Bank of England Unveils New Regime for Systemic Sterling Stablecoins

TLDR:

• Bank of England proposes new rules for systemic sterling stablecoins.
• Sterling stablecoins to be regulated for safer UK payments.
• £20,000 limit for individuals, £10M for businesses on stablecoins.
• New regime to manage risks and ensure liquidity in digital currencies.
• FCA, Bank of England to oversee stablecoin reserves and stability.

The Bank of England has announced a new regulatory regime aimed at stabilizing the use of sterling-denominated stablecoins. This regime applies to stablecoins deemed “systemic” by HM Treasury, intended for large-scale use in UK payments. The consultation, which opened on Monday, outlines how these stablecoins could function alongside existing payment systems in both retail and wholesale sectors. The proposal marks a significant step toward modernizing the UK’s payment systems while ensuring public trust in digital currency.

Framework to Manage Sterling Stablecoins

The new regulatory framework will oversee systemic stablecoins issued in sterling. The Bank of England will manage prudential and financial stability risks, while the Financial Conduct Authority (FCA) will monitor conduct and consumer protection. The regime is specifically designed for stablecoins used in UK payments, excluding non-sterling stablecoins like USDT and USDC, which the FCA will continue to supervise. The central bank aims to create a system that aligns with broader initiatives to update UK retail payment systems.

Under the proposed rules, systemic stablecoin issuers will be required to hold reserves in safe, low-risk assets. The Bank of England intends to allow up to 60% of the backing to be in short-term UK government debt, with the remainder stored in unremunerated accounts at the Bank of England. This will ensure sufficient liquidity for redemption and uphold public confidence in the currency. The consultation also suggests that stablecoin issuers initially transitioning from the FCA regime can hold up to 95% in government debt to ensure early-stage viability.

Temporary Holding Limits for Sterling Stablecoins

To mitigate risks associated with mass withdrawals of bank deposits into digital money, the Bank of England proposes temporary holding limits on sterling stablecoins. Individuals will be restricted to holding up to £20,000 in stablecoins, while businesses will face a limit of £10 million. These limits are designed to protect the financial system from rapid shifts into digital currencies. However, larger firms may be exempt from these limits if needed. Once the risks to credit provision decrease, the central bank plans to lift these limits, ensuring stablecoin liquidity during transition periods.

This proposal is part of the Bank of England’s strategy to manage the evolving landscape of digital currencies. By implementing these measures, the Bank aims to provide clarity for the industry while safeguarding against market volatility. The consultation, which will run until February 10, 2026, will be followed by a joint approach paper from the Bank of England and the FCA next year. This paper will offer further details on the rules and guide the transition to a stable and innovative digital currency system.

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