The stablecoin consultation launched by the Bank of England (BoE) marks a significant step toward regulating digital currencies that could potentially pose risks to the UK’s financial stability. Released on Monday, this comprehensive proposal outlines how sterling-denominated ‘systemic stablecoins’ would be regulated under a new framework designed to maintain public trust in money as innovation in payments accelerates.
Under the proposed regime, the Bank of England stablecoin consultation suggests that issuers would need to back at least 40% of their liabilities with unremunerated deposits at the BoE, whilst allowing up to 60% in short-term UK government debt. Furthermore, the central bank has suggested capping individual stablecoin holdings at £20,000 per token, with possible exemptions from the proposed £10,000 limit for retail businesses. It is worth noting that these regulations would not cover stablecoins used as assets for non-systemic purposes, such as buying and selling cryptoassets, which currently represents their predominant use.
The consultation period runs until 10 February 2026, with the Bank of England planning to finalise these regulations in the second half of that year. Additionally, the central bank is considering liquidity arrangements to support systemic stablecoin issuers during periods of financial stress, highlighting the comprehensive nature of this regulatory approach.
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Why the BoE is Regulating Stablecoins Now
The rapid evolution of the stablecoin market necessitates regulatory attention, with global stablecoin value reaching approximately AUD 282.86 billion in April 2022. Although this figure subsequently decreased to around AUD 229.35 billion following market volatility, the growth trend remains significant.
Because of their small market size and restricted use outside of the cryptocurrency ecosystem, stablecoins now provide little threat to financial stability. However, the Bank of England recognises that continued growth and emerging use cases could introduce systemic risks, particularly by strengthening links between the crypto ecosystem and traditional finance.
The UK government views stablecoins as having substantial potential for both wholesale and retail payments. This aligns with the National Payments Vision, which acknowledges that distributed ledger technologies could “fundamentally alter the ecosystem”. Indeed, on-chain stablecoin transactions exceeded AUD 11.47 trillion on the Ethereum blockchain alone in 2022.
Moreover, the regulatory focus reflects the UK’s ambition to remain competitive globally. With the US GENIUS Act enacted in July 2025, providing a clear framework for US dollar stablecoins, the UK faces mounting pressure to establish comparable regulations.
The BoE’s stablecoin consultation consequently represents a pivotal step towards implementing a regime that can position “the UK at the forefront of exciting innovation”, whilst simultaneously addressing potential risks before stablecoins become widely adopted for everyday transactions.
What the BoE Stablecoin Consultation Proposes
The Bank of England’s stablecoin consultation outlines several precise regulatory mechanisms for systemic sterling-denominated stablecoins.
At the heart of the proposal lies the backing assets framework, which permits issuers to hold up to 60% of backing assets in short-term UK government debt, whilst the remaining 40% must be maintained in unremunerated accounts at the central bank. Notably, issuers deemed systemic at launch or those transitioning from the FCA regime will initially enjoy greater flexibility, being allowed to hold up to 95% of backing assets in short-term UK government debt.
To manage transition risks, the consultation introduces temporary holding limits of £20,000 per coin for individuals and £10 million for businesses. These caps would be lifted once the transition no longer poses a threat to the provision of finance to the real economy. Specifically, these restrictions would not apply to stablecoins used for settling wholesale financial market transactions in the Bank and FCA’s Digital Securities Sandbox.
A significant new element in the proposals is the potential establishment of central bank liquidity arrangements that would function as a backstop should systemic issuers struggle to monetise their backing assets in private markets.
The consultation closes on 10 February 2026, after which the Bank and the Financial Conduct Authority will publish a joint approach document to clarify the practical application of the rules.
How The New Regime Will Affect Crypto and Finance
The upcoming regulatory framework will create a dual-tiered system that reshapes the UK’s financial landscape. Non-systemic stablecoin issuers will operate under FCA oversight, whilst those reaching systemic importance will transition to joint regulation—with the Bank of England managing prudential and financial stability risks, and the FCA continuing to supervise conduct and consumer protection.
The proposed holding limits have already sparked controversy within the crypto sector. Critics argue that capping individual holdings at £20,000 and business holdings at £10 million will stifle growth and diminish the UK’s competitiveness in an increasingly dollar-dominated digital economy. Nevertheless, these limits would be temporary, lifted once transition risks subside.
For traditional banks, stablecoins represent both opportunity and threat. They could potentially divert funds from bank deposits and compete with established payment businesses. The prohibition on stablecoins paying yield (interest) aims to reduce competition with interest-bearing bank deposits.
Small and medium enterprises face a mixed outlook—potentially higher compliance costs and administrative duties balanced against increased confidence in using stablecoins for transactions. Firms must verify their stablecoin partners’ regulatory compliance, which can be particularly challenging for businesses navigating overlapping regulations across different jurisdictions.
The Bank and the FCA will publish a joint approach document in 2026 to clarify the practical application of rules and facilitate smooth transitions between regulatory regimes, providing the industry with essential clarity for future planning.
Conclusion – Stablecoin Consultation
The Bank of England’s consultation on stablecoins marks a watershed moment for digital currency regulation in the UK. This comprehensive framework effectively balances innovation with prudential oversight, establishing clear guidelines for backing assets, holding limits and liquidity arrangements. Undoubtedly, the dual-tiered regulatory approach between the FCA and BoE provides necessary oversight while recognising different risk profiles among stablecoin issuers.
Temporary holding caps might initially concern some industry participants. However, these measures demonstrate the central bank’s thoughtful approach to managing transition risks. The requirement for systemic issuers to back 40% of their liabilities with central bank deposits likewise represents a pragmatic compromise between financial stability and operational flexibility.
Financial institutions must now prepare for this new regulatory landscape. Traditional banks face potential competition from stablecoins despite the prohibition on yield-bearing tokens. Meanwhile, crypto firms will need to adapt their business models to comply with these forthcoming rules.
The consultation period will run until February 2026, providing stakeholders with ample time to provide feedback. Subsequently, the finalised regulations should position the UK competitively in the global digital assets space while safeguarding its financial system. This balanced approach acknowledges both the growing significance of stablecoins and their potential risks to the broader economy.
These ideas are a big step towards positioning the UK as a leader in responsible financial innovation, even though there are still implementation issues, especially with regard to cross-border transactions and overlapping jurisdictions. The outcome of this consultation will likely shape the adoption of digital currency throughout the British financial ecosystem for years to come.
What are the main proposals in the Bank of England’s stablecoin consultation?
The consultation proposes backing requirements for systemic stablecoins, temporary holding limits, potential liquidity support during market stress, and a transition from FCA to BoE oversight for systemic issuers.
Why is the Bank of England regulating stablecoins now?
The BoE is acting now due to the growing use of stablecoins in retail payments, potential risks to financial stability, and the need to align with the UK’s National Payments Vision while remaining competitive globally.
How will the new regulations affect businesses and consumers?
Businesses and consumers may face temporary holding limits on stablecoins, but will benefit from increased confidence in using them for transactions. Compliance requirements may increase for some firms.
What are the backing requirements for systemic stablecoins under the proposed rules?
Systemic stablecoin issuers would need to back at least 40% of their liabilities with unremunerated deposits at the BoE, while allowing up to 60% in short-term UK government debt.
When are the final stablecoin regulations expected to be implemented?
The consultation period runs until 10 February 2026, with the Bank of England planning to finalise these regulations in the second half of that year.
