UK Systemic Stablecoins Consultation Launched: Need to Know

The team provide a need-to-know overview (5 minute read)

Key takeaways:

• Highly anticipated UK Systemic Stablecoins Consultation launched. Closing 10 February 2026. Final rules due H2 2026
• Updates and clarifications to some 2023 proposals, others unchanged
• Headlines will focus on stablecoin backing asset requirements holding limits
• Other important areas include: payment stablecoins versus core financial market settlement, international stablecoin recognition, and private versus public blockchain commentary

Recap

The Bank of England (BoE) has launched its highly anticipated UK Systemic Stablecoins Consultation. It is part of the UK's wider digital assets regulatory framework development, setting out the UK Central Bank's updated policy thinking on sterling-denominated systemic stablecoins. It takes into account responses to the 2023 Discussion Paper.

Systemic stablecoins will be jointly regulated by the BoE and the Financial Conduct Authority (FCA). Other stablecoins will be solely FCA regulated.

This article highlights the Consultation's key details. For additional background on UK, see Ashurst's previous analysis here, here, here and here.

Systemic Stablecoins

A stablecoin is a private sector digital currency intended as a means of exchange (payment mechanism). It aims to maintain a stable value relative to a specified asset. For example a UK Sterling stablecoin would seek to maintain parity with UK Government-backed (fiat) Sterling.

Systemic stablecoins are "those that are widely used in payments and therefore may pose risks to UK financial stability"; ie those widely used for retail payments (eg shopping) and those widely used for corporate payments (eg paying suppliers).

The proposed framework applies to non-bank issued systemic stablecoins. Banks wanting to issue stablecoins (and certain other types of digital money) remain subject to the 2023 Dear CEO letter (essentially only to issue digital money to retail customers from a separate insolvency-remote entity with distinct branding).

The UK's HM Treasury (in consultation with UK regulators) will determine which payment systems and service providers (for example stablecoin issuers) are systemically important, and so covered by this framework.

The BoE has a strong preference that wholesale settlement remains in central bank money. However, it recognises that settlement already takes place with private money, and is therefore open to the potential of regulated stablecoins in wholesale financial markets.

The BoE and the FCA plan to permit live financial instrument transactions in the UK's Digital Securities Sandbox (DSS) using certain regulated stablecoins as the payment leg. If this usage is successful, it is proposed that settlement stablecoins in core financial markets would be regulated by the BoE (under this regime) and by the FCA. Underlying wholesale market regulations may need to be updated if stablecoin settlement is implemented (eg to cover DLT settlement finality).

Backing Assets

Systemic stablecoin backing assets has been one of the most eagerly anticipated consultation topics, and will take most of the press headlines.

The BoE has listened to feedback, and materially shifted its position. In large part the changes have been driven by stablecoins' economic model needing to generate backing assets return, the potential uneven playing field between financial institutions, and the UK's position in comparison to other jurisdictions.

Whilst 40% of backing assets must still be held in unremunerated central bank deposits (previously 100%), now up to 60% of backing assets can be held in short-term sterling-denominated UK government debt. Lending securities via repo to generate liquidity will be permitted, but not borrowing via repo. The BoE judges that the 40% figure will be necessary for short-term redemption requests. It expects systemic stablecoin entities to have direct access to interoperable payment systems.

Mindful of how changes to the interest rate environment could adversely affect a systemic stablecoin's economic model, the BoE encourages a focus on alternate means of stablecoin revenue generation.

Finally, the BoE has proposed a 'step-up' regime for stablecoins systemic at launch or transitioning from the FCA's non-systemic stablecoin regime. They could be allowed initially to hold up to 95% of backing assets in UK government debt, with the percentage reducing to the standard 60% over an appropriate time frame.

Holding Limits

The issue of holding limits was the other most eagerly anticipated topic, and the subject of a concerted lobbying campaign for their removal.

The limits have been retained, with the BoE largely maintaining its existing policy. As with other parts of the Consultation, the BoE reiterates its core mission to maintain monetary and financial stability, and trust in money. It is concerned that policy measures are needed to safeguard financial stability. For example, a disorderly adoption of systemic stablecoins could precipitate large deposit outflows from UK banks, and imperil the provision of credit to the UK economy. The BoE notes that the UK heavily relies on banks for credit provision, in contrast to other comparable jurisdictions where capital markets play a larger role.

The BoE has published a Financial Stability Paper to support its conclusions on retail limits, including a sensitivity analysis of different limit amounts and comparison with real life use-cases. For example the limit for retail payments is referenced against using a systemic stablecoin in a similar way to a current (checking) account.

The holding limits are ameliorated to some extent:

• the £20k individuals limit and £10m business limit apply per coin. For example, an individual could hold £20k of Stablecoin A plus £20k of Stablecoin B, and so on;
• the Financial Stability Paper recognises various scenarios, and possible solutions, if holding limits are exceeded;
• there could be exemptions from the £10m business limit if the entity's normal business requires larger balances (for example a supermarket or a cryptoasset trading platform);
• holding limits are expected to be temporary; being loosened, and finally removed, once financial stability risks have been understood and mitigated; and
• aside from holding limits, the BoE is open to suggestions for other risk mitigants.

Payments versus financial market settlement usage (see "Systemic Stablecoins" above) is an important distinction. The far higher DSS financial limits¹ will apply to financial instrument settlement in the sandbox, with any post-sandbox limits for future consideration.

Capital and reserves

The BoE has updated the 2023 proposals. Capital will be required against general business risk, and reserves to mitigate wind-down risks and backing asset shortfalls due to financial risk. Reserves will be revisited in light of any systemic stablecoin failure arrangement which is implemented (see "To be confirmed" below).

The operational risk buffer which gave potential double counting between capital and reserves has been removed, and systemic stablecoin entities will be entitled to retain any returns from reserves.

Private vs public blockchain

The use of different types of blockchain ledger – eg private permissioned, public permissioned or public permissionless – is a live issue across the DLT ecosystem².

The Consultation recognises the feedback that requiring systemic stablecoins to switch from public permissionless to private permissioned blockchains could undermine business and hinder innovation and competition.

Importantly, the BoE has confirmed its commitment to technology neutral regulation. It is open to public permissionless blockchains provided that the risks can be addressed and trust in money is preserved.

Interest

The BoE has retained its position that systemic stablecoins should not be a means of investment and therefore should not pay holders interest.

However, the door has been left open for the future possibility of being able to offer UK systemic stablecoin users rewards. It is possible that the BoE has an eye towards the United States' GENIUS Act regime, where the ability (or not) to issue rewards or yield for US stablecoins is being hotly debated.

Redemption

The 2023 proposals are largely unchanged, with some clarifications. Redemption must be a direct claim, on demand, for any size, at face value. Redemption should be free "where possible", although fees are not prohibited if they are proportionate to the redemption cost. Speedy redemption is required, "in real time whenever possible".

Systemic stablecoins will therefore need well marshalled redemption logistics, and a competitive environment could drive better user outcomes. Alternatively, these – and the other – BoE proposals as a package could prove economically unattractive to prospective sterling stablecoins. It is worth comparing and contrasting the current top two USD global stablecoins. As currently formulated, they would be unlikely to meet the proposed UK redemption tests.

Cross-border

Digital assets are 'everywhere and nowhere', which is both a regulatory challenge and an opportunity.

UK systemic, but non-UK based, sterling-denominated stablecoin entities must establish a UK subsidiary with backing assets and capital held in the UK.

For non-UK issued non-sterling denominated systemic stablecoins, the BoE is considering a framework recognising home authority authorisation and regulation. For example:

• the overseas regulation delivers broadly similar outcomes (eg safeguarding, financial stability, and preserving trust in money);
• a BoE/ home authority cooperation arrangement, together with comparable supervision to the UK;
• credible overseas stablecoin failure arrangements (including that domestic coinholders are not unfairly prioritised over foreign coinholders); and
• provided that deferring to the home authority does not risk UK financial instability.

The BoE notes that such deference could facilitate cross-border stablecoin use. For example, UK recognition of USD-denominated US authorised stablecoins (assuming that all the relevant UK tests are met), possibly under the auspices of the UK-US Transatlantic Taskforce for Markets of the Future.

To be confirmed

Some systemic stablecoin detail is still awaited, so we do not have a complete picture. For example, given the now more relaxed backing assets regime, a BoE backstop lending facility for qualifying solvent systemic stablecoins is being considered. So too are comprehensive arrangements to manage the failure or insolvency of a systemic stablecoin.

Next steps

The BoE's previously frosty stablecoin stance continues to thaw. It recognises the opportunities and benefits of stablecoins in a multi-money system, with interoperability between systemic stablecoins, traditional and tokenised bank deposits and central bank money. It seeks to ensure responsible innovation, financial and monetary stability, with the central bank's continued role at the heart of the financial system. The BoE is also alive to the strong competition between jurisdictions, where each seeks to be the DLT destination of choice.

It is no mean balancing feat. Views on the correct equilibrium will obviously differ, and some will still find the proposals too restrictive. The BoE will not be able to please all of the people all of the time.

Systemic stablecoin regulation is a crucial part of the UK's digital asset regulatory framework. The Consultation demonstrates that the BoE is responsive to feedback and also open to alternative solutions. For interested parties with critiques or suggestions, it is definitely worthwhile responding.

The closing date is Tuesday 10 February 2026, with final BoE rules expected in H2 2026.