The Bank of England’s June framework allows systemic stablecoin issuers to hold up to 70% of backing assets in interest-bearing short-term UK government debt, up from 60% in the Bank’s 2025 proposal. The remaining balance would sit in Bank of England deposits, preserving a pool intended to support immediate redemptions.
That adjustment is important because it makes the economics of a payment stablecoin less punitive without abandoning the liquidity safeguards that distinguish it from an ordinary investment product. Now the government wants the Bank’s remit to include a secondary objective to support innovation in payment systems and emerging digital money—an explicit instruction that commercial feasibility should matter, though not more than financial stability.
An innovation objective for systemic stablecoins
On August 27, HM Treasury announced plans to give the Bank the secondary objective. Financial stability would remain its primary objective, and the Bank would have to report annually to Parliament on its progress.
The proposed change is not a general instruction to promote all forms of cryptoasset activity. It is intended to extend the Bank’s existing innovation mandate for central counterparties and central securities depositories to systemic payment systems, including those using digital settlement assets such as stablecoins. In practical terms, it brings an innovation consideration into the part of the market where a stablecoin’s payment use has become large enough—or potentially risky enough—to warrant Bank supervision.
The statutory route matters. The government expects to amend the Financial Services and Markets Bill, with House of Lords debates scheduled for September 7 and 9, 2026. Annual reporting creates a measure of public accountability, but the objective’s significance will ultimately depend on how it is reflected in supervisory decisions and final rules.
The policy tension is already visible in the Bank’s framework. Ministers are seeking a regulator that can accommodate new payment infrastructure; the Bank is designing a regime on the premise that a stablecoin used at scale can affect the wider financial system. The new objective formalises pressure to navigate that tension rather than resolving it in favour of looser rules.
Reserves and issuer economics
The Bank’s June policy statement allows 70% of backing assets to sit in interest-bearing short-term UK government debt and requires the remaining 30% to be held in Bank of England deposits. The Bank’s announcement identifies the purpose as improving issuer economics while preserving immediate redemption liquidity.
The same framework abandons proposed temporary individual holding limits. Instead, it sets a temporary aggregate issuance guardrail of £40 billion for each systemic stablecoin.
Its stated aim is to protect credit supply during the transition to a new form of money. The restriction applies at system level rather than user level: households and businesses remain free to use systemic stablecoins without individual caps.
Payment use, not yield
The same distinction runs through the Bank’s approach to returns. Issuers will be prohibited from paying interest linked to holding or retaining a systemic stablecoin. They may, however, offer payment-linked incentives, discounts and rewards, under the Bank’s policy statement.
This line is designed to keep a systemic stablecoin in the category of payment money rather than turn it into a yield-bearing alternative to a deposit or investment product. It also leaves issuers and payment providers with ways to encourage use at checkout or within payment networks. A discount for paying with a coin and interest for simply holding it may both be commercially valuable, but the regulatory treatment separates their economic roles.
The removal of individual holding limits fits that model. Households and businesses can use a systemic stablecoin without a personal ceiling, provided total issuance remains inside the temporary £40 billion guardrail. For payment adoption, that is more permissive than a rule that treats every large user balance as inherently problematic.
It does not mean systemic stablecoins will compete on every dimension with bank deposits. The regime permits a reserve structure that can support an issuer, but it prevents the issuer from sharing returns with coinholders merely for retaining the token. That boundary may narrow the appeal for users seeking yield, while focusing competition on payments functionality, incentives and acceptance.
A narrow systemic market
The Bank’s innovation objective will apply to a narrower market than discussion of “stablecoin regulation” can imply. Its rules cover only stablecoins recognised as systemic by HM Treasury: coins widely used in payments or otherwise capable of threatening UK financial stability.
Stablecoins are predominantly used today for cryptoasset trading, and that activity remains outside the Bank’s systemic regime and solely under Financial Conduct Authority supervision. The Bank’s framework is therefore not a rulebook for the dominant current use of stablecoins; it is a framework for the potential payment-market segment that reaches systemic importance.
This institutional divide also produces two implementation tracks. The Bank intends to finalise its Code of Practice by the end of 2026, and expects regulated stablecoins to operate in the UK from 2027. The FCA’s broader cryptoasset regime, including stablecoin issuance, is scheduled to begin in October 2027.
The timing suggests that the policy debate is not only about the destination of UK stablecoin regulation but also about which regulator governs which activity as the market develops. A payment coin that becomes systemically significant would be subject to a different regulatory logic from a stablecoin used mainly in crypto trading, even if both are described with the same label.
Innovation does not create insured money
Systemic stablecoin holdings will not be covered by the Financial Services Compensation Scheme.
If backing assets and reserves prove inadequate in a failure, coinholders could receive less than 100 pence per pound, the Bank says. It compares their position to that of uninsured bank depositors.
Stronger regulation may reduce or manage risks without transferring failure losses to the FSCS. The Bank says regulated systemic stablecoins may begin operating from 2027, but they would remain regulated payment instruments rather than insured money held in protected bank deposits.
