Briefing
The Bank of England has published its highly anticipated proposed regime for sterling-denominated systemic stablecoins, fundamentally reclassifying them as critical financial market infrastructure and imposing rigorous prudential standards. This action mandates that issuers must establish two separate liquid asset reserves to cover financial shortfalls and resolution costs, directly addressing systemic risk and consumer protection concerns. The most critical new requirement is that at least 40% of the stablecoin’s backing assets must be held as unremunerated deposits at the Bank of England, significantly altering issuer balance sheet management.
Context
Prior to this proposal, the regulatory landscape for stablecoins in the UK was fragmented, with only Anti-Money Laundering (AML) and Financial Promotions Order (FPO) rules clearly applying. This left a critical gap concerning financial stability, as the failure of a large, systemic stablecoin issuer posed an unmitigated risk of deposit flight from the traditional banking sector and broader market contagion. The prevailing challenge was the lack of a comprehensive prudential framework to govern the composition and safeguarding of backing assets, which this new regime directly addresses by establishing a legal standard for reserve quality and custody.
Analysis
This regime immediately alters the operational architecture for any firm aspiring to issue a systemic sterling stablecoin. Issuers must redesign their treasury management systems to comply with the mandatory 40% unremunerated deposit requirement, which directly impacts profitability and liquidity strategy. Furthermore, the proposed transitional holding limits → £20,000 for individuals and £10 million for businesses → require the implementation of new, auditable control systems to monitor and enforce wallet-level exposure, adding complexity to KYC/AML and customer onboarding workflows. Compliance with these new capital and reserve mandates establishes a necessary, high barrier to entry that is designed to filter out undercapitalized or high-risk operators, thereby increasing market integrity.
Parameters
- Minimum BoE Deposit → 40% of backing assets. The minimum percentage of a systemic stablecoin’s reserve that must be held as unremunerated deposits at the Bank of England.
- Individual Holding Limit → £20,000 per coin. The proposed transitional maximum holding limit for individual coinholders to mitigate deposit outflow risk.
- Business Holding Limit → £10 million. The proposed transitional maximum holding limit for business coinholders.
- Reserve Requirement Count → Two liquid asset reserves. The number of separate reserves mandated to cover financial risk and resolution costs.
Outlook
The next phase involves a further consultation on the detailed design of the safeguarding regime, expected in 2026, which will refine the operational requirements for asset custody. This prudential approach sets a clear precedent for other jurisdictions considering how to manage systemic risk from stablecoins without stifling innovation. The ultimate strategic implication is the formal integration of regulated stablecoins into the UK’s financial infrastructure, providing a path to legitimacy and enabling their use as a reliable means of payment, though the unremunerated deposit rule may temper initial market growth.
Verdict
The Bank of England’s proposal establishes a definitive, high-integrity prudential standard that formally embeds systemic stablecoins within the UK’s core financial stability and regulatory architecture.
