Briefing
The Bank of England (BoE) has published a consultation paper detailing the prudential regulatory regime for sterling-denominated systemic stablecoins, a critical step that formalizes the operational and legal requirements for their use in UK payments. This framework immediately shifts the compliance burden onto issuers, mandating a specific, bifurcated reserve structure → up to 60% of backing assets can be held in short-term UK government debt, with the remaining 40% required in unremunerated accounts at the Bank of England → a significant move that provides a central bank liquidity backstop and a clear path for issuers to generate yield. The most important detail quantifying this change is the introduction of temporary holding limits of £20,000 for individuals and £10 million for businesses , directly constraining the immediate market scale and flow of systemic stablecoins.
Context
Prior to this consultation, the UK’s approach to stablecoin regulation was largely conceptual, defined by a commitment to bring systemic digital assets into the regulatory perimeter without prescribing the exact prudential standards. The prevailing challenge for the industry was the lack of clarity on reserve asset composition and liquidity requirements, particularly the central bank’s previous hardline stance suggesting a 100% cash or deposit backing. This ambiguity created uncertainty regarding the commercial viability of sterling stablecoins and their integration into the existing financial infrastructure, leaving the market in a holding pattern awaiting a definitive, operational rulebook from the central bank.
Analysis
This framework mandates a fundamental update to the compliance and operational architecture of any systemic stablecoin issuer seeking to operate in the UK. Issuers must now integrate a new, complex reserve management system that adheres to the 60/40 split, requiring direct interface with the central bank for the unremunerated accounts and a robust process for managing short-term UK government debt. The temporary holding limits necessitate the implementation of new, auditable KYC/AML controls to monitor and enforce customer balances, adding a layer of complexity to onboarding and transaction monitoring protocols. The consideration of a central bank liquidity backstop, while supportive of financial stability, requires regulated entities to model and report on their stress-testing scenarios to qualify for and access such an arrangement, directly impacting capital and risk management systems.
Parameters
- Individual Holding Limit → £20,000 (Maximum temporary cap for a single individual’s stablecoin holdings to safeguard against deposit flight.)
- Business Holding Limit → £10 million (Maximum temporary cap for a single business’s stablecoin holdings.)
- Reserve Asset Composition → 60% (Maximum percentage of backing assets permitted in short-term UK government debt.)
- Central Bank Reserve Requirement → 40% (Minimum percentage of backing assets required to be held in unremunerated accounts at the Bank of England.)
- Consultation Deadline → February 10, 2026 (Final date for industry and stakeholder feedback on the proposed rules.)
Outlook
The next phase involves the industry’s response to the consultation, which will focus on the feasibility of the temporary holding limits and the operational costs associated with the unremunerated central bank accounts. Potential second-order effects include an acceleration of institutional interest in sterling stablecoins, as the clarity on reserve requirements and the implied central bank backstop significantly de-risk the asset class for regulated financial institutions. This action sets a powerful global precedent, positioning the UK as the first major jurisdiction to integrate a central bank liquidity facility into a stablecoin prudential framework, which will likely influence similar regulatory debates in the US and the EU.
