Bank of England Recognizes Stablecoins as New Form of Money, Plans to Open Regulatory Applications by Year-End

The UK's Financial Conduct Authority (FCA) is establishing issuance and reserve-asset rules for fiat-backed stablecoins, with a focus on ensuring that tokens can be redeemed at face value and protecting holders if an issuer fails. Capital thresholds affect issuance costs and market competition, making them a key part of implementing the UK's crypto-asset regulatory framework.

In its final rules, the FCA cut the capital requirement for stablecoin issuers to half the level previously proposed, easing funding pressure on compliant firms. The available event information does not specify the minimum capital amount, calculation ratio, publication date or effective date. The only confirmed change is a 50% reduction in the capital requirement.

The UK's Financial Conduct Authority, or FCA, is advancing a comprehensive crypto-asset regulatory regime covering stablecoins, trading, custody and staking services. Firms will be required to obtain authorization and comply with capital and consumer-protection rules. The initiative will test whether Britain can remain attractive to global crypto companies while containing market risks.

The FCA has moved from industry consultation to finalizing the rules, with the final framework scheduled to take effect on October 25, 2027. The stablecoin capital-buffer threshold has been cut to 1%. License applications are expected to open in September, and firms must prepare for the February 2027 authorization deadline. Exchanges and staking providers will both come under the regime.

The UK is developing a regulatory regime for systemic stablecoins, with the Bank of England overseeing issuers that have a significant role in payments. The House of Lords Financial Services Regulation Committee supports establishing rules but says the UK is already behind the United States and European Union. It warned that excessive compliance costs would weaken sterling stablecoins’ competitiveness in development, investment and cross-border payments.

The committee’s latest report warned that the BoE’s proposed framework could make sterling stablecoins “commercially unviable.” It specifically questioned proposed holding limits of £20,000 for individuals and £10 million for businesses, as well as restrictions on issuers earning returns from reserve assets. The report called on regulators to present stronger evidence before the regime formally takes effect and to balance financial stability with market innovation.

The Bank of England is developing a regulatory framework for “systemic stablecoins” that could be widely used for payments and have implications for financial stability, allowing them to operate as a “new form of money.” The rules focus on reserve assets and redemption capacity. They are central to both innovation in the UK payments market and the safety of the financial system, and are distinct from regulations governing ordinary stablecoins.

The latest draft sets an initial issuance cap of £40 billion for systemic stablecoins and allows issuers to place up to 70% of their reserves in interest-bearing assets, balancing returns and liquidity. The relevant threshold is expected to take effect in the month after the draft is published, while the full regime is planned for implementation in 2027.

The UK is moving to bring digital assets under formal financial regulation. Stablecoins are seen as an important tool for improving market efficiency because they can support payments, settlement and asset tokenization. The Financial Conduct Authority and the Bank of England will operate a dual-track regime, overseeing ordinary and systemically important stablecoins, respectively, while strengthening alignment with US standards.

The UK Treasury recently said digital assets have the potential to transform financial markets. It plans to launch the stablecoin regulatory regime in the second half of 2026 and expects to open applications for systemic stablecoin licenses by year-end. The Bank of England has also described stablecoins as a “new form of money,” stressing that it will not prejudge the choice between stablecoins and tokenized deposits.

The Bank of England is developing rules for systemically important sterling stablecoins amid concerns that rapid bank deposit outflows could constrain lending to the real economy. Its November 10, 2025 consultation therefore proposed temporary holding limits of £20,000 per individual for each stablecoin and £10 million for businesses. Unhosted wallets, where users control their own private keys, have become a focal point in debates over privacy, anti-money laundering and open payments.

On May 6, 2026, stablecoin issuer tGBP, Xapo Bank and Bitcoin Policy UK publicly opposed restrictions on unhosted wallets, warning that they would undermine remittances, peer-to-peer transfers and the competitiveness of the UK's fintech sector. However, Bank of England Deputy Governor Sarah Breeden clarified in a March 26 letter to the House of Lords that unhosted wallets would not be subject to a blanket ban but would have to meet regulatory standards. The industry argues that the practical hurdles could still amount to an effective ban.

Stablecoins are digital assets pegged to fiat currencies, and Circle-issued USDC is one of the company’s main products. The European Union has established rules through MiCA, while the United States has advanced regulation through the GENIUS Act. How Britain aligns itself with the two major markets will help determine whether London can retain its position as a fintech and cross-border payments hub.

Circle policy chief Dante Disparte recently told a UK House of Lords committee that Britain should combine MiCA’s regulatory clarity with the institutional strengths of the GENIUS Act to develop its own crypto and stablecoin rules. He warned that continued regulatory inaction would drive related businesses and capital overseas, weakening London’s global competitiveness.

Stablecoins backed by fiat currency and high-quality government securities combine the efficiency of onchain payments with deposit-like functionality, potentially drawing deposits away from commercial banks and affecting lending. The UK House of Lords is therefore examining the regulatory approaches of the Bank of England and the Financial Conduct Authority, focusing on financial stability, redemption risks and anti-money-laundering responsibilities.

A March 4, 2026, report said the House of Lords questioned Coinbase Vice President of International Policy Tom Duff Gordon. He said regulated stablecoins are backed 1:1 by cash and high-quality government securities, redeemable at par, and subject to KYC, AML and sanctions screening. The hearing did not address transaction values. He warned that overly stringent rules, including holding limits, could leave the UK trailing the U.S. GENIUS Act and the European Union's MiCA framework.

The UK Financial Conduct Authority is developing a regulatory framework for stablecoins covering issuance, payments and reserve management. Its regulatory sandbox allows companies to test products in a controlled environment while giving the regulator insight into risks. The results will shape the UK's final rules and the competitive landscape of its digital asset market.

The FCA has selected Revolut, Monee, ReStabilise and VVTX to test stablecoin issuance and payments in the sandbox in the first quarter of 2026. The program will examine how their products operate under the proposed rules and inform the final framework. Test amounts, issuance volumes and individual launch dates have not yet been disclosed.