The Bank of England opens Consultation on sterling-denominated systemic stablecoins

On 10 November, the Bank of England (BoE) published its Consultation Paper [1] on a proposed regulatory regime for sterling-denominated systemic stablecoins [2]. This marks a pivotal step in shaping the UK’s approach to digital money and payments innovation.

The Paper sets out prudential standards for stablecoins that could become widely used for payments and therefore pose systemic risks. Final rules are expected in the second half of 2026, alongside a joint framework with the Financial Conduct Authority (FCA).

With other jurisdictions already moving, through the GENIUS Act in the US and MiCA in the EU, the UK must act to remain competitive. Stablecoins are expected to be central to the future of payments and financial infrastructure, and a robust regime is essential to support innovation, trust, and growth.

This paper reviews the key proposals in the Consultation Paper, highlights areas still to be clarified, and explores the implications for a critical use case: cross-border payments.

Key highlights from the BoE’s stablecoin proposals

The Consultation Paper outlines detailed proposals for future stablecoin issuers, covering areas such as capital requirements, asset safeguarding, operational resilience, and the supervisory approach. Below are three key highlights:

1. Backing assets
Issuers must back stablecoins with 60% short-term (under 1 year maturity) UK government debt and 40% non-remunerated cash held at the BoE (systemic issuers may initially hold up to 95% in short-term debt).This raises issues such as no remuneration on the cash portion discouraging issuance, due to opportunity costs. The BoE argues that stablecoin issuers won’t participate in monetary policy transmission, which is the basis for interest bearing deposits. But this may limit future innovation, especially around tokenised bank deposits for instance [3] or any potential future credit-based products. A more diversified blend of backing-assets, including longer-term government securities, could also help balance risk and cost.

No remuneration on cash portion of the backing asset could discourage issuance due to opportunity costs

2. Holding limits
To avoid destabilising the banking sector, the BoE proposes temporary holding caps: £20,000 per coin for individuals [4] and £10 million per business. These limits aim to protect credit provision during the transition phase where individuals and corporates acquire stablecoins [5]. However, the criteria for lifting these limits remain unclear.

For some use cases, including on cross border payments and correspondent banking, usage of sterling stablecoins would not be viable under these holding limits. This could create strong competitiveness issues with other jurisdictions with more advanced and flexible stablecoins projects.

3. Cross-border arrangements
The BoE proposes, to mitigate risks arising from transactions with non-sterling-denominated stablecoins, to engage with the issuer’s home authority, provided they have similar regulatory requirements, risk mitigation measures, supervisory approaches, and co-operation arrangements.

This appears to lack detail on how cross-border use cases such as correspondent banking will be supported. More clarity is needed to ensure interoperability and global relevance.

The case for cross-border payments and correspondent banking

We have written in other articles about the challenges faced by banks in their cross-border payments activities [6]: these include cost, operational complexity, and high Anti-Money Laundering risks.

The G20 has also identified the simplification of cross border payments as a key priority and initiatives such as Project Rialto [7] and Project Agora [8], led by the Bank for International Settlement (BIS), have been created to support this agenda.

The retail cross-border payments market is valued at more than $800 billion per year, yet remains costly, slow, and opaque.
— Bank for International Settlements

These projects are complementary as they seek to leverage tokenised assets like stablecoins and Central Bank Digital Currencies (CBDCs) to simplify cross border payments (retail for Rialto and wholesale for Agora) through usage of smart contracts (Foreign Exchange conversion for Rialto, multi-currency unified ledger for Agora) and settlement in CBDCs [9].

According to the BIS, “the retail cross-border payments market is valued at more than $800 billion of transactions per year” and is still growing. However, these transactions are less effective in terms of cost, speed, access and transparency because of the complexity of the underlying processes.

This is a challenge for correspondent banking activities because although the volume and value of transactions are growing, the number of correspondent relationship has shrunk by 30% over the past 10 years in sterling-denominated transactions [10].

In conclusion, Digital assets provide an opportunity to increase efficiency in cross-border payments, enhance services provided to customers, and generate growth for companies and the economy as a whole,  it is therefore critical that the regulatory framework to issue and use “sterling-backed” stablecoins is clear, comprehensive, and flexible enough to support growth and innovation in a strategic and highly competitive area.

It is interesting to note that this consultation paper does not mention plans about the usage of CBDCs, despite working in collaboration with the BIS on Agora and on experiments with tokenised bonds [11]. CBDCs will be another necessary tool to support the innovation in this space in the UK, but this will require both regulatory and political agendas in the coming months.

We will watch with interest the future developments: the Consultation period is expected to close in February 2026, and we will follow up when the BoE releases its full report with an advisory note on our recommended next steps to anticipate the release of the full joint-regulation publication with the FCA in H2 2026.

About ProjectiveGroup

Projective Group is opgericht in 2006 en is een toonaangevende change specialist voor de financiële dienstverlening. 

We worden binnen de sector erkend als leverancier van complete oplossingen en werken samen met klanten in de financiële dienstverlening om oplossingen te bieden die zowel holistisch als pragmatisch zijn.  We hebben ons ontwikkeld tot een betrouwbare partner voor bedrijven die willen gedijen en bloeien in een steeds veranderend landschap van financiële dienstverlening. 

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References

[1] Bank of England launches consultation on regulating systemic stablecoins | Bank of England

[2] For details around how stablecoins work - see in  Projective Group’s Journal of Financial Services – Future of Payment, page 42. :  “Stablecoins: a new technology, or older than the Knights of Templar?” - Paul H. Kupiec, Senior Fellow and Arthur F. Burns Chair in Financial Policy, American Enterprise Institute

[3] This is a use case explained in Projective Group’s paper : Whitepaper_Payment-Leg-On-Chain_Projective-Group_compressed.pdf

[4] The paper specifies that “holding limits would be implemented on a per-coin basis, and so, for example, an individual would be able to hold £80,000 in total across four different stablecoins at a given time.”

[5] The BoE has also released a dedicated paper on “The role of holding limits for sterling-denominated systemic stablecoins and a potential digital pound”

[6] See our Series on Financial Crime Risks in Correspondent Banking

[7] Project Rialto: improving instant cross-border payments using central bank money settlement

[8] We wrote about it and how it can help Correspondent Banking here : Financial Risk in Correspondent Banking series part 4

[9] For more on CBDCs mechanisms and how it supports the remediation of regulatory risks, see in Projective Group’s Journal of Financial Services – Future of Payment, : “The future of Payments: quo vadis Europe?” - Christophe Bonte, Senior Policy Adviser, European Banking Federation (page 110) and “CBDCs and the digital euro: AML compliance moves closer to the end-user” - Christian Sillaber, Senior Researcher, Department of Private Law, University Bern (page 176)

[10] See : CPMI correspondent banking chart pack page3

[11] More details on this in Projective Group’s Journal of Financial Services : A launchpad for Payments innovation: the renewed RTGS services (page 8) – Victoria Cleland – Chief Cashier and Executive Director for Payments, Bank of England : “The result of the firs experimental usage of wholesale CBDC, enabling a unified single ledger for  synchronised settlement of tokenized bond, is expected by the end of 2025.” (page12)