BoE drops caps, sets £40bn guardrail for sterling stablecoins

The Bank of England published a policy statement and a draft Code of Practice on Monday that replaces earlier fixed holding limits for sterling stablecoins with a temporary £40 billion issuance guardrail for each coin. The rules apply to tokens judged to be widely used for payments and that could threaten confidence in the financial system if disrupted.

The draft code assigns supervision of recognised systemic sterling stablecoins to the Bank of England. Stablecoins not designated as systemic and used mainly for crypto-asset transactions will remain under the Financial Conduct Authority’s supervision. The guardrail is temporary and the draft code replaces the previously proposed per-issuer fixed caps.

The central bank revised proposed backing-asset rules. Issuers may hold up to 70% of reserve assets in short-term UK government debt with residual maturities of up to six months, up from a previously proposed 60%. The remaining 30% must be held as unremunerated deposits at the Bank of England, reduced from an earlier 40% requirement. Reserve assets must be held in trust structures to protect coin holders in normal operation and in failure scenarios.

Issuers must also hold capital equal to the greater of six months of operating expenses or the estimated cost of recovery and orderly wind-down planning. The draft code prohibits systemic sterling stablecoin issuers from paying interest on coin holdings, while permitting activity-based rewards and other non-interest incentives when consistent with use as a means of payment.

On redemptions, the Bank set a maximum processing window of 24 hours from receipt of a full request. A full request is defined as the point at which the issuer has received the redemption instruction, completed anti-money-laundering and know-your-customer checks, and received the tokens in its wallet. The draft adds that requests should be processed as soon as practicable and within that 24-hour window.

Katie Harries, head of policy for Europe at Coinbase, described the rules as ‘deliver among the strongest stablecoin regimes in the world' and highlighted two outstanding questions: how long the per-coin cap will remain ‘temporary' and whether stablecoins will be eligible for settlement in core wholesale markets.

The Bank of England is accepting industry feedback on the draft code until Sept. 22. The central bank aims to finalise the regime by the end of 2026, with recognised systemic sterling stablecoin issuers able to begin operating under the new rules in 2027.