Paul Johnson The Bank of England launches a stablecoin consultation outlining plans for a regulatory framework that could redefine the UK’s digital payment system by 2026.
Bank of England moves closer to stablecoin regulation
The Bank of England has unveiled a major step toward regulating stablecoins, opening public consultation on a comprehensive framework aimed at integrating digital payment tokens into the United Kingdom’s financial ecosystem. The move reflects the growing recognition that stablecoins could soon play a vital role in the future of money and payments in the UK.
The consultation marks a defining moment for the nation’s central bank as it seeks to strike a balance between innovation and stability. Under the proposal, issuers of sterling-backed stablecoins would need to maintain a significant portion of their reserves with the Bank of England itself, ensuring transparency and trust in this emerging digital asset category.
Inside the Bank of England’s stablecoin proposal
According to the newly released paper, the Bank of England’s regulatory regime will focus on what it defines as “systemic stablecoins” tokens that could potentially influence the broader financial system due to their scale and usage in payments. The proposed rules set strict requirements for reserve management, oversight, and operational conduct.
To maintain financial stability, issuers will be required to back at least 40 percent of their liabilities with cash held at the central bank, with the remainder allowed in short-term government securities. This mix aims to ensure liquidity while preventing excessive exposure to market risk.
Moreover, the consultation outlines holding limits for both individuals and institutions. Retail users may be limited to holdings of 20,000 pounds per coin, while businesses can hold up to 10 million pounds, subject to exemptions based on operational needs. This measure aims to mitigate concentration risks and prevent excessive exposure to any single issuer.
Defining systemic risk and the path to oversight
The Bank of England’s stablecoin framework identifies systemic GBP-backed tokens as those with the potential to be widely used for payments across retail and corporate sectors. Once deemed systemic, these issuers will fall directly under the central bank’s supervision.
The classification process will be overseen by His Majesty’s Treasury, which will determine which payment systems qualify as systemic. By working jointly with the Treasury, the central bank seeks to ensure that regulation is both robust and proportionate to the potential risks posed by these payment networks.
Interestingly, the framework does not directly apply to non-sterling stablecoins like Tether’s USDT or Circle’s USDC. Instead, the Bank of England plans to coordinate with international authorities to monitor their influence within the UK’s financial system. This global coordination underscores the interconnected nature of the stablecoin market and the need for consistent international standards.
Addressing blockchain and self-custody concerns
The consultation also highlights the Bank of England’s cautious stance on self-custody wallets and public blockchain systems. While decentralized technologies offer efficiency and inclusivity, the bank warned that they currently lack clear accountability structures. This absence, it argues, could pose operational risks in areas such as settlement finality and consumer protection.
Unhosted wallet often used by individuals for direct control of digital assets raise specific concerns about enforcement and consumer safeguards. The Bank of England noted that these wallets could complicate the payout process in cases of issuer failure and might make it difficult to implement the proposed holding limits.
The institution reaffirmed that while innovation is vital, systemic stability must come first. Continuous monitoring of emerging technologies, including open ledgers and new forms of digital money, will remain part of its ongoing mandate.
A vision for 2026 and beyond
Feedback for the consultation will remain open until February 10, 2026, after which the Bank of England aims to finalize its rules in the latter half of the year. This timeline suggests that a comprehensive regulatory structure for stablecoins could be in place by the end of 2026, setting the stage for a regulated digital currency landscape in the UK.
Experts see this move as a signal that the UK is ready to embrace innovation within a controlled and transparent environment. By requiring issuers to hold significant reserves with the central bank, regulators are building a system where consumer protection and financial integrity go hand in hand.
The approach could position the United Kingdom as one of the first major economies to formalize a stablecoin regulatory regime tailored to its domestic payment landscape. With digital finance evolving rapidly, the Bank of England’s consultation represents both caution and commitment a blueprint for blending financial innovation with systemic security.
As the global conversation on digital money continues, the world will watch closely to see how the UK’s stablecoin strategy shapes the next phase of payment evolution.
Disclaimer: Parts of this article were generated with the assistance from AI tools and reviewed by our editorial team to ensure accuracy and adherence to our standards.
