UK Systemic Stablecoins: important changes

Need to Know

• Bank of England releases its highly anticipated Systemic Stablecoin Policy Statement and draft Systemic Stablecoin Issuer Code of Practice. Feedback closes 22 September 2026.
• UK regulators have also released their Approach to Joint Regulation of Systemic Stablecoin Issuers (feedback closes 30 September 2026), and the Financial Conduct Authority's (FCA) Final Rules for the UK cryptoassets regime.
• These papers land in an already super-busy regulatory summer, including the UK-US Joint Statement on Stablecoins, the Recommendations of the UK-US Transatlantic Taskforce for Markets of the Future, the UK's Joint Tokenisation Vision, and the Wholesale Digital Markets Champion's First Report.
• In this article we analyse the Policy Statement's key developments. (For background, our previous UK systemic stablecoin updates are here and here).
• Important Systemic Stablecoin Policy Statement changes are:
  • 30% of backing assets must be held in unremunerated accounts (down from 40%);
  • a temporary GBP40 billion per stablecoin issuance limit replaces holding limits; and
  • yield remains prohibited, but stablecoin-linked activity-based rewards are permitted.

Recap

UK policymakers and regulators recognise the significant potential of distributed ledger technology (DLT) in financial services. They view it as crucial to preserving the UK’s position as the world’s largest net exporter of financial services, while maintaining high standards of market integrity, financial stability, and consumer protection.

A stablecoin is a private sector digital currency intended to function as a medium of exchange (ie a payment mechanism). It aims to maintain a stable value relative to a specified asset. For example, a sterling stablecoin would seek to maintain parity with UK Government (ie fiat) GBP.

Systemic stablecoins will be jointly regulated by the Bank of England and the FCA. Other stablecoins will be solely FCA regulated. Systemic stablecoins are "those that are widely used in payments and therefore may pose risks to UK financial stability"; ie those widely used for retail payments (eg shopping) and those widely used for corporate payments (eg paying suppliers). HM Treasury (in consultation with UK regulators) will determine which stablecoins are systemically important.

For more DLT background, see Digital Assets 101.

Why this really matters

We described the UK regulators' mid-May 2026 updates as a watershed, fundamentally resetting their vision, posture and ambition. In part, the recalibration was in response to criticism of the UK's pace and risk appetite.

The UK Systemic Stablecoin Policy Statement and draft Issuer Code of Practice follow the new trajectory. No doubt, in part, this is also due to the Stablecoins Report of the influential House of Lords Financial Services Regulation Committee, which pulls no punches.

These developments really matter. Legal and regulatory constraints and uncertainty have been seen as the biggest blocker to wider global DLT adoption. If the UK is to be in the leading pack of digital asset jurisdictions, stablecoins are a non-negotiable component of a multi-money, multi-asset, multi-currency global financial centre.

Calibrating regulation: the Goldilocks balance

New technology and use cases can pose novel, and sometimes systemic, risks. Governments, legislatures and regulators have a fine line to tread. Over-regulation can stifle innovation and economic growth, and may drive activity to unregulated offshore destinations. Under-regulation could expose end-users to harm, and also potentially have macroeconomic systemic effects.

The Financial Services Regulation Committee strongly makes the same point. Published before the Policy Statement, the Committee cite many specific recalibration aspects for UK regulators to consider. These include that the UK must have a level playing field so that stablecoins can compete with other forms of UK payments. UK regulation should remain open to new technological developments, and the regulators should pay particular attention to their statutory objectives in relation to innovation and international competitiveness and growth. Interestingly, the Committee opines that consideration of international competitiveness is not a limiting factor; UK regulators should "include and go beyond" comparisons with other jurisdictions. At the same time, the length and detailed discussion of the Committee's Report itself illustrate the challenges and difficulties of balancing 'just right' regulation.

Backing assets

Internationally, markets and regulators have broadly converged around the principle that real world asset-backed stablecoins¹  must hold 1:1 reserve coverage. However, there is no global consensus on reserve composition. The UK's previous proposals (along with holding limits; see 'Issuance limits') were the most controversial. This is the Bank of England's third iteration, following the 2023 discussion paper and 2025 consultation paper. While changes were widely expected, the detail is new.

The role of central bank money, and the two-tier monetary system, remain axiomatic for the Bank of England. Systemic stablecoin issuers will now be able to hold 70% of backing assets in short-term UK government debt (previously 60%), with 30% in unremunerated Bank of England deposits (previously 40%). Allowable backing assets cannot include commercial bank deposits or other broader asset classes.

The Committee had asked for reconsideration of unremunerated balances; but this is unchanged. For the Bank of England, it remains orthodoxy that stablecoins are solely payment instruments, and as such they cannot be a store of value and therefore will not play a role in monetary policy transmission.

As a liquidity pool to meet ongoing redemption requests, there can be temporary deviations from the 30% threshold, particularly during large unanticipated redemptions or wider market stress. There will be notification and remediation obligations if the balance falls below 25%, and also 20%.

Although the revised proposals seek to balance stablecoin business model economics, market uncertainties, and financial stability, the updated backing asset proposals will not satisfy everyone. For example, they do not address the Committee's advocacy for a principles-based, less prescriptive approach to the composition of backing assets which could adjust as the market developed. The Bank of England notes that the revised 30% threshold brings the framework more closely into line with historical liquidity stress events, but that reducing the backing assets requirement further would materially weaken liquidity protection and increase risks of disorderly asset sales in stress. The regulator also points to the liquidity backstop (see 'Backstop facility') and central bank deposit accounts. Perhaps this now marks the Bank of England's line in the sand.

Unremunerated reserves make the UK an international outlier (see 'Global context'), but of course there are no regulatory calibration bright lines. It is an art not a science, particularly in a developing market.

Issuance limits

The previously proposed holding limits for individuals and businesses were also particularly controversial. The Bank of England remains committed to ensuring that the transition to new forms of money is orderly and mitigates the risks to credit provision, while at the same time recognising the strength of industry evidence on the practical challenges and associated costs. Accepting that these would have been substantial, the Bank of England has replaced holding limits with a temporary guardrail limiting per systemic stablecoin issuance to GBP40 billion. The Bank of England expects this measure to deliver a broadly equivalent level of risk mitigation as the holding limits.

To put this figure into global context, at the time of writing only two stablecoins exceed this market capitalisation: USDT (Tether) at cUSD183.6 billion and USDC at cUSD72 billion, whereas the third-ranked stablecoin (USDS) has a market capitalisation of cUSD9.6 billion (Forbes). While these are figures from a relatively nascent global market, the Bank of England intends to regularly review the limit, loosening and ultimately removing it once financial stability conditions permit.

Yield and rewards

The treatment of stablecoin holder remuneration is one of the most contested questions in stablecoin regulation in some jurisdictions. The Bank of England's position remains that there should be no blurring of the distinction between payment instruments (eg systemic stablecoins) and return-generating investments. Its stablecoin yield prohibition applies to any source of stablecoin issuer revenue, not just income generated from the backing assets.

Rewards (as distinct from yield) are not prohibited for UK systemic stablecoins, provided that they do not arise from holding or retaining a stablecoin. In particular, the reward must not be calculated by reference to the length of time a stablecoin is held. Benefits, incentives, rebates, discounts and other activity-based rewards that are consistent with the use of a stablecoin as a means of payment are not prohibited.

Importantly for the UK's regulatory messaging, the Bank of England views a reward ban as disproportionate. Permitting rewards may support issuer business models, strengthening the overall competitiveness and attractiveness of the UK regime. The Bank of England notes that this approach is in line with the international direction of travel.

Redemption

Stablecoins must be capable of redemption; however, it remains an open global question as to the terms and manner of redemption. For example, who can redeem, whether de minimis redemption thresholds apply, and the timing.

UK systemic stablecoin holders must be able to redeem directly in sterling for the coin's face value. There must not be minimum redemption quantities or conditions that could be onerous or difficult for coinholders to meet. Since stablecoin systems operate 24/7/365, UK redemptions should be made as soon as practicable, with a 24-hour longstop (upon receipt of a 'full redemption request', ie one which meets AML, CTF and other compliance requirements). Redemption fees should not create barriers to interoperability between systemic stablecoins and other forms of money; continuous redeemability must be maintained at all times, including under stress. The Bank of England however, as regulator, preserves the ability to require redemption suspension. Additionally, systemic stablecoin issuers should have direct access to payment systems, which support interoperability, frictionless redemptions and financial stability in a multi-money ecosystem.

The UK's redemption approach has a strong focus on the singleness of money. In simple terms, this means that money is information-insensitive and is accepted in the economy at par "with no questions asked". Thus, a robust and timely stablecoin redemption mechanism helps maintain trust, confidence and safety in the value, movement, interoperability and convertibility of stablecoins at par in the multi-moneyverse.

Backstop facility, and failure

While issuers are responsible for managing liquidity risks, including redemptions, the Bank of England will provide a backstop liquidity facility to support confidence and trust in systemic stablecoins and thus UK financial stability. The lending facility will provide short-term, collateralised loans to fundamentally solvent and viable systemic stablecoin issuers. Further details will be published in 2027. As the Committee notes, the backstop facility is a clear differentiator from other international stablecoin regimes.

The Bank of England will consult on requirements relating to the failure of a systemic stablecoin issuer.

Disclosure requirements

The availability of stablecoin information is crucial, including for engendering user trust and confidence. Systemic stablecoins will initially be subject to the FCA's stablecoin disclosure rules, which the Bank of England has concluded currently also meet its objectives. Additional rules will follow to address any gaps and as the market develops.

Capital and reserve requirements

Systemic stablecoin issuers must hold capital against general business risk, and reserves to mitigate financial risk and to cover wind-down costs. The PFMIs provide the baseline capital requirements, updated for recent further guidance and to avoid duplication of resources where capital and reserves would otherwise be held against similar risks. The minimum capital requirement is set as the higher of: (a) six months of the issuer’s relevant operating expenses, or (b) the cost of executing its recovery plan and its orderly wind-down plan (excluding costs provided for in the wind-down reserve). Issuers must notify the Bank of England when their capital falls below 110% of the minimum requirement, and issuers should exclude intangible assets and other non-loss absorbing elements from regulatory capital (similar to Common Equity Tier 1 capital).

Issuers must invest their regulatory capital in sterling assets that are high quality and sufficiently liquid for the risks they are mitigating. The assets may include cash; central bank money; UK government debt; on-demand UK bank deposits; units in UK short-term money market funds; and repo and reverse repo transactions secured on UK government debt. Issuers must maintain the liquid asset reserves under two statutory trust arrangements (see below) to protect coinholders against losses arising from financial risks to the backing assets, and from issuer failure or insolvency.

Safeguarding and trust arrangements

There will be two statutory trusts (ie trusts which operate automatically). The first is a trust over backing assets and the financial risk reserve for each stablecoin. The second is a wind-down reserve trust, primarily for the administrative costs of an issuer’s failure, and to make up for any shortfall in the backing assets pool. The issuer will be a beneficiary in each trust, but only after all other costs have been met. It will be able to keep interest or income generated from trust money or assets for itself. The trust arrangements will align with the FCA's.

Issuers must segregate money and assets that form backing assets and reserves, allocate incoming payments promptly, perform daily reconciliation processes, and appoint third-party custodians to hold money and assets. Third-party custodians must be separate legal entities, but do not need to be completely unconnected to the issuer’s group. The Bank of England will permit asset pool excesses to be retained, up to 5% of the value of the stablecoin pool in the backing asset pool, and no limits to excesses retained in reserves.

Step-up approach, and systemic transition

Systemic stablecoins will be jointly regulated by the Bank of England and the FCA. The Policy Statement dovetails with the Approach to Joint Regulation of Systemic Stablecoin Issuers, which sets out how the regulatory interplay will operate.

Stablecoin issuers recognised as systemic at launch (SaL) will be subject to the 'step-up' approach. The intention is to help support viable business models as they scale while mitigating financial stability risks.

They will be permitted to hold up to 95% of their backing assets in sterling UK government debt as they scale, and 5% in unremunerated central bank deposits. The proportions will gradually adjust on a case-by-case basis to the standard 70%/30% composition, taking into account the need to mitigate financial risks without impeding the firm’s viability.

Firms moving from FCA requirements for non-systemic stablecoin issuers to meeting the requirements for systemic issuers might need a transition period. Issuers will be expected to meet the requirements as soon as possible, but the Bank of England will set a timeframe for each based on the firm's specific circumstances. A typical transition period is expected to take between 12 and 36 months.

The Bank of England's Supervisory Approach to Onboarding New FMIs and Approach to FMI Supervision will apply to both stablecoins SaL and those transitioning to systemic status.

Global context

Digital assets, including stablecoins, are "nowhere and everywhere at the same time", and stakeholders have jurisdictional choices. While the benefits of globally coordinated regulation are understood (eg BIS), there remains much international fragmentation and progress needed (eg the FSB and IOSCO reviews).

There are also bilateral initiatives. For example, while the UK-US Joint Statement on Stablecoins identifies substantial high-level common ground, there are differences in the detail. Meanwhile, the European Banking Authority and New York State Department of Financial Services Memorandum of Understanding is limited to a high-level supervisory focus. Importantly, these initiatives do not amount to direct equivalence of regimes, and details may vary materially.

The UK and EU regimes oblige real world asset-backed stablecoin issuers to hold 1:1 reserve coverage, but the EU does not require a proportion of backing assets to be held in unremunerated accounts. Only the UK has a liquidity backstop. The US approach is more fragmented, including both federal and state regulatory regimes, which are continuing to develop and evolve² .

The UK and US currently permit certain stablecoin-linked rewards. However, the EU currently prohibits the granting of interest or any interest-equivalent remuneration. The EU’s continuing review of MiCA may revisit aspects of that position. In the US, permissibility of stablecoin rewards and incentives remains subject to federal and state-specific guidance and currently is a topic of Congressional and market debate.

The UK (see 'Issuance limits') has proposed temporary per-stablecoin issuance caps. MiCA provides for restrictions on the issuance of stablecoins used widely as a means of exchange.

EU legislation does not currently prohibit multi-issuance stablecoins, while the UK's current position is that they are unsuitable for systemic UK use.

For non-UK issued non-sterling denominated systemic stablecoins, the Bank of England is considering a framework recognising home authority authorisation and regulation. This policy is unchanged from the 2025 consultation. The EU's MiCA Targeted Review asks whether and to what extent there should be a stablecoins Equivalence Regime. At the US federal level, the GENIUS Act addresses conditions under which non-US payment stablecoin issuers may offer or sell stablecoins into the US. Such foreign-issuer provisions, like the GENIUS Act more generally, remain subject to ongoing, active rulemaking by US federal regulators, and implementing rules have not yet been finalised.

Digital assets regulation can have wider macroeconomic and geopolitical goals too. For example, one goal of the USA's GENIUS Act is intended to cement USD dominance as the default reserve currency for global commerce. In turn, the EU aims to strengthen EU payment autonomy and enhance the international role of the Euro.

Regulatory timing and cadence are crucial too. The EU was one of the first jurisdictions to market. However, while MiCA only came into full effect on 1 July 2026, the Targeted Review (now closing 30 September 2026) perhaps indicates some first-mover disadvantage.

The features and dynamics of each country’s economy will differ, for example, sources of commercial bank funding. While one-size stablecoin regulation will not necessarily fit all, the markets are inextricably linked. UK regulators must strike a careful balance.

What's next?

Feedback on the Policy Statement and draft Systemic Stablecoin Issuer Code of Practice closes 22 September 2026, with the finalised Code of Practice due by the end of 2026. Feedback on the Approach to Joint Regulation of Systemic Stablecoin Issuers closes on 30 September 2026. And further Bank of England supporting material is due in 2027.

The Bank of England's Policy Statement lands in an already exceptionally busy digital assets 2026, including the Q3 2026 opening of the UK Cryptoassets Regime application window.

Other authors and key contacts: Joshua Klayman (USA), Senior Counsel; Simon Williams (UK), Counsel; Sid Ulker (UK), Counsel; Francesco Assi (France), Senior Associate