The Bank of England has issued a proposed regulatory regime for sterling-denominated systemic stablecoins, revising two elements of policy proposed in a 2023 discussion paper.
Final rules will be determined in H2 2026.
Systemic stablecoins refer to those that are widely used in payments, and which could therefore impact UK financial stability. This classification will be determined by the number and value of transactions that a payment system processes or will likely process, the nature of the transactions it processes and whether they could be executed elsewhere, and whether it is used by the BoE.
In the new rules, 40% rather than all baking assets must be central bank deposits. These can be used to meet redemption requests in both normal and stressed conditions. The remaining 60% (or less) must be held in short-term, sterling-denominated UK debt securities. This is in line with similar emerging regimes internationally, the Bank notes.
A deviation from the 60/40 split may be allowed in the case of issuers needing to meet unexpected large redemption requests. Issuers recognised as systemically important from their launch may be permitted to begin with 95% of their backing assets held in UK government debt securities before being reduced to 60%.
A backstop lending facility may be offered for certain systemic issuers. Issuers may also lend securities through repo agreements.
The second proposal alteration is around capital and reserve requirements. The bank still intends to use the existing CPMI-IOSCO Principles for Financial Market Infrastructures standards as its baseline for capital requirements, but will make amendments to account for the risk of shortfalls for coinholders and issuer failure.
Capital requirements will be either the cost of recovery from the issuer’s largest plausible loss event or six months of current operating expenses, whichever is greater.
Earlier iterations of the rules outlined an operational risk buffer within the shortfall reserve. This will now be part of capital held for general business risk following industry feedback. Capital standards are largely in line with Common Equity Tier 1 (CET1) capital.
Issuers must maintain high-quality liquid assets in reserve to mitigate the financial risk of backing assets and cost of insolvency or wind down.
“We propose that issuers hold capital against general business risk, and reserves held on trust to mitigate financial risk and wind-down costs,” the BoE says. Assets funded by capital and reserves held on trust should be held in the UK.
Following the 2023 consultation paper, the BoE has highlighted two new issues that it will consider in its policymaking.
Having a multi-money ecosystem in the UK will require harmonised regulation. The retail payments aspect of this will be led by the Payments Vision Delivery Committee (PVDC) and the Retail Payments Infrastructure Board (RPIB).
In wholesale markets, the BoE states that it does not intend to entirely swap settlement in central bank money to settlement in privately-issued money – but that it believes regulated stablecoins could support innovation. Tests in this space will be conducted in the Bank’s Digital Securities Sandbox.
Cross-border payments were also raised as an issue, with the BoE suggesting that non-UK issuers of systemic sterling-denominated stablecoins must have a subsidiary holding backing assets and assets funded by UK capital in the UK.
Feedback on the proposals will be accepted until 10 February 2026.
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