UK Central Bank Suggests Position on Domestic Stablecoins

UK Central Bank Suggests Position on Domestic Stablecoins

UK Moves Towards Stablecoin Regulation, Aligning with Global Trends

The United Kingdom is progressing towards the development of a regulatory framework for stablecoins, with a focus on consumer protection and financial stability. The Financial Conduct Authority (FCA) has been leading the charge, aiming for implementation around 2026.

Under the proposed regulations, non-systemic stablecoins would be regulated by the FCA and allowed to earn interest on their backing assets. These stablecoins would be backed by short-term government bonds and commercial bank deposits. In contrast, systemic stablecoins would be regulated by the Bank of England and backed by central bank money, making them very safe and easily interchangeable with regular currency.

The Bank of England Deputy Governor, Sarah Breeden, recently discussed stablecoins and potential future directions for the UK at the Point Zero Forum. Her speech indicates potential shifts from the initial proposals, responding to global developments and industry feedback. One of the changes under consideration is the possibility of allowing systemic stablecoins to earn some interest, addressing the previous proposals' cliff effect where a stablecoin suddenly stops earning interest when it becomes systemic.

The UK government's regulatory efforts have been cautious, with the Bank of England expressing concerns about the integrity and resilience of stablecoins within the monetary system. These concerns have contributed to the slow regulatory progress, as the UK currently lacks the regulatory maturity and clarity seen in the US and EU.

Looking ahead, the UK aims to align with global regulatory momentum, prevent losing market share for GBP-based stablecoins, and foster financial innovation. The FCA’s consultations indicate a formal regime requiring authorization and supervision of UK stablecoin issuers, with prudential and consumer safeguards under consideration. Cross-jurisdictional coordination is also a priority, as stablecoins' cross-border nature necessitates harmonization and consistency with international standards.

Network effects could result in a stablecoin growing very rapidly, a concern raised by Deputy Governor Breeden. To address this, the Bank of England is considering different regulations for systemic and non-systemic stablecoins, moving away from the original 2023 proposals. There is also a growing consensus on the need for prudential, transparency, and financial stability safeguards, such as requirements on reserve backing, redemption rights, transparency (leveraging blockchain), and anti-money laundering/combating financial terrorism (AML/CFT) controls.

In addition, a stablecoin sandbox is being considered to allow for further dialogue and to explore interoperability between different types of money as well as stablecoin business models. Deputy Governor Breeden 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.

As of August 2025, the UK is in the process of developing a stablecoin regulatory framework, but it currently lacks the regulatory maturity and clarity seen in the US and EU. The slow regulatory pace risks ceding financial relevance and market leadership in stablecoins unless speed and clarity improve.

[1] Financial Times, "UK regulator to consult on stablecoin regulation," 2023. [2] Reuters, "UK's BoE warns of risks in stablecoins but supports regulatory progress," 2023. [3] The Guardian, "UK government to consult on stablecoin regulation," 2023. [4] HM Treasury, "Draft crypto regulations," 2023. [5] European Central Bank, "MiCA: A new EU regulatory framework for crypto-assets," 2020.

1. The Financial Conduct Authority aims to implement a regulatory framework for stablecoins in the UK by around 2026, focusing on consumer protection and financial stability.
2. In the proposed regulations, non-systemic stablecoins would be allowed to earn interest on their backing assets and would be regulated by the FCA, while systemic stablecoins would be regulated by the Bank of England and backed by central bank money to ensure stability and interchangeability with regular currency.
3. The UK government has been cautious in its regulatory efforts, acknowledging concerns about the integrity and resilience of stablecoins within the monetary system, contributing to the slow regulatory progress compared to the US and EU.
4. To align with global regulatory momentum, the FCA is expected to introduce a formal regime requiring authorization and supervision of UK stablecoin issuers, with prudential and consumer safeguards under consideration.
5. In addition to regulating stablecoins, the UK is considering creating a stablecoin sandbox for further dialogue and exploration of interoperability between different types of money and stablecoin business models, focusing on mainstream payment stablecoins rather than those used for investment purposes or within the cryptocurrency ecosystem.

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