As digital assets become more embedded within mainstream financial services, regulators are defining regulatory frameworks for crypto activities and supervisory frameworks for both crypto-native and traditional finance firms who undertake them. Stablecoins have become increasingly popular, drawing regulatory scrutiny as global regulators began regulating stablecoin issuance in 2025. In the UK, smaller non-systemic financial services firms are regulated by the FCA alone, making them ‘solo-regulated,’ while larger systemic firms are regulated by both the FCA and the PRA within the Bank of England, making them ‘dual-regulated.’ Under this split, non-systemic stablecoin rules would be defined by the FCA and systemic rules by the BoE, with the determination of systemic status based on scale, nature of use, substitutability, interconnectedness, and other factors such as branding and ambition.
Backing assets—cash, government bonds, and other high-quality investments—back stablecoins and cover liabilities, with requirements on asset types and proportions set by the regulators. Issuers must structure their backing pools to include core assets such as on-demand deposits and short-dated UK government debt, while expanded assets like long-dated government debt, reverse repos, and public debt MMFs may be allowed with FCA notification and BACR monitoring. They will need risk-management tools for backing assets and must comply with the BACR and a 5% on-demand deposit floor. Up to 60% of backing assets can be in short-term government debt and up to 40% in BoE deposits to meet redemptions; systemic issuers may reach 95% in UK government debt as they scale, reducing to 60% at full scale.
Repurchase agreements may be used to provide liquidity, but issuers are not allowed to borrow funds to fund the backing pool except through repos. Systemic issuers may lend securities via repos to generate liquidity, but general borrowing via repos is not permitted.
Redemption must be guaranteed at par by the end of the business day after a valid request, subject to exemptions, with deviations from the 40:60 split allowed only to meet large redemptions and settled the same day. Systemic issuers should have direct access to payments; if not, they may hold a cash float to facilitate redemptions, and they must manage risks related to distributed ledger technology, with public permissionless ledgers potentially acceptable if BoE expectations are met. Safeguarding requires backing assets to be held by regulated custodians in segregated accounts, with custody covering the tokens and keys. Capital and reserves are £150k for safeguarding firms and £350k for issuers, held on statutory trusts, with holding limits at £20,000 for individuals and £10 million for businesses to be loosened over time, and remuneration rules prohibit interest on systemic coins.
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