The Bank of England (the Bank) has set out its proposed regulatory framework for sterling-denominated systemic stablecoins.

The central bank said the move marks a "significant step" in laying the groundwork for a future where new forms of digital money could be used for everyday payments alongside existing methods.

The proposals include a step away from previous plans to require stablecoins to be backed by no-interest deposits at the central bank.

Instead, systemic stablecoin issuers will be permitted to hold up to 60 per cent of backing assets in short-term UK government debt.

For the remaining 40 per cent, the Bank will provide issuers unremunerated accounts at the central bank with the aim of ensuring robust redemption and public confidence, including when under stress.

Those issuers considered systemic at launch, or transitioning from the Financial Conduct Authority (FCA) regime, will initially be able to hold up to 95 per cent of backing assets in short-term UK government debt.

The Bank is also considering central bank liquidity arrangements to support systemic stablecoin issuers in times of stress.

"Our objective remains to support innovation and build trust in this emerging form of money," said Sarah Breeden, deputy governor for financial stability. "We’ve listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England."

The Bank is proposing temporary holding limits of £20,000 per coin for individuals and £10 million for businesses. This rule would include an exemption for the largest businesses to hold more if required.

"These limits would be removed once the transition no longer poses risks to the provision of finance to the real economy," it said.

The Bank added that the regime would not cover stablecoins used as assets for non-systemic purposes, such as the buying and selling of cryptoassets, which is the predominant use of stablecoins today.

These will instead be supervised by the FCA.

The chief executive of Innovate Finance Janine Hirt said that while the plans move the UK one step further to unlocking the growth potential of sterling-backed stablecoins, there are issues with how these proposals correlate to stablecoin business models and adoption in practice.

"With US and EU regimes pulling ahead at pace, the UK needs to move forward fast to modernise financial markets and consider greater alignment with more proportionate regimes in other jurisdictions to maintain the City of London’s position as a leading financial centre," she explained.

The organisation has welcomed where the Bank has engaged with industry to drive "small shifts" in its approach, including transitional measures, but criticised the fact that the proposals still mandate that longer-term stablecoin issuers should hold a significant portion of backing assets as cash deposits with the central bank without receiving interest.

"These measures risk constraining a stablecoin issuer’s ability to invest in the infrastructure, security builds and regulatory compliance necessary to support and sustain stablecoin schemes and to achieve stablecoin’s potential to operate as a low-cost accessible means of payment bringing positive outcomes for both business and consumers," added Hirt.

Innovate Finance also raised concerns about the temporary restriction on holding limits, saying that the Bank has failed to demonstrate a "feasible" model where identification and enforcement of these amounts can be put in place without substantial limitations on privacy or storage to the extent that innovation and adoption would be "severely constrained."

Mark Fairless, ClearBank’s group chief executive praised the news but highlighted concerns about the framework: “We welcome the Bank’s stablecoin payment policy framework, which will introduce clear rules and necessary protections. However, a regime which excludes bank issuers is not consistent with rules in other jurisdictions and creates an unlevel playing field that will curb the UK’s innovation in this area."

He added that banks are key to ensuring interoperability and trust and their omission "undermines the progress on stablecoins and threatens the UK’s ambition to lead in digital finance."

Chief executive and co-founder of blockchain-based crypto platform Neo Laurent Descout said that the potential easing of caps and holding limits on stablecoins signals recognition from the Bank that businesses need the flexibility to innovate whilst strong strong regulations are maintained to build trust in digital money.

"Allowing businesses to hold and transact these digital assets in larger quantities could help demonstrate their legitimacy and practical benefits, while ensuring the UK remains competitive with the EU and US, which already have more developed regulatory frameworks," he continued.

Under the proposals, non systemic stablecoin issuers will be regulated by the FCA.

If recognised as systemic by HM Treasury, they will transition into the Bank’s regime and will be jointly regulated, with the Bank overseeing prudential and financial stability risks, and the FCA continuing to supervise conduct and consumer protection.

The Bank and the FCA will publish a joint approach document in 2026 which will outline how rules will apply in practice.

Additionally, the Bank has published an approach to quantifying the risks to the provision of finance to the economy from potentially significant and rapid outflows of bank deposits into new forms of digital money.

---