Briefing
The Bank of England has published a modified consultation paper detailing prudential standards for systemic sterling-denominated stablecoins, fundamentally altering the required reserve composition and setting firm-specific holding limits. This action provides a critical architectural blueprint for risk mitigation, establishing a dual-pillar reserve structure that blends central bank liquidity with sovereign debt. The most important compliance detail is the new mandate requiring 40% of backing assets to be held as unremunerated deposits at the Bank of England.
Context
Prior to this modification, the prevailing regulatory uncertainty centered on the strictness of backing asset requirements, with initial proposals favoring near-exclusive reliance on central bank deposits, a standard industry stakeholders argued was incompatible with revenue models and international norms. This created a compliance challenge for prospective issuers, who lacked a clear, commercially viable path to meet the prudential stability goals necessary for systemic designation. The previous ambiguity hindered market entry and strategic planning for integrating stablecoins into the UK’s core payment infrastructure.
Analysis
This policy shift necessitates an immediate re-engineering of the asset-liability management (ALM) system for all prospective systemic stablecoin issuers. The explicit 40%/60% split between central bank deposits and short-term UK government debt defines a new, mandatory risk-weighting framework, which directly impacts the liquidity and operational risk modules of the compliance program. The imposition of holding limits ∞ £20,000 for individuals and £10 million for businesses ∞ introduces a new customer segmentation and transaction monitoring requirement to ensure compliance with financial stability controls. Consequently, firms must update their smart contract logic and reporting infrastructure to track and enforce these caps, shifting the compliance focus from simple reserve auditing to real-time, user-level control.
Parameters
- BoE Deposit Requirement ∞ 40% of backing assets must be held as unremunerated deposits at the Bank of England.
- Sovereign Debt Allocation ∞ 60% of backing assets permitted in short-term sterling-denominated UK government debt.
- Individual Holding Limit ∞ £20,000 maximum holding per coin for individual users.
- Business Holding Limit ∞ £10 million maximum holding for non-exempt business users.
- Consultation Deadline ∞ February 10, 2026, for industry feedback on the proposals.
Outlook
The consultation period, closing in February 2026, represents the final opportunity for industry input before the regime is finalized later that year. This prescriptive asset structure is likely to set a global precedent for prudential stablecoin regulation, particularly for G7 jurisdictions seeking to balance innovation with financial stability. The provision for a central bank lending facility backstop signals a significant second-order effect, effectively integrating systemic stablecoin issuers into the core financial stability architecture of the UK.
Verdict
The Bank of England’s refined prudential framework provides the necessary, durable regulatory clarity to onboard systemic sterling stablecoins into the UK’s foundational payment infrastructure.
