SKN | Bank of England Set for New Innovation Mandate Covering Stablecoins

Key Points:

• The UK government plans to give the Bank of England a secondary objective to support innovation in payment systems and emerging forms of digital money.
• The proposed mandate would cover payment systems using stablecoins, tokenization and distributed ledger technology, while financial stability remains the BoE’s primary responsibility.
• The initiative comes as the UK expands stablecoin experimentation and works with the US to improve regulatory coordination for cross-border digital payments.

The UK government is preparing to expand the Bank of England’s remit to include a formal objective supporting innovation in digital payments, placing stablecoins and other forms of digital money closer to the center of the country’s financial infrastructure strategy.

HM Treasury said Thursday that the proposed secondary objective would require the central bank to support innovation in payment systems and emerging forms of digital settlement assets, including stablecoins. Financial stability would remain the BoE’s primary objective, meaning innovation efforts would operate within existing safeguards for the financial system.

BoE Innovation Mandate Heads Toward Parliament

The proposed responsibility would build on an approach already used for central counterparties and central securities depositories, institutions responsible for clearing, holding and settling financial assets.

Under the planned framework, the Bank of England would report annually to Parliament on its progress toward the payments innovation objective. The government intends to implement the change through amendments to the Financial Services and Markets Bill, with further debate in the House of Lords scheduled for Sept. 7 and 9.

City Minister Lucy Rigby said developments involving digital payments, tokenization and distributed ledger technology could transform financial markets globally.

The reporting requirement could become an important measure of how actively the central bank supports emerging payment infrastructure while maintaining its core financial-stability mandate.

Stablecoin Rules Remain a Key Constraint

The proposed mandate comes as the BoE prepares to oversee an expanding stablecoin market in the UK. However, the framework also faces concerns about the commercial viability of regulated stablecoin issuers.

Maksym Sakharov, co-founder and CEO of on-chain banking infrastructure provider WeFi, said the innovation objective would remain secondary to financial stability and therefore would not override the central bank’s existing responsibilities.

He highlighted the BoE’s requirement for systemic stablecoin issuers to maintain at least 30% of backing assets in non-interest-bearing deposits at the central bank. From an industry perspective, the reserve structure could affect the economics of operating a large stablecoin.

The issue illustrates the challenge facing regulators: stablecoins can provide faster and more programmable payments, but their integration into the financial system requires rules governing reserves, liquidity and systemic risk.

UK Expands Digital Money Experiments

The proposed mandate is part of a broader UK effort to develop stablecoin and digital-payment infrastructure.

In August, participants in the Bank of England’s Digital Pound Lab tested whether a stablecoin could operate alongside a simulated digital pound in a cross-border trade payment. The experiment did not involve real customers or funds but was designed to examine interoperability between different forms of digital money.

The UK has also been coordinating with the United States. In July, both governments published a joint statement saying they intended to enable stablecoin use in cross-border finance while seeking greater alignment between their regulatory approaches.

The BoE has meanwhile adjusted its approach to stablecoin limits. Rather than imposing previously proposed individual and corporate holding limits, it adopted a temporary £40 billion ($52.9 billion) issuance cap for each systemic stablecoin.

The proposed innovation mandate therefore arrives as the UK attempts to balance two competing priorities: encouraging stablecoins and tokenized payments to develop within regulated markets while ensuring that faster digital settlement does not compromise financial stability. The effectiveness of the policy will depend on whether the BoE can translate its new innovation objective into practical infrastructure development without weakening its risk controls.