Bank of England and FCA set out joint approach for systemic stablecoin issuers

The Bank of England and the Financial Conduct Authority have published a joint approach document explaining how they will regulate systemic stablecoin issuers under the UK's developing stablecoin regime. The approach document aims to provide clarity for firms that issue, or may issue, UK stablecoins and for firms whose business models could scale into systemic payment use cases.

The key clarification is that systemic stablecoin issuers will not sit within a wholly separate regime. Instead, the UK is developing an integrated two-part framework: the FCA will regulate all UK-issued qualifying stablecoins and, in due course, their use in retail payments; where a stablecoin is widely used in payments and may pose risks to UK financial stability, its issuer may be recognised by HM Treasury and brought into joint regulation by the Bank and the FCA.

Why this matters

The joint approach document gives firms a clearer view of how the FCA and Bank regimes will interact, particularly for issuers moving from FCA-only regulation to joint supervision.
Recognition as systemic will be assessed case by case, with the Bank considering indicators such as scale, nature of use, substitutability, interconnectedness and use by the Bank in its monetary authority role.
Firms whose stablecoin propositions are designed for mainstream payments, corporate payments, settlement or other at-scale use cases should factor potential systemic recognition into their regulatory strategy from an early stage.
The regime is intended to support innovation and growth, but systemic issuers should expect more stringent requirements reflecting the Bank's financial stability objective.

How the UK framework will operate

Under the Banking Act 2009, HM Treasury may recognise a payment system or service provider as systemic after consulting relevant regulators. The Bank's approach to advising HM Treasury will be based on the statutory recognition criteria and applied holistically on a case-by-case basis. The assessment is forward-looking and requires judgement, reflecting the possibility that new stablecoin business models may scale quickly or create different financial stability implications depending on their use.

The regulators emphasise that the same level of activity may have different implications depending on how a stablecoin is used. A stablecoin used primarily for cryptoasset trading may raise different issues from one used for everyday retail payments, corporate payments or broader settlement activity. This supports a proportionate, risk-based approach but also means firms will need to consider not just current volumes, but intended use cases and credible growth plans.

Who could be caught?

A stablecoin issuer could be recognised by HM Treasury as an operator of a systemic payment system using a digital settlement asset, a systemic digital settlement asset service provider, or a firm providing essential services to a systemic payment system or systemic digital settlement asset service provider. The approach is therefore broad enough to capture different stablecoin business models and support infrastructure arrangements.

An issuer could also be recognised as "systemic at launch" where it is not yet operating at systemic scale but is likely to do so. This will be particularly relevant for firms launching with significant distribution, established financial institution backing, major payment partnerships or a business model designed for rapid adoption. Non-systemic UK-based qualifying stablecoin issuers will remain within the FCA regime.

Allocation of regulatory responsibilities

The Bank and the FCA describe the regime as an integrated two-part framework. The FCA's rules apply more broadly to stablecoin issuance and related cryptoasset activities, reflecting its consumer protection, market integrity, competition and secondary international competitiveness and growth objectives. The Bank's requirements are directed at financial stability risks that may arise where stablecoins become widely used as money at scale in everyday retail and corporate payments.

The authorities have sought to align requirements where appropriate, particularly to support clarity for issuers transitioning from FCA-only regulation to joint regulation. However, full alignment is not expected. Systemic stablecoin issuers should anticipate additional or more stringent requirements where necessary to address financial stability risk.

Transition to joint regulation

A central focus of the approach document is how an FCA-authorised stablecoin issuer would move into the joint regulatory framework following systemic recognition by HM Treasury. The authorities intend to manage this transition so that firms understand which FCA rules continue to apply, which may be disapplied, how Bank requirements will be phased in and how supervisory responsibilities will be allocated during the transition period.

The FCA and Bank will consult later this year on how FCA rules will apply when HM Treasury recognizes a stablecoin issuer as systemic.

Key points for firms and advisers

Financial services firms developing stablecoin products, payment infrastructure or custody and distribution arrangements should consider the following issues now:

Regulatory perimeter: whether the proposed activity involves issuance of a UK-issued qualifying stablecoin, payment use cases, custody, admission to trading or supporting infrastructure.
Systemic trajectory: whether the product could become widely used in payments or otherwise raise financial stability considerations, including through partnerships, distribution channels or planned scaling.
Regulatory sequencing: how FCA authorisation, potential HM Treasury recognition and Bank requirements would interact over the product life cycle.
Governance and resilience: whether governance, operational resilience, safeguarding, backing asset and redemption arrangements are capable of meeting more stringent expectations if the issuer becomes systemic.
Group structures: whether PRA, PSR or other regulatory requirements may overlap with the FCA and Bank regimes, particularly for banking groups, payment groups and firms providing critical services.
Contractual architecture: whether customer terms, redemption rights, reserve arrangements, service provider contracts and contingency arrangements are robust enough to support transition to systemic status.

Interaction with PRA and PSR regimes

The authorities recognise that some stablecoin issuers may also fall within the Prudential Regulation Authority's rules. In those cases, the relevant authorities will coordinate and engage with firms on a case-by-case basis to determine how regulatory and transition requirements apply where rules interact or overlap, for example in relation to group prudential requirements.

The Payment Systems Regulator currently regulates systemic and non-systemic payment systems and promotes competition, innovation and end-user interests for payment systems designated by HM Treasury. The FCA is expected to take on these responsibilities in the near term. Where a stablecoin also falls within the PSR's remit following designation by HM Treasury, the authorities will address the joint application of rules case by case.

Comment

The joint approach is a useful step towards a more coherent UK stablecoin framework. It should help firms understand the route from FCA-only regulation to joint FCA and Bank oversight, but significant practical questions remain. In particular, firms will need to work through how transition periods, rule disapplications, supervisory coordination and overlapping regulatory regimes will operate in practice. For firms with credible plans to scale stablecoin payment products in the UK, systemic regulation should now be treated as a design consideration rather than a remote future issue.