The stablecoin landscape in the UK is rapidly evolving, with the Bank of England (BoE) and the Financial Conduct Authority (FCA) spearheading a framework that balances financial stability, innovation, and consumer protection. With stablecoin use shifting from speculative crypto trading to programmable digital payments, this evolution poses both an opportunity and a regulatory challenge for payment providers.
Recent consultations, pilot programs, and public speeches by the BoE and FCA underscore a strategic shift: enabling systemic stablecoins while maintaining control over monetary stability. This article explores the BoE’s regulatory outlook and its implications for payment providers, developers, and fintechs seeking to operate in the UK.
The BoE’s ‘Open-Minded’ Shift on Stablecoins
Governor Andrew Bailey has signaled a measured but optimistic stance toward stablecoins. Unlike past rhetoric, recent speeches emphasize stablecoins’ potential role in both wholesale and retail finance. However, the BoE draws a sharp line between crypto-backed stablecoins and those backed by fiat reserves. Only the latter will be permitted for systemic use in payments.
Bailey confirmed that stablecoins could play a meaningful role in wholesale financial markets if backed 1:1 by high-quality liquid assets and integrated with real-time gross settlement (RTGS) systems. While central bank digital currencies (CBDCs) remain a long-term project, systemic stablecoins could arrive sooner, especially with technical infrastructure maturing.
This shift shows an openness to innovation—provided it does not threaten the stability, safety, or singleness of money.
Unpacking Wholesale vs. Retail Regulatory Treatment
Wholesale Use
Stablecoins used for settling tokenized securities must integrate with the BoE’s RTGS system. Synchronization mechanisms are required to ensure atomic settlement—meaning both legs of a transaction occur together or not at all. Pilot projects like Project Meridian and the Digital Securities Sandbox are testing this in real time.
Retail Use
Retail stablecoins—those used for everyday purchases—will face limits per individual wallet (£10,000–£20,000) and strict redemption rights. Issuers must guarantee 1:1 convertibility to central bank money at all times. Caps may be raised as market confidence grows, but the BoE prioritizes public trust and financial stability.
This bifurcated model provides flexibility while ensuring each use case is regulated proportionately.
Backing Assets: From Zero Yield to High‑Quality Liquidity
Early BoE discussions suggested that stablecoin reserves must be held exclusively in central bank deposits—yielding zero interest. However, the latest frameworks allow flexibility: issuers may hold a mix of central bank deposits and high-quality liquid assets (HQLAs) such as UK gilts.
This shift follows industry feedback that zero-yield models would make business unsustainable. By accepting a prudent mix of safe assets, the BoE maintains safety while allowing stablecoin issuers to earn modest returns—critical for business models.
Issuers will still be required to ringfence reserves, maintain full daily redeemability, and submit to audits. Systemic issuers will also face stress tests and reserve concentration limits.
The BoE has emphasized that any yield on reserves must be used to support the stablecoin ecosystem—e.g., to fund redemptions, cover operational risk, or support user protection—not for speculative gains.
Technical Integration: Interoperability & RTGS Synchronization
BoE officials have emphasized that stablecoins will only be allowed to operate at systemic scale if they can be seamlessly interoperable with existing payment infrastructure.
To achieve this, stablecoin issuers will need to build “Synchronization Operators”—tools that link distributed ledger technology (DLT)-based tokens with central bank money in the BoE’s RTGS. The goal is atomic settlement: both sides of a transaction must execute simultaneously to prevent partial failure.
This architecture is already being tested via Project Meridian, which integrates tokenized real estate and stablecoins for delivery-versus-payment (DvP) settlement.
This interoperability ensures stablecoins don’t form a parallel payment system, but instead extend and enhance the safety of the existing infrastructure. For payment providers, developing sync operators and RTGS integration layers will be critical.
Navigating Financial Stability & the ‘Singleness of Money’
BoE Deputy Governor Sarah Breeden explains that “singleness of money” is the principle that all forms of money—cash, bank deposits, or stablecoins—must be interchangeable at par and easily redeemable. Without it, liquidity could become trapped, and confidence in money could erode if switching between money types becomes unreliable.
The BoE warns that if stablecoins become widespread without interoperability, we could see parallel monetary systems. In crises, users may prefer moving into one form of money—such as a trusted stablecoin—leading to runs and financial instability.
Governor Andrew Bailey emphasizes this threat, noting that private stablecoins could complicate the singleness of money and undermine public trust, potentially fragmenting monetary control and weakening policy tools.
At the Sintra central bank gathering, leaders highlighted that stablecoins threaten fiat sovereignty if not backed by clear standards and robust oversight. They stressed the need for international harmonisation in regulation and interoperability.
The BoE is addressing instability through several measures:
- Mandatory RTGS interoperability for all systemic stablecoins
- Pilot programs using atomic settlement to sync ledgers
- Reserve mandates, holding limits, audit obligations, and bank-like capital rules
While “singleness of money” is central, the BoE seeks to avoid stifling innovation. They favor a proportionate approach—where smaller stablecoins enjoy flexible rules until growing systemic importance requires stricter oversight.
Global & UK Regulatory Alignment
UK’s Coordinated Roadmap
The FCA published CP25/14 and CP25/15 in May 2025, proposing rules on stablecoin issuance and custody. Final rules are expected in 2026. HM Treasury’s draft legislation will bring stablecoin issuance and custody into the UK’s regulated financial activities framework.
There is active collaboration between HM Treasury, BoE, and FCA to synchronize guidance and prevent regulatory fragmentation.
International Synchronisation
In April 2025, the UK government exempted foreign stablecoin issuers from UK licensing—aligning with similar efforts in the US to foster competitiveness. The Bank of England is participating in BIS-led Project Agorá with six other central banks to develop programmable money standards that can replace or supplement private stablecoins.
Alignment with MiCA
The EU’s MiCA regime requires full licensing and strict reserve criteria. The UK offers a more flexible approach by exempting some overseas players and allowing phased compliance for domestic growth.
Strategic Implications for Payment Providers
Competing with Banks and Fintechs
Stablecoins could undercut bank fees but offer fintechs and payment providers new revenue streams. Retailers like PayPal and Amazon are exploring stablecoin models for settlement and loyalty integrations.
Ecosystem Coordination
Cross-border scalability depends on global regulatory alignment. The UK’s national payments strategy emphasizes unified infrastructure to accommodate both traditional and tokenized payments.
Compliance & Governance
Providers must prepare for dual regulation from the BoE and FCA. Systemic players will need bank-like reserve systems, governance boards, and audit trails.
Innovation Opportunities
Participating in the Digital Securities Sandbox, DLT Innovation Challenge, and Project Agorá can provide providers a first-mover edge in shaping programmable payments.
Adoption Challenges
Despite strong innovation, real-world stablecoin use remains under 10% of volume. Providers must address user trust and integrate with familiar systems.
Action Plan for Providers
Engage in Consultations
Submit responses to FCA’s consultations before July 31, 2025. Track HMT legislation updates through early 2026.
Join Sandboxes
Apply to pilot programs like the Digital Securities Sandbox and Project Agorá. These platforms allow live testing under regulatory oversight.
Upgrade Infrastructure
Develop synchronization operators and RTGS integration layers. Design treasury systems for 1:1 convertibility and liquidity under stress.
Strengthen Governance
Build oversight frameworks that meet systemic entity standards—covering treasury, compliance, auditing, and consumer protection.
Design Better Products
Enforce wallet limits, seamless convertibility, and par value guarantees. Offer programmable features such as time-locked payments or loyalty integration.
Market & Educate
Demonstrate regulatory compliance in your marketing. Publish whitepapers and host webinars to build trust and signal leadership.
Monitor Changes
Track FCA and BoE final rule announcements in 2026. Engage with industry groups like UK Finance to shape ongoing revisions.
The Bank of England’s stablecoin framework reflects a decisive shift
Enabling regulated innovation while preserving monetary sovereignty. By integrating stablecoins into RTGS, supporting flexible reserves, and piloting programmable finance, the BoE provides a blueprint for a tokenized future.
Payment providers that move early—by upgrading infrastructure, participating in pilots, and aligning with upcoming rules—will be best positioned to lead this next era of financial evolution.
