The UK government is to give the Bank of England a new secondary objective to support innovation in payment systems and digital currencies, with ministers planning to introduce the change through legislation in September.

The Treasury said the new responsibility would apply to the central bank’s regulation of payment systems, including those using digital settlement assets such as stablecoins, while financial stability would remain its primary objective. The Bank will report to Parliament annually on its progress against the innovation objective.

City minister Lucy Rigby said the move would help the UK respond to technological developments in financial services. “Developments in digital payments technology, including tokenisation and DLT, have the potential to transform financial markets across the globe,” she said.

The government plans to amend the Financial Services and Markets Bill, which is due to be debated in the House of Lords on 7 and 9 September. The Treasury said the objective would not require the Bank to support innovation where doing so could undermine financial stability.

Sarah Breeden, Bank of England deputy governor for financial stability, welcomed the announcement, saying it would strengthen efforts to encourage innovation without compromising the central bank’s core mandate. “The Bank is doing a huge amount, together with government and other authorities, to maintain trust and drive innovation in UK payments,” she said.

The change will extend an approach already used by the Bank when regulating central counterparties and central securities depositories. That existing secondary innovation objective was introduced under the Financial Services and Markets Act 2023.

The announcement forms part of a wider government programme to modernise the UK payments sector and encourage the development of new financial technologies. The Treasury and other authorities published a Payments Forward Plan in February covering payments-related initiatives planned between 2026 and 2028, while the government’s National Payments Vision was published in November 2024.

Progress on payments reform has faced criticism from the industry. The Payments Association previously raised concerns about the relationship between the Financial Conduct Authority and Bank of England, while the Payments Systems Regulator is being consolidated into the FCA after the government announced plans to abolish the separate watchdog.

The industry body has welcomed the news, with Payments Association chief executive Emma Banymandhub noting that the development will ensure that “UK regulation will keep pace with technological change and support growth in the financial services sector,” and that the UK “needs to reassert itself as a global leader in the future of digital finance, building an internationally competitive digital currency ecosystem”.

David Geale, managing director of the Payments Systems Regulator, told a Treasury Committee hearing that the consolidation was not expected to be completed before the first quarter of 2027. He said staff were “largely doing the same thing” during the transition and that further consolidation should deliver some efficiencies.

The new objective comes as UK authorities develop a regulatory framework for tokenised finance and sterling-denominated stablecoins. The Bank of England published a policy statement and draft code of practice for systemic sterling stablecoins in June, followed by a joint approach with the FCA to regulating systemic stablecoin issuers.

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