UK Financial Stability Boost: Bank of England Unveils Strict Framework for Sterling Systemic Stable coins

The Bank of England has released a detailed proposal outlining a strict regulatory framework for sterling-denominated systemic stable coins, marking one of the most significant steps toward integrating digital currencies into the UK’s mainstream financial system. The proposal aims to ensure that if stable coins become widely adopted for everyday payments, they do so under robust safeguards that protect financial stability and maintain trust in the monetary system.

Why the New Framework Matters

Stable coins have quickly become central to digital payments, and regulators worldwide are increasingly concerned about their potential to disrupt traditional banking and payment infrastructure.  failure or loss of confidence in a widely used stable coin could trigger instability across the financial system. The Bank of England’s proposed framework is designed to prevent such risks while allowing innovation in digital finance to continue responsibly.

Core Elements of the Proposal

Designation of Systemic Stable coins

The regime applies specifically to sterling-denominated stable coins issued by non-banks and used broadly by households and businesses. Whether a stable coin is considered  systemic will depend on several factors, including transaction volume, interconnectedness with financial services, and its potential impact on monetary stability.

Backing Asset Requirements

A key component of the proposal is a strict backing requirement. Issuers must hold 100% backing in highly liquid assets at all times. At least 40% of these backing assets must be held as unremunerated deposits at the central bank, while up to 60% may consist of short-term UK government debt. Some issuers, depending on their systemic status from launch, may begin with as much as 95% in government debt before transitioning to the standard composition.

Holding Limits and Redemption Standards

To prevent mass outflows from traditional banks, the central bank proposes a temporary holding cap of around £20,000 for individuals and roughly £10 million for businesses. These caps may be adjusted in the future as the stable coin ecosystem matures.

Holders must also be able to redeem stable coins at par value on demand ideally in real time, but no later than the close of the business day. All redemption fees must be fair and clearly disclosed.

Additional Safeguards

• Systemic stable coins should not pay interest, aligning them with their intended function as payment instruments rather than investment products.

• Assets not held at the central bank must be safeguarded by qualified UK authorised custodians.

• Issuers based outside the UK must establish a local subsidiary to hold backing assets and comply with UK law.

Industry Reaction and Next Steps

Industry participants have expressed mixed reactions. Many welcome the clarity and predictability of the proposed rules, while others warn that the strict standards could discourage stable coin innovation in the UK compared to other markets.

The consultation period remains open until early 2026, after which the Bank of England is expected to refine the framework and publish detailed codes of practice.

FAQs

Q1: What is a systemic stable coin?

A systemic stable coin is a digital token that is widely used for payments and carries the potential to impact financial stability if it fails or loses value. It is designated based on its scale and significance in the payments ecosystem.

Q2: Who will oversee systemic stable coins in the UK?

Systemic stable coins will fall under the regulatory oversight of the Bank of England, with the financial conduct authority responsible for consumer and market protection aspects.

Q3: What assets must back a systemic stable coin?

Issuers must maintain 100% backing in highly liquid sterling-denominated assets, with specific proportions held at the central bank and in short-term government debt.

Q4: Why are holding limits being introduced?

Holding limits are designed to prevent rapid, large-scale transfers from traditional banks into stable coins, which could destabilize the banking sector.

Q5: When will the new rules take effect?

The final regulatory framework is expected to be completed after the consultation period concludes in 2026, followed by additional guidance and practice codes.