The UK government plans to expand the Bank of England’s remit. The BoE will take on a new responsibility supporting stablecoin and digital payments innovation.
The government has defined this responsibility as a “secondary objective.” Financial stability will remain the central bank’s primary objective.
The new objective will cover digital payment infrastructure, including systems that use stablecoins. The BoE will also report its progress to the UK Parliament each year.
However, the change has yet to take effect. The government will add the necessary amendments to the Financial Services and Markets Bill.
BoE will support digital payments innovation
HM Treasury announced the new objective on August 27. The announcement highlighted stablecoins, tokenisation and distributed ledger technology.
The Treasury wants payments regulation to keep pace with technological developments. The new statutory objective will require the BoE to support innovation safely.
City Minister Lucy Rigby said tokenisation and distributed ledger technology could transform global financial markets. Rigby added that the UK wants to maintain its position in financial services.
BoE Deputy Governor Sarah Breeden welcomed the government’s decision. Breeden said the objective would support the central bank’s work on payments technology.
Financial stability will continue to take priority. The BoE will not have to support projects that pose unacceptable risks.
The central bank will report annually on its work under the new objective. Parliament will therefore be able to monitor regulatory progress and payments innovation.
Stablecoin systems will fall under the new objective
The BoE already has a similar objective for certain financial market infrastructures. The Financial Services and Markets Act 2023 introduced this responsibility.
The existing objective covers central counterparties and central securities depositories. The government will now extend the same approach to systemic payment systems.
Payment systems using digital settlement assets will also fall within its scope. The official announcement specifically identified stablecoin systems as an example.
The BoE will oversee stablecoin structures considered important to the financial system. The Financial Conduct Authority will remain responsible for non-systemic crypto and stablecoin activities.
HM Treasury will decide whether a payment system has systemic importance. Its assessment will consider factors such as financial stability and market confidence.
UK prepares its stablecoin rules
The new objective comes as the BoE develops its stablecoin regulations. The central bank published draft rules for systemic stablecoins in June.
Under the BoE proposal, issuers could hold up to 70% of their reserves in interest-bearing assets. This portion would consist solely of short-term UK government debt.
Issuers would hold the remaining reserves in central bank accounts. The BoE said this structure would help them meet redemption requests.
The central bank also dropped its proposed temporary limits on individual stablecoin holdings. It instead proposed a temporary £40 billion issuance cap for each systemic stablecoin.
The BoE could remove this cap once risks to credit provision have eased. The central bank will accept feedback on the draft until September 22.
The BoE plans to publish its final rules by the end of 2026. Regulated stablecoins could begin operating in the UK in 2027.
The government will implement the new innovation objective through amendments to the Financial Services and Markets Bill. The House of Lords will debate the bill on September 7 and 9.
