Bank of England Modifies Systemic Stablecoin Reserve Composition Following Feedback ∞ Regulation

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Briefing

The Bank of England has revised its regulatory framework for sterling-denominated systemic stablecoins, moving beyond the initial restrictive proposal to a more flexible, dual-asset reserve structure. This action directly addresses industry feedback that the prior requirement of 100% central bank deposits was incompatible with stablecoin revenue models and international norms, thereby establishing a pragmatic, yet robust, prudential standard for UK digital asset issuers. The most critical change is the new mandate that at least 40% of backing assets must be held as central bank deposits, with the remaining portion permissible in short-term UK government debt securities.

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Context

Prior to this revision, the UK’s approach to systemic stablecoins was characterized by significant legal uncertainty regarding the operational viability of the proposed 100% central bank deposit reserve requirement. This prescriptive stance created a prevailing compliance challenge by threatening to isolate the UK market and introduce substantial regulatory arbitrage risk, as it diverged sharply from emerging frameworks in other major jurisdictions like the EU’s MiCA, which allowed for a broader range of high-quality liquid assets.

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Analysis

This modification fundamentally alters the capital and liquidity management frameworks for prospective systemic stablecoin issuers. The shift introduces a critical revenue-generating component by allowing up to 60% of reserves to be held in interest-bearing UK government debt, directly impacting the economic model of stablecoin operations. Regulated entities must now update their compliance frameworks to ensure real-time segregation and accounting of the dual-asset reserve composition, which is a significant architectural update to their risk mitigation controls. This cause-and-effect chain translates a prudential requirement into an immediate operational mandate for treasury and compliance departments.

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Parameters

Central Bank Deposit Minimum ∞ 40% (The minimum portion of backing assets required to be held at the Bank of England.)
Government Debt Maximum ∞ 60% (The maximum portion of backing assets permissible in short-term sterling-denominated UK government debt.)
Interest Prohibition ∞ Systemic issuers cannot pay interest to coinholders (A key unchanged policy point maintaining financial stability focus).

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Outlook

The next phase involves the consultation running until February 2026, after which the BoE expects to finalize the rules later that year. This revised framework sets a precedent for how central banks can balance stringent financial stability mandates with industry-viable operational models, signaling a potential path for other jurisdictions to adopt a ‘high-quality liquid asset’ standard that includes short-term government debt alongside central bank reserves. The second-order effect is likely increased institutional confidence and greater capital allocation toward the UK’s systemic stablecoin market.

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Verdict

The Bank of England’s strategic revision successfully harmonizes stringent financial stability requirements with operational reality, establishing a pragmatic, globally competitive reserve standard for systemic sterling stablecoins.

Sterling stablecoins, Systemic importance, Reserve requirements, Central bank deposits, Government debt securities, Digital payments, Prudential standards, Capital requirements, Liquidity risk management, Regulatory arbitrage, Financial stability, UK financial markets, Asset segregation, Stablecoin issuance, Operational resilience Signal Acquired from ∞ pinsentmasons.com