In a major policy shift, the Bank of England (BoE) has announced a softer, more flexible regulatory proposal for so-called “systemic” stablecoins — a move that marks a turning point in how the UK may integrate crypto-assets into its financial infrastructure. Under the new draft framework, stablecoin issuers will be permitted to back a portion of their tokens with short-term UK government debt, rather than being forced to hold all reserves as non-remunerated central bank deposits. This signals growing openness to stablecoins’ potential — while still balancing financial-stability concerns.
Under the BoE’s revised plan, stablecoin issuers designated as “systemic” would need to hold at least 40% of backing assets in unremunerated deposits at the BoE, but may now allocate up to 60% of the backing reserves into short-term UK government debt securities (gilts).
This adjustment represents a major softening compared with earlier proposals, in which the BoE envisioned 100% backing held directly at the central bank. That original mandate drew criticism from industry participants, who argued it would make business models for stablecoin issuance economically unviable — because unremunerated deposits produce no return.
The BoE’s consultation paper explains the revision as a response to industry feedback. Allowing a portion of backing in short-term government debt recognizes that stablecoin issuers need a workable balance between security and operational viability. To safeguard liquidity, the proposal also contemplates a central-bank backstop facility: a kind of lender-of-last-resort support for solvent, viable stablecoin issuers in times of stress.
For startups or issuers transitioning from non-systemic frameworks, there’s also a temporary “step-up” provision: backing could begin with up to 95% in government debt, easing early-stage burden, then gradually shift toward the 60/40 split as the stablecoin becomes systemically significant.
While the BoE has relaxed backing-asset rules, it has also retained strong guardrails on stablecoin holdings. The proposals include holding caps: individuals could be limited to about £20,000 per stablecoin, while businesses may be restricted to holdings of £10 million (with possible exemptions for certain firms).
Further, the proposed regime applies only to sterling-denominated stablecoins deemed systemic by HM Treasury. Non-sterling coins (e.g. USD-pegged tokens) — commonly used in global crypto trading — would remain under the supervision of the Financial Conduct Authority (FCA), not the BoE.
The BoE also proposes robust liquidity and reserve requirements: stablecoin issuers would need to maintain capital equal to at least six months of operating costs (or the cost to recover from their worst-case loss), and hold additional liquid assets in trust to cover wind-down or insolvency scenarios.
In addition, issuers must ensure that third-party custodians are regulated, backing assets match issued tokens, and that governance, risk controls, audit and reporting standards meet high thresholds before being classified as systemic.
The change of heart from the BoE comes after extensive consultation with the industry. In its 2023 discussion paper, the bank proposed 100% central-bank deposit backing — but that drew heavy criticism. Issuers argued it would make stablecoins economically unsustainable because they would earn no return, effectively making the operation cost-negative. Under that model, stablecoins would be difficult to justify on commercial grounds.
By allowing holdings in short-term government debt — which yields interest — the BoE recognizes the commercial realities of payment networks, liquidity needs, and issuer viability. At the same time, by limiting the proportion of debt holdings, requiring a portion in central-bank deposits, and providing a potential liquidity backstop, regulators aim to preserve the core benefits of stablecoins — redeemability, stability and quick convertibility.
The amended proposal seems aimed at striking a balance: enable stablecoin innovation in the UK while managing systemic risk. It sets the stage for a possible UK stablecoin regime to launch as soon as 2026.
For stablecoin issuers and crypto firms operating in the UK, the softened policy is a relief. It makes the economics of issuing sterling-stable coins more sustainable and could spur a new generation of token issuers hoping to operate under UK supervision.
For global stablecoin providers, the UK’s proposed framework offers a possible model for regulated stablecoin issuance — with a mix of stable backing, interest-bearing reserve options, central bank deposits, and liquidity safety nets. It could set a precedent for other jurisdictions seeking to regulate stablecoins without stifling industry viability.
For users and businesses, the proposals promise regulated, secure stablecoins — with assurances of redeemability, backing standards and oversight. This could increase trust in stablecoins, especially for payments, remittances or cross-border transactions denominated in sterling.
Yet, the holding caps of £20,000 for individuals and £10 million for businesses may limit usage for very large investors or institutions. While the BoE has allowed exemptions for large entities, the cap structure — not typical in U.S. or EU regimes — could curb some large-scale stablecoin adoption within the UK.
Moreover, the regime applies only to GBP-pegged stablecoins. Investors or firms using USD-linked coins (much of the world’s stablecoin volume) may find themselves outside this framework, under a different regime. That may cause fragmentation or create regulatory arbitrage between sterling and non-sterling stablecoins.
While the BoE’s revisions address many industry concerns, they raise other questions. Notably, the plan depends heavily on short-term government debt markets. If stablecoin issuance scales significantly, liquidity in the UK Treasury bill market may come under strain. The BoE itself flagged this risk, noting that secondary-market activity in short-term gilts is thin and might not support frequent large-volume sales or repos under stress.
Further, while a central-bank backstop has been proposed, the details remain vague. How quickly would liquidity be available? Under what conditions? And who bears losses if a stablecoin issuer fails despite the backstop? Final rules — including winding-down mechanisms for failed stablecoins — remain to be drafted.
Also, as the regime focuses on “systemic” stablecoins, many smaller or non-GBP projects will remain outside it — regulated separately or under the FCA. That creates potential complexity for sponsors, users and regulators alike.
Finally, global coordination remains uncertain. While the UK moves forward, stablecoins live on a global rails network — meaning cross-border consistency, reserve assets composition (USD vs GBP vs EUR), redemption frameworks and supervision could become patchy. For truly global stablecoins, navigating a mosaic of national regimes will remain a challenge.
The BoE has opened a public consultation on the proposals, running until February 2026. In the meantime, stakeholders — stablecoin issuers, banks, fintech firms, payment processors — will assess whether to apply for “systemic stablecoin” status, design reserve structures, and build compliance operations to meet the BoE’s proposed standards.
Observers should watch closely for:
- Final rules published in second half of 2026, including liquidity-backstop details, reserve-audit requirements, insolvency and wind-down procedures.
- Whether firms begin issuing sterling-backed stablecoins for UK and global users.
- How the proposed holding caps are handled — will the £20,000 / £10 million limits deter institutional adoption or be relaxed over time?
- How non-GBP stablecoins (USD, EUR, etc.) are treated — whether under this regime, FCA oversight, or other frameworks, and how regulatory arbitrage is avoided.
- Broader market impact — especially on payment rails, cross-border transfers, remittances, fintech adoption, and whether stablecoins become part of everyday finance in the UK.
The Bank of England’s revised stablecoin proposal reflects a remarkable shift: from skepticism and restrictive reserve requirements to a more pragmatic, market-aware regulatory posture. By allowing up to 60% backing in short-term gilts — while retaining substantial safeguards and central-bank deposits — the BoE seeks to strike a balance between innovation and stability, flexibility and safety.
For the crypto industry, it opens a real path toward regulated sterling stablecoins. For users and businesses, it offers the promise of stable digital money under trusted oversight. For global-watchers, it presents a potential model for how stablecoins can be embedded into national payment systems without abandoning prudential norms.
Yet the success of this initiative will hinge on execution: liquidity markets must hold, reserve audits must be rigorous, backstop facilities must be clear, and stablecoin issuers must build responsible operations. If they do, the UK may become a leading jurisdiction in which digital-money innovation and financial-system safety walk hand in hand. If not — the experiment could end up a cautionary tale for regulators worldwide.