-denominated systemic stablecoin issuers, irrespective of their location, establish a subsidiary in the UK to carry out business and issuance activities in the UK and with UK-based consumers. That subsidiary shall hold their backing assets and assets funded by capital in the UK.

The Bank remains focused on safeguarding financial stability in the UK. For sterling-denominated systemic stablecoins, we consider that the best way to mitigate risks to UK financial stability is to apply the Bank’s systemic stablecoin regime directly by requiring subsidiarisation. This means non-UK based, sterling-denominated systemic stablecoin issuers should be set up in the UK as subsidiaries in order to carry out business and issuance activities into the UK and with UK-based consumers, both directly and through intermediaries.

Some of the elements of our proposed regime – most acutely the requirement to keep deposits at the Bank and the proposed liquidity facilities – would be more challenging to apply to an issuer located outside the UK. The proposed approach aligns with the PRA’s framework for supervising international banks with significant retail activity and ensures that financial stability risks are managed under the Bank’s regulation and supervision.

The Act provides the Bank with the ability to issue powers of direction to require or prohibit the taking of specified action in relation to recognised systemic stablecoin issuers. This includes the ability to apply location requirements.

We are also considering our approach to non-sterling denominated coins that could reach systemic levels of use in the UK. In such cases, if issued overseas, we may defer to non-UK authorities where their regulatory and supervisory frameworks deliver outcomes equivalent to our own. This issue is further elaborated in Section 2.5.3: Cross-border arrangements.

2.4.3: Joint regulation

As explained in Section 1: Introduction, systemic stablecoin issuers recognised by HMT as systemically important may fall under the oversight of several regulators, for example the Bank for prudential regulation and the FCA for conduct.

The Bank has been working closely with the FCA to develop a clear and co-ordinated regulatory framework for systemic stablecoins and service providers in the UK that may fall under the joint regulatory framework. The framework focuses on three key areas, reflecting a shared commitment to supporting innovation and growth, strong consumer protection and maintaining market integrity.

Clear regulatory boundaries: A key focus will be to provide clarity on how respective authorities’ remits will apply in practice, in line with their statutory, operational, and strategic objectives. The framework will build on the 2023 cross-authority roadmap, which set out initial expectations that firms within the joint regulation would be regulated by the Bank for prudential matters, and the FCA for conduct. This split remains the intended approach. The Bank would focus on prudential, financial stability and systemic risk matters, and the FCA will oversee consumer protection, competition, and market integrity. Further clarity will be provided on the specific rules and guidance that will apply as we streamline conflicting or duplicative requirements.

Managing transition between regimes: The joint 2026 consultation also aims to smooth the transition between regimes by providing a transparent and predictable pathway for firms as they prepare to operate under the new regime. As part of this, we recognise the importance of offering clear guidance to stablecoin issuers, including those transitioning into the systemic regime, and providing them with sufficient time to understand and comply with the new requirements. We intend to support orderly onboarding, reduce regulatory uncertainty, and ensure firms are well-positioned to meet expectations under joint supervision.

Regulatory co-ordination mechanisms: The Bank and FCA are also engaging to provide clarity on regulatory co-ordination mechanisms. To support effective joint supervision, we will consider developing mechanisms for co-ordinated oversight, such as aligned supervisory practices and data-sharing arrangements.

We will continue to closely engage with the FCA regarding service providers that may be recognised by HMT as systemic and subject to joint regulation.

2.4.4: Stablecoin custodianship

Custodial wallet providers play a critical role in systemic stablecoin payment chains. They safeguard the technological and legal means for coinholders to access and redeem their stablecoins. Their resilience is essential to maintaining confidence in money and payments and mitigating financial stability risks.

The Bank proposes to maintain our previous policy proposal to rely on the FCA’s rules for custodial wallet providers to ensure that coinholders’ rights are protected at all times and their stablecoins can be redeemed reliably.

The Bank expects that the FCA’s proposed rules for safeguarding qualifying cryptoassets, including stablecoins, will deliver on the Bank’s expected policy outcomes to mitigate financial stability risks.

The FCA’s proposed custody rules, inspired by the Client Asset Sourcebook, would complement the existing rules for custodians of traditional finance assets. It would include requirements for robust safeguarding and segregation of clients’ cryptoassets (including stablecoins), and address key risks such as loss of access to clients’ cryptoassets and inaccurate recording of their entitlements, or delays in the return of their assets.

As previously proposed, the Bank does not intend to regulate systemic stablecoin custodians directly. Instead, the Bank will seek assurances from firms within its supervision that the activities performed by custodial wallet providers do not compromise the integrity or resilience of the payment system. For example, custodian activities should not threaten the ability of the payment system operator to make a payment transaction.

Notwithstanding, the Bank may consider that a custodial wallet warrants recognition by HMT as a service provider. This may be appropriate, for example, if the custodial wallet provider provides custody services for most of the systemic stablecoins in circulation. In this circumstance, subject to HMT recognition, the Bank could regulate the recognised entity directly.

As outlined in our discussion paper, coinholders may also choose to access their stablecoins via unhosted wallets. These wallets typically offer users a higher degree of privacy and autonomy, as they operate without reliance on intermediaries. Consequently, the responsibility for safeguarding and managing private keys rests solely with the user.

In practice, unhosted wallets do not collect personal data, which may facilitate transactions that are less easily monitored. This characteristic can increase their attractiveness for illicit purposes, including money laundering and terrorist financing. Such risks are addressed under the international standards set by the Financial Action Task Force (FATF) – implemented in the UK through the Money Laundering Regulations (MLRs) – and ongoing international work is being undertaken jointly by FCA at FATF. Nevertheless, the pseudonymous nature of these wallets may present challenges for systemic stablecoin payment chains to deliver against FPC’s expectations, namely being regulated to standards equivalent to those applied to traditional payment systems and meeting equivalent standards to commercial bank money, when acting as money-like instruments. Specifically, it could impede the timely execution of payouts in the event of issuer failure and complicate the enforcement of holding limits.

The Bank will continue to monitor the risks associated with unhosted wallets, including their potential suitability for use at systemic scale within the UK payments landscape.

The Bank will also continue to assess the role of cryptoasset trading platforms. Most cryptoasset trading platforms provide wallet services as part of a broader set of services, including brokerage, market-making, staking, and other decentralised finance operations. The Bank is not proposing requirements for such activities at this stage. However, cryptoasset trading platforms may be regulated as a service provider or payment system operator (where relevant and subject to HMT recognition), if providing stablecoin custody or payments processing services in a systemic stablecoin payment chain. In general, recognised systemic stablecoin issuers will need to consider the risks those entities, such as cryptoasset trading platforms, may pose to the stablecoin payment chains.

2.4.5: Supervisory approach

We plan to supervise systemic stablecoin issuers using a framework that is consistent with the Bank’s existing approach to FMI supervision and supervisory approach to onboarding new FMI firms. We recognise that stablecoins present distinct risks and operational characteristics and as such, the supervisory approach may need to be adapted to reflect the specificities of stablecoin arrangements.

Reflecting the Bank’s statutory objectives, the intended aims of our supervisory approach for systemic stablecoin issuers are to safeguard financial stability by:

• Mitigating risks that could lead to a widespread loss of confidence in the value of, or access to, a systemic stablecoin.
• Reducing the likelihood of systemic stablecoin issuers’ failure and ensuring that, if failure occurs, it is managed in an orderly way without adverse consequences for the wider financial system.

We expect to supervise systemic stablecoin issuers in line with these objectives and our wider statutory objectives, by making forward-looking judgements across the key areas set out in this consultation paper. This would include evaluating vulnerabilities and resilience across governance, risk management, operational continuity, and financial resources.

While the principles of our existing FMI supervisory approach provide a strong foundation, we recognise that stablecoin arrangements require tailored supervisory tools and expectations. We therefore intend to publish a specific supervisory approach for systemic stablecoins in 2026, setting out in detail how the Bank will apply its regime in practice.

2.5: New areas to highlight

2.5.1: Interoperability in money and payments

The Bank’s vision for the future of the UK’s payments landscape is one of a ‘multi-money’ mixed ecosystem. It is where different forms of money (including stablecoins) coexist to maximise benefits for households and businesses. To ensure this system is both beneficial and stable, it must be underpinned by interoperability, meaning that both technical infrastructure and regulatory standards are harmonised or compatible. This would allow different forms of digital money to be exchanged freely and at par, supporting innovation, resilience, and trust across the ecosystem.

The UK’s retail payment landscape is undergoing a transformation. The National Payments Vision has set out the Government's ambitions for a trusted, world-leading payments ecosystem delivered on next generation technology, where consumers and businesses have a choice of payment methods to meet their needs.

The Payments Vision Delivery Committee (PVDC) will drive this vision. It has published its strategy setting out its desired outcomes for future retail payments infrastructure, taking account of the wider objectives that the new infrastructure will need to support once it is in place. One of the outcomes is that payments operate seamlessly as part of a diverse multi-money ecosystem, with interoperability between new and existing forms of digital money. This includes traditional commercial bank money, e-money, tokenised deposits, stablecoins as well as other new forms of digital money that may emerge over time.

The new infrastructure will be designed by the Retail Payments Infrastructure Board (RPIB), which is chaired by the Bank reflecting our role as operator of the Real-Time Gross Settlement service and experience of renewing critical infrastructure. RPIB will be tasked with translating PVDC’s desired outcomes into a design, including exploring options to facilitate such interoperability with new forms of digital money. RPIB has broad representation from, and will engage across, the payments ecosystem, including end users.

2.5.2: Approaches to innovation in wholesale markets

Over the past few years, the Bank has enhanced our capability to supply wholesale central bank money for settlement. The Omnibus Accounts, introduced in 2021, facilitate settlement backed in central bank money for tokenised asset transactions. We also delivered RT2 – a renewed RTGS service – in April 2025, which expands the opportunities to innovate in the wholesale payments space.

The Bank has a low risk appetite for a significant shift away from settlement in central bank money towards settlement in privately issued money. However, we are open to the potential role of regulated stablecoins in supporting innovation within wholesale financial markets. We could see their use as an alternative to other forms of private money that already facilitate a share of settlement activity today, without entailing a significant shift away from settlement in central bank money.

Within this, the Bank and FCA are exploring how regulated stablecoins could enable on-chain settlement by providing the payment leg for transactions within the DSS. As mentioned in Section 1: Introduction, the Bank and FCA plan to permit live transactions with financial instruments using certain regulated sterling and non-sterling stablecoins as a settlement asset in the DSS. If usage in the DSS proves successful, the Bank would expect to recommend to HMT that the issuer of stablecoins used for settlement in core wholesale financial markets is recognised as either a payment system or service provider (where relevant). If HMT agrees, it would be jointly regulated by the Bank (under this regime) and the FCA (under its authorisation regime for qualifying stablecoin issuers). Box F explains the DSS and its role in supporting innovation.

As the operator of RT2, we are exploring solutions that can make central bank money settlement compatible with new and emerging technologies. These initiatives look at different ways of providing central bank money settlement beyond the omnibus account policy:

• Synchronisation enables atomic settlement in central bank money. It allows controlled movement of funds between RT2 accounts, conditional upon movements of assets on external ledgers including DLT-based ledgers. We will run a Synchronisation Lab next year to help us progress towards delivery of a live synchronisation capability in RT2. The Lab builds on Meridian experiments^{footnote [34]} run in recent years with the BIS Innovation Hub and ongoing co-creation with industry. It will offer a non-live environment for prospective synchronisation operators to demonstrate how they would interact with the RT2 capability that the Bank is designing. We are inviting organisations interested in becoming a synchronisation operator to apply to participate in the Synchronisation Lab by 28 November 2025.
• Wholesale experimentation programme that explores different ways of settling payments using central bank money in innovative payment systems. These experiments look at how the Bank can best support new and efficient settlement methods using central bank money and assess whether existing features (such as omnibus accounts) or those in development (like synchronisation) meet the industry's evolving needs. The focus is on understanding where wholesale central bank digital currency could offer meaningful advantages over synchronisation.

2.5.3: Cross-border arrangements

As noted in Section 2.4.2: Location policy for sterling-denominated stablecoins, the Bank proposes that non-UK based issuers of sterling-denominated stablecoins recognised by HMT as systemic must set up a subsidiary in the UK, and that subsidiary shall hold backing assets and assets funded by capital in the UK. We consider that this is the best way to mitigate risks to UK financial stability from sterling-denominated systemic stablecoins.

Since the publication of our discussion paper, we have further considered our approach to non-sterling-denominated stablecoins that could become systemic in the UK. As with sterling-denominated systemic stablecoins, they may pose risks to financial stability, and we have been considering how best to mitigate these risks.

For non-sterling-denominated systemic stablecoins issued from non-UK entities, we consider the first step is to engage with the stablecoin issuer’s home authority. Following our engagement, one of the options that we could consider includes deferring to the home authority’s regulatory and supervisory framework. This would be possible if their framework delivers broadly similar outcomes to the Bank’s regime for systemic stablecoins, and we are satisfied that there are sufficient co-operation arrangements in place (between the Bank and the home authority) to rely on the home authority.

The proposed approach is in line with the Bank’s existing regulatory and supervisory practices for non-UK FMIs, including CCPs and systemic payment systems, as set out in the Bank’s approach to FMI supervision and the PRA’s approach to supervising the branches and subsidiaries of international banks.

When making our decision on whether to defer to the home authority, we expect to consider the authority’s regulatory and supervisory approach to stablecoins, including failure arrangements. This assessment would include, but not be limited to the following:

• Regulatory requirements: Whether the authority’s regulatory requirements deliver broadly similar outcomes to those set out in this consultation paper, such as safeguarding financial stability, preserving trust and confidence in money and payments, and supporting innovation.
• Risk mitigation measures: Whether the authority has appropriate safeguards to manage financial stability risks and ensure orderly redemption.
• Supervisory approach: Whether the stablecoin arrangement – including the issuer – is subject to supervision comparable to the Bank’s approach.
• Failure arrangements: Whether the authority has credible arrangements to manage issuer failure without creating additional financial stability risks in the UK. This includes ensuring that its failure regime does not unfairly prioritise domestic coinholders over foreign coinholders.
• Co-operation arrangements: Whether the co-operation and information sharing arrangements (between the Bank and home authority) are sufficient for the Bank to defer to the stablecoin’s home authority. The higher the UK activity or risks posed to the UK, the higher expectation the Bank has for the depth of co-operation and information sharing.

We recognise that deferring to the primary authority would avoid duplicative regulation and supervision. This means potentially reducing the compliance burden for issuers and enabling authorities to focus their resources where they are most needed. For stablecoins in particular, we recognise that deference could facilitate their cross-border use, enabling their benefits to be further explored and realised to support innovation and growth in the UK.

Nevertheless, the Bank considers deferring to another authority is only possible where it does not put UK financial stability at risk. As such, if we found that another authority’s regime did not deliver broadly similar outcomes to the Bank’s or if we concluded that co-operation arrangements were not sufficient, we would seek to apply alternative measures to safeguard UK financial stability.