Bank of England’s stablecoin consultation signals cautious approach amid unresolved policy questions

The Bank of England’s consultation on a regulatory regime for sterling‑denominated systemic stablecoins, published on 10 November 2025, marks a consequential step in UK policy on digital money but leaves a number of material questions unresolved ahead of final rules due in the second half of 2026.

According to the Bank of England, the consultation sets out a framework intended to integrate systemic stablecoins into a “multi‑money” payments system while preserving central bank money at its core. The paper outlines a range of concrete proposals: limits on the composition of backing assets, safeguarding and statutory trust requirements, transitional holding limits for retail and business holders, capital and reserve holdings for issuers, redemption guarantees at par by the end of the business day, restrictions on remuneration to coinholders, and a requirement that non‑UK based sterling issuers establish UK subsidiaries to serve UK customers. The Bank also signals openness to public permissionless ledgers provided issuers can meet expectations on accountability, settlement finality and operational resilience.

Core design features and the Bank’s rationale

The Bank proposes that systemic stablecoin issuers may hold up to 60% of backing assets in short‑term sterling UK government debt, with at least 40% held as unremunerated deposits at the Bank. For issuers judged systemic at launch, or transitioning from the Financial Conduct Authority’s non‑systemic regime, an initial allowance of up to 95% in short‑term gilts is envisaged to support viability during growth. The Bank is also considering a central bank liquidity facility for systemic issuers in stress scenarios, a relatively forward‑looking stance compared with some international peers.

To protect coinholders, backing assets are to be held in the UK on statutory trust and safeguarded by qualified third parties, with further technical consultation on the safeguarding regime expected in 2026. Redemption mechanics are presented as robust: coinholders would retain a legal claim on funds held with issuers and must be able to redeem at par without undue fees, with redemption honoured by the end of the business day on which a valid request is made. The Bank also proposes that systemic issuers may not pay interest to coinholders, reflecting its policy that these instruments should primarily serve payments rather than investment purposes.

Transitional holding limits of £20,000 per coin for individuals and £10 million for businesses are intended to blunt rapid deposit outflows from banks and reduce disintermediation risk while the credit market adjusts. The Bank expects these limits to be eased and ultimately removed over time. Industry briefings from law firms and international bodies note that these limits, together with the 40:60 backing split and the prohibition on paying interest to coinholders, will shape issuers’ commercial economics and the attractiveness of UK issuance relative to rival jurisdictions.

Outstanding pressure points

The consultation defers several pivotal questions into 2026, leaving unresolved matters that are central to market confidence and cross‑border comparability. The Bank has postponed detailed issuer‑failure arrangements and a bespoke resolution framework, even though Governor Andrew Bailey previously suggested that “trust in stablecoins requires an insurance scheme (as with bank deposits), and a statutory resolution arrangement that ensures their holders are preferred creditors in any insolvency process”. That position now appears to be an item for later policy work, reflecting the need for primary legislation and coordination with HM Treasury and the FCA. The absence of a clear statutory resolution route and deposit‑style protection is likely to be pivotal for consumer trust and market adoption.

The commercial viability of UK issuance is another stress point. Market commentators have warned that the 40:60 split between Bank deposits and government debt may undermine competitiveness versus regimes emerging in the United States and European Union, where differences are already appearing around backing asset composition, access to central bank liquidity and rules for non‑domestic issuers. Industry briefings and the IMF’s analysis observe that these international divergences will influence where large global issuers locate activity and whether they choose UK subsidiarisation or offshore models. The Bank’s high‑level approach to non‑sterling stablecoins , starting with engagement with a foreign issuer’s home authority and potential deference to that authority’s framework , leaves scope for uncertainty.

Technical questions around permissionless ledgers remain fraught. The Bank’s conditional openness to public permissionless technology is balanced by pointed concerns over accountability, finality and resilience. That stance may constrain issuers that favour public blockchains, and industry briefings note that it could shape both operational design choices and competitive dynamics.

Practical implementation hurdles are also apparent. The Bank flags that the UK sovereign and private short‑term markets may struggle to absorb substantial new demand from systemic stablecoin issuers, a consideration that underpins its proposed asset composition and its caution on scaling. Moreover, there are no clear statutory mechanisms for a non‑UK issuer to convert contractual arrangements into a UK subsidiary model at scale, meaning contractual management of transitions will likely predominate in the near term.

Regulatory sequencing and international context

The Bank’s timetable is explicit: the consultation closes on 10 February 2026, with Codes of Practice and more detailed rules to be developed across 2026 and final rules expected in H2 2026. This schedule exposes UK policy to rapid developments overseas, particularly the United States, where legislation and supervisory approaches that crystallised in 2025 are already influencing market design choices. Industry advisories from major law firms and financial commentators have emphasised the need for the Bank to maintain pace with international frameworks to avoid regulatory arbitrage and to preserve London’s competitiveness as a payments and financial‑market hub.

Conclusion

The Bank of England’s consultation frames a coherent, prudentially cautious approach to integrating sterling‑denominated systemic stablecoins into the UK payments ecosystem. Its proposals tackle many of the principal safety and operational risks, but key decisions on issuer resolution, insurance‑style protections, the treatment of public permissionless ledgers and competitive positioning relative to international regimes remain to be settled. How those issues are resolved over the course of 2026 will determine whether the UK regime supports a viable, scalable market for systemic stablecoins, or whether commercial activity gravitates to alternative jurisdictions with materially different rules.