Stable But Constrained: Bank Of England Policy Statement And Draft Code Of Practice For Systemic Stablecoin Issuers

Quick read

• The Bank of England (Bank) has published its long‑awaited policy statement on sterling-denominated stablecoins and a draft Code of Practice for sterling‑denominated systemic stablecoin issuers (Code), setting out how the UK regime will operate in practice. While the rules are not yet final, the direction of travel is now clear: a regime that supports innovation and scale, but on conservative, stability‑first foundations.
• The Bank has responded to industry feedback with targeted adjustments, most notably easing the backing asset composition and replacing proposed holding limits with a temporary £40 billion issuance cap, while maintaining its core approach in other areas.
• Across the regime, the emphasis is on resilience and usability: fully backed coins, robust capital and reserve requirements, strict safeguarding via statutory trusts, enforceable redemption rights (now required within 24 hours), and a central bank liquidity facility.
• Taken together, the package gives firms greater clarity on how systemic stablecoins will be expected to operate, and signals the Bank’s intent to create a credible, but tightly controlled, environment for stablecoin issuance in the UK.

Context 

• The FCA will regulate:
  • issuance, custody and admission to trading of UK-issued qualifying stablecoins (including non-systemic stablecoins); and
  • in due course, their use in payments.
• Systemic stablecoins - i.e. those widely used in payments and capable of posing financial stability risks:
  • will be jointly regulated by the Bank of England and the FCA,
  • once formally recognised by HM Treasury.
• The Bank’s approach focuses on sterling‑denominated systemic stablecoins, reflecting sterling’s central role in UK payments and its importance as a global currency. 
• The policy objective is a balanced framework:
  • enabling innovation and market entry,
  • while embedding robust safeguards to build resilience and trust as stablecoins scale.
• The policy statement sets out how the Bank has responded to consultation feedback and refined its proposals. It is consulting on the draft Code.
• The Bank's policy also reflects its response to certain recommendations made by the House of Lords Financial Services Regulation Committee (FSRC) in its recent report:
  • adhering to timelines;
  • providing greater clarity for industry; and 
  • delivering a proportionate, forward‑looking regime that supports UK innovation. 

Key policy revisions

The Bank has made targeted revisions (summarised below) to its proposed policy on backing asset composition and holding limits, in respect of which it received substantive consultation feedback.

Backing assets (see Annex B to the Code)

• The Bank has softened its original proposal following industry pushback:
  • Initial split: 60% short‑term UK government debt / 40% central bank deposits.
  • Final position: 70% short‑term UK government debt (≤6 months maturity) / 30% unremunerated central bank deposits.
• Calls to expand the pool of eligible assets (e.g. commercial bank deposits, money market funds) were rejected due to financial stability and contagion risks.
• The Bank has maintained its approach to repos, while adding limited flexibility:
  • Repo activity remains permitted.
  • New: overnight reverse repos allowed, provided they are:
    • secured against short‑dated UK government debt (≤6 months maturity),
    • subject to safeguards ensuring continuous 1:1 backing.
• The core principle remains unchanged: stablecoins must be fully backed at all times.
  • Issuers must use best endeavours to meet the 30% central bank deposit requirement.
  • The Bank acknowledges temporary deviations may occur, but:
    • these are tolerated only in limited circumstances,
    • and may trigger notification requirements.

Holding limits: ‘temporary issuance guardrail’ (see Annex G to the Code)

• The Bank has dropped its original proposal for per‑holder limits:
  • £20,000 for individuals;
  • £10 million for businesses.
• This reflects strong industry feedback and concerns about operational complexity disruption to key use cases.
• Instead, the Bank will introduce a product-level cap: a temporary issuance guardrail of £40 billion per systemic stablecoin. The new approach is designed to be simpler and more flexible with no limits on transaction size, frequency or type, and freer use by individuals and businesses.
• The guardrail is explicitly transitional - it will be reviewed regularly and gradually phased out.

Key policy positions maintained and clarified

In relation to the remaining policy areas, the Bank has maintained and sought to clarify its position, as summarised below:

Capital and reserve requirements (see Annex D to the Code)

• The CPMI-IOSCO Principles for Financial Market Infrastructure (PFMI) will remain the baseline for capital requirements for general business risks (GBR) of systemic stablecoin issuers, but the Bank has updated its approach, including to align with supplementary CPMI-IOSCO guidance (published in a consultative report in November 2025). 
• The minimum capital requirement is now clearly defined as the higher of:
  • six months’ relevant operating expenses, or
  • the cost of executing recovery and orderly wind‑down plans (excluding the wind‑down reserve).
• The Bank has maintained its policy position on issuers holding reserves of liquid assets to mitigate financial risks in backing assets and to protect coinholders in insolvency or wind down. 
• The reserves must be held on statutory trust (see below). At a future date, the Bank plans to explore jointly with the PRA the approach to capital requirements for issuers that are part of a banking group.

Safeguarding and trust arrangements (see Annex C to the Code)

Backing assets must be segregated and held in a statutory trust. Issuers must maintain two statutory trusts: one to protect coinholders' interests and the other to cover the costs of returning value to them. (The Bank will be given enabling powers, through legislation that HM Treasury has agreed in principle to introduce, to impose statutory trusts over backing assets and reserves.)

There will also be robust safeguarding requirements for backing assets and reserves: 

• Money other than central bank deposits must held with a commercial bank authorised by the PRA.
• Third party custodians must be UK-authorised with permission to carry on custodian activities. While they must be separate legal entities, issuers can appoint third party custodians within their group.
• Where possible, the Bank has sought to align its safeguarding requirements with those of the FCA for issuers of qualifying stablecoin.

Redemption (see Annex E to the Code)

• Issuance of systemic stablecoins must be done in exchange for money. Coinholders should be able to redeem stablecoins for their value at any time, in sterling, or, at their request, in a different currency. 
• Redemptions should be free of charge where possible, and holders should not be subject to minimum redemptions or any other restrictive conditions. Any fees must be fair, transparent and proportionate; fees from face value paid on redemption may only be deducted with the coinholder's express consent. 
• The Bank’s expectation remains that issuers should be able to complete redemption requests in real time or, at the latest, by the end of the business day. However, it acknowledges respondents’ feedback (and the FSRC’s concerns) on payment system interaction and operational challenge, including in relation to AML/KYC checks. It has therefore changed its position to require issuers to process redemption requests as soon as practicable and in any event within 24 hours of receipt of a full redemption request (i.e. once the issuer has completed AML/KYC checks and received the stablecoins in their wallet from the person/business making the redemption request). 
• The Bank will not seek to prevent or restrict any business model for redemptions, but issuers must demonstrate they can manage associated risks and the Bank will not permit the suspension of redemptions for any reason. 

Remuneration (see Annex F to the Code)

• The Bank has maintained its policy not to permit systemic stablecoin issuers to pay interest or income to coinholders in connection with the holding or retention of a stablecoin. This includes returns in cash, tokens or fee rebates, and any other form of consideration calculated by reference to the period the stablecoin is held. 
• The Bank’s prohibition is not aimed at benefits, incentives, rebates, discounts and other activity-based rewards consistent with stablecoin use as a means of payment. 

Payment system access 

• The Bank’s expectation that systemic issuers access payment systems directly, rather than through sponsoring participants, has been maintained. This supports, among other things, on-demand and frictionless redemptions, and interoperability across different forms of money.
• However, in recognition that it may take time for an issuer to obtain direct access, the Bank intends to monitor progress and operational feasibility. It will set out transitional arrangements with the FCA and work with individual firms to manage any transition from indirect to direct access.

‘Step-up’ approach for ‘systemic at launch’ issuers

• The Bank will go ahead with its proposed step-up approach for stablecoin issuers recognised as systemic at launch (i.e. systemically important from the outset of their operations).
  • These firms will be allowed to hold up to 95% of their backing assets in sterling-denominated UK government debt securities as they scale; the remaining proportion of backing assets will be held in unremunerated central bank deposits. 
  • The percentage held in sterling-denominated UK government debt securities will be gradually reduced to 70% (in line with the revised backing assets policy) once this is determined - on a case-by-case basis - to be appropriate to mitigate against financial stability risks while supporting the firm’s continued viability. 
• Capital and reserve requirements will be applied to systemic at launch issuers in a proportionate way, taking into account the firm’s individual circumstances. 
• The Bank and the FCA are working together to manage the transition for non-systemic issuers that scale and become systemic, including arrangements for meeting the requirements on backing assets, capital and safeguarding, without impeding viability. This may necessitate a transition period. 

Failure arrangements

• The failure of a systemic stablecoin issuer could arise - in extreme adverse scenarios - from risks such as fraud, operational or technology failures and mismanagement.
  • Where this occurs, the Bank could apply to the court to have the issuer placed into the special administration regime for financial market infrastructure (FMI SAR). 
  • Once legislation is in force providing the Bank with powers to impose statutory trusts for backing assets and relevant reserves, and to require issuers to maintain robust safeguarding practices, the Bank expects to consult on the detail of these requirements in respect of the failure of a systemic stablecoin issuer. This will include consideration of whether additional requirements are needed to support operational and contractual continuity of services provided by a systemic stablecoin issuer which is in the FMI SAR.
  • The objective is to ensure that coinholders’ claims are protected from losses experienced by the systemic stablecoin issuer since their claims will not be covered by the Financial Services Compensation Scheme (FSCS).

Unchanged policy

The Bank has confirmed there have been no changes to its policy in the following areas: 

• Non-sterling denominated stablecoins - potential systemic use in the UK: the Bank’s view remains that the best approach for these stablecoins is to defer to the home authority's regulatory and supervisory framework, subject to a full assessment. Overall, the Bank’s preference is for single-issuance models; in its view, multi-issuance models are not currently suitable for systemic use in the UK. 
• Location requirements: the Bank will require subsidiarisation, meaning non-UK based sterling-denominated stablecoin issuers must set up in the UK as subsidiaries to carry out business and issuance activities in the UK and with UK-based consumers (both directly and through intermediaries).
• Ledgers: public permissionless ledgers (PPLs) may be used by systemic stablecoin issuers provided they meet the Bank's expectations and ensure trust and confidence in money. However, the Bank considers it may be challenging for PPLs to meet its expectations around accountability, settlement finality and operational resilience (including cyber security).

New policy areas

The Bank highlights the following two areas on which it is finalising its policy as the systemic stablecoin regime is implemented:

Central Bank Liquidity Facility

To reinforce confidence in sterling-denominated stablecoins, the Bank intends to establish a lending facility that will act as a backstop for systemic stablecoin issuers that are “fundamentally solvent and viable”. The Central Bank Liquidity Facility will provide short-term, collateralised loans of central bank deposits against sterling-denominated UK government debt collateral.

In 2027, the Bank will set out details of the design and operating parameters of the Central Bank Liquidity Facility, with access for eligible firms following shortly afterwards. Related updates will then be made to the Code to accommodate the use of the facility by systemic issuers. 

Disclosures

For systemic stablecoin issuers, the Bank intends to rely on the FCA’s proposed disclosure requirements for qualifying stablecoins and UK-issued qualifying stablecoins (on which it has consulted). However, should the Bank determine that additional disclosures are necessary to address identified gaps, it will apply its own supplementary disclosure requirements. The Bank expects to provide further detail on its approach in future publications.

Next steps

The consultation on the Code closes on 22 September 2026. Subject to feedback, the Bank intends to finalise the Code by the end of this year, after which it will apply to recognised systemic stablecoin issuers.

The Bank and FCA intend to publish their Joint Regulatory Approach shortly. This publication will set out the framework for the operation of the UK stablecoin regulatory regime in practice. It will cover how the authorities will work together and coordinate their respective functions; the recognition process; and the approach to supporting firms transitioning from being solo-regulated to being jointly regulated. The Bank and the FCA will also provide an overview on how their rules will interact; if necessary, following up with a subsequent joint publication in due course, once both sets of rules have been finalised.

Looking further ahead, in 2027, the Bank intends to consult on and publish further supporting materials for systemic stablecoin issuers, comprising:

• Draft guidance on the Code.
• Updates to the Bank’s existing Recognised Payment Systems Code of Practice to reflect its application to systemic stablecoin issuers.
• Any further updates deemed necessary to policy and the Code to reflect supplementary requirements the Bank may set in future for disclosures, reporting and record-keeping.
• A consultation on proposed policy and a draft Code of Practice on backing asset trust arrangements and distribution rules, and any provisions necessary, including to support the financial and operational continuity of a systemic stablecoin issuer when in the FMI SAR, followed by a policy statement and final Code of Practice.
• A statement of policy on the Bank’s supervisory powers in respect to systemic stablecoin issuers.
• The application of the PMFI to systemic stablecoin issuers.

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