The Sterling-Denominated Stablecoins Regulation: Deadweight Or Guided Boosters?

The Bank of England (BoE) recently published a consultation paper seeking public views on a regulatory framework for sterling-denominated stablecoins. Cryptocurrency advocates argue that such a framework could hinder the UK stablecoin market before it fully develops – but in the authority’s eyes, it is imperative to protect the stability of the UK’s financial system. From a risk management standpoint, the BoE is right on the money.

Stablecoins, like Bitcoin and other cryptocurrencies, are digital assets that rely on distributed ledger technology. While all stablecoins are cryptocurrencies, not all cryptocurrencies are stablecoins. The key difference is that stablecoins are not computer-mined but issued by an organization. In addition, stablecoins are backed by assets held by the issuer and pegged to a fiat currency.

Under the proposed regulation, the UK Treasury would determine the level of relevance of each sterling-denominated stablecoin issuer based on a BoE recommendation. This would define the applicable regulatory framework, and which authority would oversee the issuer: the Financial Conduct Authority, the BoE or both.

The BoE proposes issuers deemed systemically important be subject to the highest level of oversight, based on five factors:

• Scale
• Nature of use
• Substitutability
• Interconnectedness
• Other elements relevant to the stablecoin’s context

Given that systemically important stablecoin issuers would have access to the payment system, the BoE suggests they adhere to widely accepted international standards. The most important requirements are:

• Issuers would hold up to 60% of their backing assets in short-term sterling-denominated UK government debt.
• At least 40% of reserves would be in the form of unremunerated deposits held by the BoE.
• Issuers must maintain liquid reserves sufficient to recover from the largest plausible loss event or equal to six months of operating expenses (whichever is higher).
• Issuers should hold additional capital requirements to reflect their business model and risk profile.
• Issuers must hold extra liquid reserves to cover the cost of continuing critical services and distributing or transferring coin-holders’ assets in the event of failure.
• Reserves must be adequately ring-fenced.
• Holding caps would be in place; £20,000 for individuals and £10 million for businesses (with some retail businesses and intermediaries exempt).

If implemented, these requirements would be burdensome and expensive, potentially limiting market development – although they would only apply to systemically important issuers. Less stringent obligations would still apply to non-systemic issuers.

While stablecoins provide market innovation, they also – in the eyes of regulators and central banks worldwide – introduce new risks. Chief among these: if the market loses confidence in an issuer, a run on that stablecoin could occur, causing a ‘depegging’ event equivalent to a currency devaluation. Individuals and businesses holding that stablecoin would find their holdings worth far less than expected, damaging their purchasing power. It would be even worse for those receiving salaries in that stablecoin. In addition, a run could trigger a mass sell-off of backing assets, affecting other stablecoins and threatening the stability of traditional markets.

On the flip side, having an adequate regulatory framework – characterized by central bank oversight – could further boost the public’s confidence in the stablecoin market. That might just be what the doctor ordered.

For more risk management content, check out Verdantix insights, and to learn more about how to navigate the intersections between risk, regulations and safety, register to attend the Verdantix Transform event in Amsterdam in March 2026.