Bank of England expands innovation remit to stablecoins

The Bank of England has expanded its innovation framework to include systemic payment systems that use digital settlement assets, a move welcomed by sterling stablecoin banking providers. The central bank has made innovation a formal secondary objective and will report annually to Parliament on progress.

The revised framework, previously limited to central counterparties and securities depositories, now explicitly covers payment systems built on stablecoins and other digital settlement assets. Financial stability remains the Bank’s primary objective; the new secondary objective aims to increase public oversight through annual reporting while supporting payment and digital finance work.

City Minister Lucy Rigby said the change will “support the Bank to continue to drive innovation in payments and digital finance, ensuring that the UK remains a global leader in financial services.” Deputy Governor Sarah Breeden described the objective as one that will “further support” work already under way at the Bank.

The update follows debate over earlier draft rules that included per-holder limits of £20,000 for individuals and £10 million for businesses. Industry groups and a parliamentary committee warned those caps could push sterling stablecoin activity offshore. In June 2026 the Bank removed the per-holder caps, introduced a temporary aggregate issuance guardrail set at £40 billion per recognised systemic stablecoin, and relaxed reserve composition rules so issuers may hold up to 70% of reserves in short-term UK government debt, up from 60%, with the remainder held in central bank deposits that do not earn interest.

Market participants say the regulatory changes reduce uncertainty but do not replace the banking and custody infrastructure stablecoin issuers need. Issuers still require fiat-side banking arrangements to clear and settle transactions, custody arrangements that can hold and prove ownership of reserve assets if an issuer fails, and treasury systems to manage cash and liquid assets with real-time visibility for compliance.

Settlement infrastructure must be fast enough to align with token-level settlement on blockchains. Reserve custody needs to provide clear, auditable proof of ownership and segregation from issuer operating funds. Treasury systems must reconcile on-chain balances with bank and custody accounts to meet reporting and audit requirements.

The Bank plans to finalise its stablecoin code by the end of 2026, with recognised systemic issuers operating under the full regime from 2027. Industry advisers recommend that firms separate reserve assets from operating funds now, choose correspondent banking partners that can report balances at the individual account level, and build systems that can be adjusted if ratios or caps change again.

The UK changes align with international rules. The US GENIUS Act established federal reserve and custody standards for payment stablecoins in 2025, and the EU’s MiCA regime requires e-money token issuers to hold segregated reserves at credit institutions. Firms that operate across the US, EU and UK face pressure to use a single correspondent banking structure that meets segregation and audit requirements across jurisdictions.

Regulators and industry groups note the Bank’s expanded innovation remit is a governance change and does not provide the actual accounts or custody services issuers need. A licence or statutory regime will set rules for reserves and issuance but will not supply bank accounts or custody chains. The choice between named segregated accounts and pooled accounts with contractual protections remains an operational decision for issuers and their banking partners.

Observers say clearer institutional backing and a formal reporting requirement could affect where stablecoin operators choose to locate. How quickly firms establish compliant reserve custody and account-level reporting will determine whether more stablecoin banking activity appears onshore before the full regulatory code takes effect.