Proposed modifications to the UK stablecoin regulatory framework suggest a more accommodationist approach by the central bank. Under the new draft rules, issuers of widely used stablecoins would be authorised to allocate up to 60 percent of backing assets to short-term government debt instruments, reversing earlier plans for full custody with the bank.
Regulatory Evolution
Initial consultations in 2023 envisaged stablecoin reserves held entirely in non-interest bearing accounts at the central bank. Feedback from the crypto industry prompted revisions to allow partial investment in government securities, with a 40 percent minimum deposit requirement retained. Consultation responses indicated concerns over cost structures and yield opportunities.
Temporary FCA Transition Regime
Tokens previously regulated by the Financial Conduct Authority will transition into the Bank of England regime under temporary provisions. Issuers qualifying as non-systemic may invest up to 95 percent of reserve assets in short-term sovereign debt during an interim period, facilitating operational continuity pending full compliance with prudential requirements.
Systemic Token Oversight
Tokens deemed capable of widespread payment use will fall under enhanced supervision. Criteria for systemic designation include market capitalization thresholds, transaction volumes and use case diversity. A central bank liquidity facility to provide short-term funding support for systemic issuers during periods of reserve asset illiquidity may form part of the final framework.
Industry Response
Crypto firms and industry associations issued statements praising the pragmatic shift while urging clarity on implementation timelines. Expectations surround potential yield benefits from government debt allocation, alongside concerns regarding counterparty risk and due diligence standards for securities holdings.
Next Steps
Formal consultation period set to close in early 2026, with final rules slated for implementation later in the year. Market participants anticipate coordination between UK and US regulators to harmonise stablecoin oversight, reducing fragmentation and fostering global interoperability.
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