Bank of England Unveils Its Vision for Supervising Sterling-Backed Stablecoins

When the Bank of England publishes a consultation paper prefaced by Governor Andrew Bailey, the financial services sector takes notice. The November 2025 paper on systemic sterling-denominated stablecoins is no exception — it sets out the central bank's most detailed vision yet for how digital payment tokens should be regulated in the UK.

Stablecoins as payment infrastructure

The core premise of the bank's proposal is straightforward: stablecoins that become widely used for everyday payments could pose risks to the UK's financial stability, and therefore require regulation proportionate to that risk. This is not a theoretical concern. Global stablecoin transaction volume exceeded USD 33 trillion in 2025, and the bank is preparing to manage systemic effects before they materialize rather than after.

This proposal differs from earlier regulatory approaches in its focus on the "systemic" threshold. Non-systemic stablecoins — those not yet widely used for payments — remain solely under FCA oversight. Once a stablecoin crosses the systemic threshold, however, it enters a dual regulatory regime supervised by both the Bank of England and the FCA.

Backing requirements

The most significant aspect of the proposal concerns how stablecoin issuers must back their tokens. The bank proposes that systemic issuers hold a portion of their backing assets in short-term UK government debt and maintain deposit accounts directly with the Bank of England. This is a notable development: it effectively integrates stablecoin issuers into the same financial infrastructure that underpins traditional banking.

For users, this matters because it addresses a fundamental question that has shadowed the stablecoin market since its inception: when you hold a stablecoin, can you genuinely redeem it at par in fiat currency? The bank's answer is to require exactly that — "stability of nominal value, a robust legal claim, and the ability to redeem at par in fiat currency at any time".

Implications for the UK digital payments landscape

The practical implications extend well beyond stablecoin issuers themselves. If this framework succeeds in creating genuinely stable and well-regulated sterling tokens, the resulting acc