The Bank of England has introduced new regulations for systemic stablecoins, adjusting collateral requirements and setting issuance caps.
The Bank of England has announced new regulations aimed at systemically important stablecoins, revising collateral and issuance requirements for major issuers.
The updated framework reduces the reserve requirement for collateral from 40% to 30%, allowing the remaining 70% to be invested in short-term UK government bonds with maturities of up to six months. The central bank has ruled out the use of commercial bank deposits as collateral, citing potential financial stability risks during crises.
Instead of individual limits for citizens and businesses, a cap of £40 billion will be imposed on the total issuance of any single stablecoin, described as a temporary safeguard that may be adjusted as the financial landscape evolves.
Issuers must also guarantee that stablecoins can be redeemed for fiat currency within 24 hours at face value. To bolster the sector, the Bank of England plans to introduce an emergency liquidity mechanism in 2027, allowing issuers to borrow against government bonds as collateral.
The regulatory framework is expected to be finalized by the end of 2026 and will specifically target firms considered critical to the UK economy. This initiative has been developed in collaboration with the Financial Conduct Authority, which will soon release a joint market regulation framework.
Political Context
This regulatory announcement comes amidst political turmoil in the UK, marked by Prime Minister Keir Starmer's resignation following the Labour Party's recent electoral losses. The resignation was influenced by rising inflation driven by energy costs and geopolitical tensions. Andy Burnham is a potential candidate to succeed Starmer.
Earlier this year, the Bank of England also indicated a strategic shift towards Real World Assets (RWA) to modernize the economy.
