The Bank of England’s Regulatory Framework for Stablecoins
The Bank of England (BoE) is taking significant steps towards regulating stablecoins by releasing a consultation document outlining a proposed framework aimed at these digital assets. Published on Monday, the paper addresses the stability risks that sterling-backed stablecoins, or systemic stablecoins—financial tokens extensively used in transactions—can pose to the UK’s economic stability.
Proposed Measures to Mitigate Risks
To mitigate these risks, the BoE is suggesting that issuers must secure at least 40% of their liabilities with deposits that do not earn interest at the bank, while the remaining 60% could be allocated to short-term UK government bonds. Stakeholders have until February 10, 2026, to provide their feedback on the proposed regulatory measures, with the BoE aiming to establish the final rules in the latter half of that year.
Guidelines on Holding Limits
Additionally, the consultation introduces guidelines on holding limits, emphasizing that individual stablecoin assets should not exceed £20,000 (around $26,300) per token. However, businesses may be eligible for exemptions from the standard £10,000 (approximately $13,200) limit for certain operational needs. The proposals include suggesting per-coin limits of £20,000 for private investors and up to £10 million for corporate users, contingent upon justified requirements.
Asset Backing and Systemic Importance
On the topic of asset backing, the BoE has indicated that stablecoin issuers recognized as significant to the system’s integrity could retain up to 95% of their backing in government debt until they reach a certain scale. Following this threshold, the backing percentage will drop to 60% to manage systemic risks without undermining the issuer’s viability.
It is noteworthy that His Majesty’s Treasury will define the criteria for determining which stablecoin payment systems and service providers hold systemic importance, consequently bringing these entities under the purview of the new regulatory framework and the oversight of the BoE.
