Briefing
The Bank of England (BoE) has published its revised proposals for regulating sterling-denominated systemic stablecoins, introducing a hybrid reserve model that prioritizes financial stability and liquidity over issuer revenue generation. This framework requires a mandatory, unremunerated deposit floor at the central bank, which directly impacts the operational architecture and yield strategies of prospective issuers by constraining the percentage of assets available for investment. The most critical new detail is the requirement that at least 40% of all backing assets must be held as unremunerated deposits at the Bank of England.
Context
Prior to this revision, the prevailing compliance challenge stemmed from the BoE’s initial, highly stringent proposal, which mandated that nearly all backing assets be held as unremunerated central bank deposits. This original framework was deemed incompatible with the revenue models and liquidity management practices of stablecoin issuers, creating an environment of significant legal uncertainty for firms seeking to operate in the UK. The industry required a pragmatic balance that would ensure par redemption stability while allowing for a viable business model. The current action directly addresses this by introducing flexibility in asset composition while retaining robust prudential controls.
Analysis
This revised framework necessitates an immediate update to the capital and liquidity management modules within a systemic stablecoin issuer’s compliance architecture. The 40% unremunerated deposit requirement acts as a non-negotiable risk mitigation control, guaranteeing immediate liquidity for mass redemptions but simultaneously introducing a structural cost to the issuer’s balance sheet. Firms must re-engineer their product structuring to account for the prohibition on paying interest to coinholders, shifting the value proposition away from yield and toward utility and payment efficiency. Furthermore, the temporary holding limits → £20,000 for individuals and £10 million for businesses → mandate the implementation of new, real-time transaction monitoring and wallet-level control systems to enforce compliance.
Parameters
- Central Bank Reserve Floor → 40% → The minimum percentage of a systemic stablecoin’s backing assets that must be held as unremunerated deposits at the Bank of England.
- Maximum Debt Allocation → 60% → The maximum percentage of backing assets permitted to be held in short-term sterling-denominated UK government debt.
- Individual Holding Limit → £20,000 → The temporary maximum value an individual can hold in a systemic stablecoin, intended to manage initial systemic risk.
- Business Holding Limit → £10 Million → The temporary maximum value a business can hold in a systemic stablecoin, also designed as a risk mitigation measure.
Outlook
The consultation period is open until February 10, 2026, marking the next critical phase for industry engagement before the final rules are expected later that year. This hybrid reserve model, which blends central bank deposits with short-term government debt, is setting a precedent for other major jurisdictions, particularly in its prescriptive approach to asset composition and remuneration. The action signals the UK’s commitment to developing a robust, stability-focused digital settlement asset ecosystem, which could accelerate the use of sterling stablecoins in wholesale and cross-border payments once the final framework provides full regulatory certainty.
Verdict
The Bank of England’s refined prudential framework establishes the UK as a global leader in systemic stablecoin regulation, mandating a high-liquidity reserve structure that fundamentally secures the asset’s stability at the cost of issuer yield flexibility.
