Central Bank of England suggests perspective on domestic stablecoins

Central Bank of England suggests perspective on domestic stablecoins

The UK is set to introduce a robust regulatory framework for stablecoins, with the Financial Conduct Authority (FCA) taking the lead in formulating the detailed rules. This move follows a speech by Sarah Breeden, the Deputy Governor of the Bank of England, at the Point Zero Forum, where she discussed the future direction of stablecoins in the UK.

The new regulatory framework will focus on stringent requirements for stablecoin issuers and custodians to ensure consumer protection, transparency, and financial stability. Key updates include:

1. Stablecoin Issuer Requirements: Firms issuing stablecoins backed by a single fiat currency must fully back their tokens with secure, liquid assets held in a statutory trust for the benefit of stablecoin holders. These backing assets must be under the custody of an independent third party, and issuers are required to guarantee redemption at face value for all holders through clear and timely redemption processes.
2. Custodian Rules: Custodians handling cryptoassets must segregate client assets from their own, hold them in trust, and keep accurate records. The rules also impose robust governance, record-keeping, and third-party use standards to protect clients’ assets and enable prompt return in case of firm failure.
3. Transparency and Disclosure: Both issuers and custodians will need to comply with enhanced disclosure obligations, including regular publication of information about asset backing, redemption policies, and third-party involvement.
4. Authorisation and Supervision: Any stablecoin issuer or custodian seeking FCA authorisation must demonstrate embedding these regulatory standards into their firm culture. The FCA will allocate resources to effectively assess authorisation applications and supervise authorised firms proactively until they show clear adherence to high regulatory standards.

These regulations are part of the FCA’s CP25/14 and CP25/15 consultation papers issued in May and July 2025, aiming for full implementation and enforcement through the remainder of 2025. This aligns with the UK's intent to have its cryptoasset regime, including stablecoin regulation, fully in place by the end of 2025.

The UK's stablecoin regulatory framework is distinct from but parallel to the EU's MiCA regime. The UK approach is designed to maintain high consumer protection and financial system integrity, ensuring that stablecoin issuance is transparent, fully backed, and redeemable at face value, with strong custodian safeguards and FCA supervision.

In 2023, the Bank of England unveiled proposals for two separate regulatory regimes for stablecoins: one for systemic stablecoins and another for non-systemic stablecoins. Systemic stablecoins, under the 2023 proposals, would not earn interest, while non-systemic stablecoins would be allowed to earn interest on the backing assets, which would consist of short-term government bonds and commercial bank deposits. Systemic stablecoins, as per the 2023 proposals, would be regulated by the Bank of England and backed by central bank money.

Sarah Breeden's speech also suggested a potential differentiation between payment stablecoins versus those used for other purposes. She believes it might be helpful to target stablecoins used for mainstream payments, versus those used for investment purposes or as part of the cryptocurrency ecosystem. A potential stablecoin sandbox could allow for further dialogue and to explore interoperability between different types of money as well as stablecoin business models.

The Bank of England is reviewing potentially allowing systemic stablecoins to earn some interest. This move aims to address the "cliff effect" that would occur when a stablecoin becomes systemic and suddenly stops earning interest. The previous proposals would have created this cliff effect.

It's important to note that only UK-based stablecoin issuers will be subject to regulation, as outlined in the draft crypto regulations recently issued by HM Treasury. The focus on the singleness of money is perhaps most relevant to systemic stablecoins and a lesser issue for smaller ones.

Network effects could result in a stablecoin growing very rapidly, and the UK's approach is designed to maintain a high level of control and oversight to ensure the stability of the financial system. This regulatory framework will provide a solid foundation for the growth of stablecoins in the UK while safeguarding consumers and maintaining financial stability.

1. The new regulatory framework for stablecoins in the UK, led by the Financial Conduct Authority (FCA), will require stablecoin issuers and custodians to adhere to stringent requirements for consumer protection, transparency, and financial stability.
2. The FCA's CP25/14 and CP25/15 consultation papers, issued in May and July 2025 respectively, outline regulations that will ensure stablecoins are fully backed, redeemable at face value, and under strict custodian safeguards.
3. In 2023, the Bank of England proposed two separate regulatory regimes for stablecoins: one for systemic stablecoins and another for non-systemic stablecoins, with systemic stablecoins regulated by the Bank of England and backed by central bank money.
4. Sarah Breeden, the Deputy Governor of the Bank of England, suggested a potential differentiation between payment stablecoins versus those used for other purposes, and proposed a stablecoin sandbox to explore interoperability and stablecoin business models.
5. The UK's stablecoin regulatory framework, aiming for full implementation by the end of 2025, is designed to maintain control and oversight over the industry, ensuring the stability of the financial system while allowing for the growth of stablecoins in the UK.

Read also: