Full Breakdown
Bank of England Proposes Regulatory Framework for Stablecoins
11/10/2025, 8:45:54 PM
Overview of Proposed Regulations
On November 10, 2025, the Bank of England (BoE) unveiled a consultation paper outlining a proposed regulatory framework for sterling-denominated systemic stablecoins. These digital tokens, designed to maintain a stable value, are increasingly being recognized for their potential to facilitate retail payments and wholesale settlements. The BoE's proposals aim to balance innovation in digital finance with the need for financial stability.
Key Features of the Proposal
The BoE's framework allows stablecoin issuers to back up to 60% of their assets with short-term UK government debt, while the remaining 40% must be held in unremunerated accounts at the BoE. This marks a shift from earlier proposals that required all backing assets to be held in central bank deposits. Additionally, issuers deemed systemic at launch may initially hold up to 95% of their backing in government debt to support their growth.
To mitigate risks associated with stablecoins, the BoE proposes temporary holding limits: £20,000 ($26,350) for individuals and £10 million for businesses, with exemptions available for larger entities. These limits are intended to be lifted once financial stability concerns are addressed.
Consultation and Feedback
The consultation period is open until February 10, 2026, allowing stakeholders to provide feedback on the proposed regulations. Sarah Breeden, Deputy Governor for Financial Stability, emphasized the importance of industry input, stating, “We’ve listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England.”
Criticism and Industry Response
While the BoE's proposals have been welcomed for providing regulatory clarity, some industry representatives argue that the measures do not go far enough. Tom Duff Gordon from Coinbase suggested that the BoE could have allowed issuers to invest up to 80% of their assets in high-quality liquid assets. Varun Paul from Fireblocks warned that the requirement to hold 40% in unremunerated reserves could render existing stablecoin business models unviable, potentially disadvantaging UK issuers compared to their US counterparts.
Implications for Financial Stability
The BoE's approach reflects concerns about the potential destabilizing effects of stablecoins on the financial system, particularly regarding mass withdrawals from banks. The proposed regulations aim to ensure that systemic stablecoins do not pose risks to the provision of finance to the real economy. The BoE is also considering central bank liquidity arrangements to support systemic issuers during periods of market stress.
What's Next
The BoE plans to finalize the regulations in the second half of 2026, following the consultation period. A joint approach document with the Financial Conduct Authority (FCA) is expected to clarify how the rules will apply in practice, particularly for non-systemic stablecoin issuers.
Conclusion
The Bank of England's proposed regulatory framework for stablecoins represents a significant step towards integrating digital currencies into the UK financial system. By balancing innovation with regulatory oversight, the BoE aims to foster a stable environment for the growth of digital money while safeguarding financial stability.
