Bank of England Launches Consultation on Regulatory Framework for Systemic Stablecoins

The Bank of England’s consultation targets sterling-backed “systemic” stablecoins, with oversight from both the bank and the FCA.

Proposed rules include backing guidelines with up to 60% reserves in short-term government debt and temporary holding limits.

Consultation is open until Feb. 10, 2026, to shape the UK’s stablecoin regulatory framework alongside potential digital pound plans.

The Bank of England has set in motion a consultation on a new regulatory framework designed for sterling-denominated, systemic stablecoins. This initiative aims to establish clear guidelines for these stablecoins, ensuring their integration into the UK’s payment systems while addressing risks to financial stability. The proposed regulations are a step toward modernizing the UK’s financial infrastructure, providing clarity and confidence for industry stakeholders.

Regulatory Oversight of Systemic Stablecoins

The proposed rules would apply specifically to systemic stablecoins, which are those that play a significant role in UK payments, both retail and wholesale. The Treasury in the UK will identify the stablecoins, while the joint supervision will be done by the Bank of England and the Financial Conduct Authority (FCA). The Bank will take care of the overall financial stability issues and supervision regulation, whereas the FCA will look after the consumers and enforce the regulations regarding the conduct.

In contrast, non-systemic stablecoins, which are primarily used in crypto trading (like USDT and USDC), will continue to be regulated under the FCA’s existing framework without facing the same stringent measures that apply to systemic stablecoins.

Asset Backing and Temporary Holding Limits

A prominent aspect of the Bank’s proposals is the backing rules for systemic stablecoins. The regulations would allow issuers to hold up to 60% of their reserves in short-term UK government debt. The remaining 40% must be stored in accounts at the Bank of England, which will not accrue interest. This approach aims to bolster public confidence in the stablecoin system and ensure that stablecoin issuers can fulfill redemption requests even during periods of financial stress.

For issuers that are either already recognized as systemic or transitioning from the FCA’s regulatory framework, the Bank is proposing a more lenient backing rule. During the early stages, these issuers could hold up to 95% of their reserves in short-term government debt. This higher allowance is designed to support their initial viability in the market.

Alongside these backing rules, the Bank has proposed temporary holding limits to prevent large outflows from the banking system into digital currencies. Under the proposed system, individuals will be limited to holding £20,000 ($26,350) worth of stablecoins, while businesses will be capped at £10 million ($13.2 million). However, these limits will not apply to firms operating in the Digital Securities Sandbox, a joint initiative from the Bank of England and the FCA. Exemptions may also be granted to the largest firms, allowing them to hold more stablecoin if necessary.

Digital Pound Considerations, Consultation Period and Next Steps

The proposal put forth by the Bank of England not only correlates with the current discourse regarding the possible establishment of a digital pound, but also the institution reiterates the point that the rules that would be imposed would not be in contradiction with any future currency development, hence allowing the coexistence of stablecoins and digital pounds in a rejuvenated payment age

The consultation will remain accessible until February 10, 2026, and the input received from the industry participants and stakeholders is anticipated to play an important role in formulating the final regulatory structure. The Bank of England and the FCA will then work together to prepare a joint approach paper that will be issued subsequent to the consultation process. This paper will further explicate how the regulations will be enforced in actual practice, thereby assisting in the transition and making it easier for the stablecoin ecosystem to grow in the UK

The proposition made by the Bank of England is a major step towards the regulation of stablecoins, which is focused on the dual aspect of financial innovation and stability. The Bank, through its new regulations, intends to make the digital money industry thrive while keeping the public’s trust in the financial system unbroken.