Bank of England Sets Out Stablecoin Regime — Finance Monthly
The Bank ofEngland has published its policystatement and draft Code of Practicefor systemic stablecoin issuers,establishing the framework that willgovern the largest sterling stablecoinsand marking a defining. . .
The Bank ofEngland has published its policystatement and draft Code of Practicefor systemic stablecoin issuers,establishing the framework that willgovern the largest sterling stablecoinsand marking a defining step in thecreation of the UK's stablecoin regime. Released on 22 June 2026, the rulesreflect feedback from last year'sconsultation and are designed to letissuers innovate and scale whilemaintaining the resilience andconfidence the Bank regards asessential to any form of money. Theframework targets stablecoins judgedsystemic — those large or widely usedenough that their failure couldthreaten financial stability — and setsout two headline policy decisions thatrevise what the Bank originallyproposed. On backing assets, themaximum share an issuer may hold ininterest-bearing instruments,specifically short-term UK governmentdebt, has been raised from 60% to 70%,with the remainder held in central bankdeposits that allow issuers to meetredemptions promptly. The Bank framedthe change as supporting more viablebusiness models while preserving thecapacity to handle outflows, addressingindustry concern that an overlyrestrictive backing requirement wouldmake stablecoin issuance commerciallyunworkable. The second major decisionconcerns how the Bank manages the riskthat a rapid migration of deposits intostablecoins could drain funding fromthe banking system and constraincredit. Rather than the temporaryholding limits it consulted on lastyear, the Bank will apply a temporaryissuance guardrail to each systemicstablecoin, initially set at £40billion. It described this asdelivering the same policy outcome morecheaply and simply, while allowingunrestricted use by households andbusinesses, and said the guardrailwould be reviewed regularly and removedonce risks to credit provision havebeen addressed. The shift from per-userholding caps to a per-issuer issuanceceiling is a notable easing inapproach, removing a constraint thatwould have applied directly toconsumers. The regime is being builtjointly with the Financial ConductAuthority, which the Bank said isworking closely with it to deliver anend-to-end framework, including amanaged transition as firms grow fromnon-systemic to systemic status, withfurther detail to follow alongsidethe FCA's final rules. Sarah Breeden,the Bank's Deputy Governor forFinancial Stability, described thepublication as a major milestone indelivering greater choice andinnovation in UK payments, arguingthat innovation depends on trust andthat the framework sets the foundationsof that trust through promptredemption, strong protections andcentral bank support. She characterisedthe result as a world-leading regime. The proposals carry significantimplications for the payments anddigital-money sector. A clear,stability-focused framework givesprospective issuers the regulatorycertainty needed to commit capital andbuild sterling stablecoin products atscale, while the £40 billion guardrailand the 70% backing cap define thecommercial parameters within whichthose businesses must operate. Stablecoins could enable faster,cheaper and more flexible payments,including cross-border transactions andprogrammable functionality, and acredible UK regime positionssterling-denominated digital money todevelop within supervised limits ratherthan offshore or unregulated. Thecalibration of the backing and issuancerules will shape how attractive the UKis as a base for issuers relative toother jurisdictions building their ownframeworks. The consultation on thedraft Code of Practice runs until 22September 2026, with the Bank intendingto finalise the rules by the end of theyear and the regime allowing regulatedstablecoins to operate in the UK from2027. How issuers respond to therevised backing and guardrailparameters will indicate whether thecalibration strikes the balance theBank intends between enablinginnovation and protecting financialstability and the supply of credit. Whether the UK's framework provesgenuinely world-leading, as the Bankcontends, will depend on whetherissuers choose to build within it — andthe next test is the quality of theresponse the consultation drawsbefore September.