Bank of England Proposes Temporary Limits and Backing Requirements for Sterling Stablecoins

TLDR

• Bank of England launches consultation on rules for systemic sterling stablecoins in UK payments.
• New rules will apply to stablecoins that impact financial stability, overseen by the Bank of England.
• Stablecoin issuers must back reserves with UK government debt and Bank of England accounts.
• Temporary holding caps for individuals (£20,000) and businesses (£10M) to manage risks.
• Consultation open until February 2026, with joint paper from Bank of England and FCA expected next year.

The Bank of England has launched a consultation on proposed rules for sterling-denominated stablecoins considered “systemic” in UK payments. These rules are part of a wider effort to integrate stablecoins into the national financial system while safeguarding monetary stability. The proposals aim to govern stablecoins used at scale in domestic transactions, setting conditions for backing, liquidity, and usage thresholds.

New Oversight Model Targets Large-Scale Payment Use

The proposed regulatory framework applies specifically to stablecoins labeled as systemic by HM Treasury. These coins must operate at a scale large enough to impact financial stability or the broader economy.

Under the structure, the Bank of England would handle prudential oversight and stability risks, while the Financial Conduct Authority (FCA) would manage consumer protection and conduct-related matters. Stablecoins used mainly for crypto asset trading, such as USDT and USDC, will remain under FCA supervision and are not subject to these new restrictions. The proposed regime excludes non-sterling stablecoins as well.

Backed Reserves Must Include Government Debt and Bank Accounts

Under the new plan, stablecoin issuers will be required to maintain specific reserve structures. Up to 60% of their assets can be held in short-term UK government debt. The remaining 40% must be held in non-interest-bearing accounts at the Bank of England to support redemptions and maintain user trust.

Issuers launching as systemic or moving from the FCA regime can temporarily hold up to 95% in government debt to support initial operations. Central bank liquidity options are under review to offer support during market volatility.

Holding Limits Aim to Control Early Transition Risks

To control potential disruptions to the banking sector, the Bank has proposed temporary holding caps. Individuals would be limited to £20,000 per stablecoin, while businesses could hold up to £10 million. Large corporations may qualify for exemptions based on their operational needs.

These limits will be lifted once systemic risk concerns ease. Coins used for wholesale settlement within the Digital Securities Sandbox will not face these holding caps. The consultation remains open until February 10, 2026. A joint paper from the Bank and FCA is expected next year to explain implementation details.

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