UK to Give Bank of England Secondary Mandate for Stablecoin and Digital Payments Innovation

The Bank of England will take on a new statutory duty to support innovation in payment systems and digital money, stablecoins included, under amendments to the Financial Services and Markets Bill heading to the House of Lords next month.

HM Treasury announced the move on Wednesday. The objective is secondary, subordinate to the BoE’s existing financial stability mandate, and carries a requirement that the central bank report annually to Parliament on its progress advancing payments innovation. Lawmakers are scheduled to debate the bill on Sept. 7 and 9, according to Cointelegraph.

In practical terms, the BoE gets a legal obligation to foster stablecoin and digital-payments development. It does not get permission to soften its stability watchdog role. The model extends an approach already applied to central counterparties and central securities depositories, which help clear, hold, and settle financial assets. Decrypt reported that the objective follows sustained criticism from crypto firms accusing the BoE of an overly conservative approach to digital assets.

“Whilst financial stability will always remain the Bank’s primary objective, this secondary objective will support the Bank to continue to drive innovation in payments and digital finance, ensuring that the UK remains a global leader in financial services,” City Minister Lucy Rigby said in a statement. Rigby added that tokenization and distributed ledger technology could transform financial markets.

Sarah Breeden, deputy governor for financial stability at the BoE, echoed the framing. “The bank is doing a huge amount, together with government and other authorities, to maintain trust and drive innovation in UK payments,” she said. “This new secondary objective will further support that.”

The mandate lands on top of stablecoin rules the BoE finalized in June. Those rules dropped earlier proposals to cap individual stablecoin holdings at 20,000 British pounds and business holdings at 10 million pounds. In their place: a temporary 40 billion pound ($52.9 billion) issuance limit for each systemic stablecoin. The BoE also cut the share of backing assets that issuers must park in zero-interest deposits at the central bank, a change aimed at making UK stablecoins commercially viable against rival jurisdictions.

Systemic stablecoin issuers are still required to hold at least 30% of backing assets in non-interest-bearing central bank deposits, according to Maksym Sakharov, co-founder and CEO of WeFi. “The reserve split is the first thing to fix,” Sakharov said, arguing the requirement could determine whether a stablecoin business is commercially workable. Applications from would-be issuers of systemic sterling stablecoins are due to open by the end of the year, Decrypt reported.

“The objective is secondary to financial stability, so it overrides nothing, but the bank will have to publish an annual account of its innovation efforts in payments and digital money,” Sakharov said.

The legislative step comes as Britain works to keep pace with the US and EU on stablecoin regulation. The EU’s Markets in Crypto-Assets regulation applied to stablecoin issuers from June 2024, with the full framework in force by December 2024. The US followed with the GENIUS Act. Roughly 99% of stablecoins in circulation are dollar-denominated, Sasha Mills, the BoE’s executive director for financial market infrastructure, told a conference in May. The BoE governor has flagged a coming tussle with Washington over who supervises them.

Mills has said stablecoins are “a new form of money” that must be held to the same standard as existing forms. In mid-July, the UK and US published a joint statement saying they “intend to enable the use of stablecoins in cross-border finance” and calling for greater alignment of their regulatory frameworks.

In August, a group in the BoE’s Digital Pound Lab began testing whether a stablecoin and a simulated digital British pound could work together in a cross-border trade payment. The experimental platform does not use real customers or money.

Whether Parliament passes the amendment in September or rewrites it remains open. The exact text of the objective has not been published in either source.