SwanFS Analysis of the Bank of England’s Proposed Regulatory Regime for Systemic Sterling Stablecoins
- James Ross
- Nov 11
- 18 min read
Introduction: A ‘Multi-Money’ System and the Grand Bargain: Contextualising the November 2025 Consultation
The Bank of England (BoE) consultation paper (CP) published on 10 November 2025, ‘Proposed regulatory regime for sterling-denominated systemic stablecoins’, represents a pivotal and pragmatic evolution in the United Kingdom’s approach to digital assets. This document is not a preliminary discussion; it is a mature, highly detailed, and commercially aware proposal. It has been substantially shaped by extensive stakeholder engagement following the BoE’s November 2023 Discussion Paper (DP).
The BoE’s stated objective is to design a “robust, future-proof” regime that supports innovation while maintaining public trust in money. This framework is intended to enable privately issued systemic stablecoins to operate as a new form of digital currency alongside commercial bank money and, potentially, a central bank digital currency (CBDC), such as the ‘digital pound’. This vision is explicitly aligned with the wider National Payments Vision and the strategy to modernise UK retail payments.
This 2025 proposal is best understood as a direct response to the critical feedback on the 2023 DP. The 2023 paper had proposed that systemic stablecoin issuers back 100% of their liabilities with unremunerated deposits held at the Bank of England. Industry feedback, which the BoE notes it has “listened carefully to”, overwhelmingly concluded that this 100% deposit model was commercially unviable. Respondents argued it would present “challenges for... a commercially viable business model”, stifle innovation, and create an uneven playing field.
Consequently, the November 2025 CP tables a new, complex “grand bargain.” The BoE is offering a new pact to the industry, which can be defined as follows:
The Offer (Commercial Viability): The BoE will concede on the 100% unremunerated deposit model. In its place, it proposes a revenue-generating backing asset mix (a 40/60 split), a transitional “step-up regime” for new issuers, and a new central bank “liquidity backstop”.
The Price (Prudential Control): In exchange for this viability, issuers must submit to stringent prudential control. This includes temporary but restrictive holding limits to manage financial stability, a strict prohibition on paying interest to coinholders, and a requirement to operate from a UK-domiciled subsidiary with assets held onshore.
This shift from a position of theoretical prudential purity in 2023 to a negotiated, pragmatic settlement in 2025 demonstrates a move from a “prevention” footing to one of “managed engagement.”
This report will dissect this “grand bargain” in detail. It will provide an exhaustive analysis of the new regulatory architecture, the core policy shift on backing assets, the controversial holding limits, the latest central bank support mechanisms, and the granular rulebook for issuer operation.
1. The Architecture of UK Stablecoin Regulation: Defining the ‘Systemic’ Perimeter
The proposed framework establishes a clear, multi-layered regulatory architecture, strictly delineating which firms and activities fall within the BoE’s new systemic regime and which remain outside of it.
1.1. The ‘Recognition’ Gateway: The Role of HM Treasury
The BoE’s regime does not apply to all stablecoins. The entry point is a formal “recognition” by HM Treasury (HMT) that a sterling-denominated stablecoin, or the payment system using it, is “systemic”.
HMT’s decision to recognise a payment system is based on an assessment of its potential impact on the UK financial system. The criteria include whether any “deficiencies... or any disruptions” to its operation would be “likely to threaten the stability of, or confidence in, the UK financial system” or “have serious consequences for businesses or other interests throughout the UK”. This definition is inherently forward-looking and can apply to firms that have the potential to become systemic, not only those that have already achieved scale.
1.2. The Dual-Regulatory Partnership: Delineating BoE and FCA Remits
Once HMT designates a stablecoin issuer or payment system as systemic, the firm will become “dual-regulated”. This partnership model is designed to leverage the distinct expertise of the UK’s two central financial regulators.
Bank of England (BoE): The BoE will act as the primary prudential regulator, focusing on systemic financial stability. Its remit will cover prudential requirements (such as backing assets, capital, and liquidity), the management of systemic risk, and the supervision of the core issuer and payment system operator under the Banking Act 2009.
Financial Conduct Authority (FCA): The FCA will act as the conduct regulator, overseeing consumer protection and market integrity. Its remit will include the conduct of business rules, standards for consumer-facing disclosures, and ensuring market integrity. The FCA will also be the primary supervisor for custodial wallet providers, applying regulations inspired by the Client Assets Sourcebook (CASS). However, the BoE reserves the right to regulate a custodian directly if HMT recognises it as systemic in its own right.
This dual-regulatory structure is clarified in the table below.
Table 1: Division of Regulatory Responsibilities for Systemic Stablecoins
Regulatory Domain | Bank of England (BoE) | Financial Conduct Authority (FCA) |
Primary Remit | Prudential supervision & financial stability | Conduct, consumer protection, market integrity |
Issuer Status | Regulates the systemic payment system issuer/operator | Regulates the firm’s conduct with users |
Backing Assets | Sets rules for composition, capital, liquidity (40/60) | N/A (BoE lead) |
Consumer-Facing | N/A (FCA lead) | Enforces consumer protection, disclosure, and conduct rules |
Custodial Wallets | Relies on FCA rules, but reserves the right to regulate if systemic | Primary regulator for wallet providers (CASA-style rules) |
Non-Systemic Coins | N/A | Sole regulator |
1.3. The ‘FCA-Only’ Regime: Carving Out the Non-Systemic Market
The BoE’s CP explicitly states that its new regime will not cover stablecoins used for “non-systemic purposes”. This carve-out is significant, as the BoE acknowledges this non-systemic use—primarily “the buying and selling of cryptoassets”—is the “predominant use of stablecoins today”.
Such stablecoins, which would include existing non-sterling tokens like USDT and USDC, will not be subject to the BoE’s prudential regime. Instead, they will be supervised solely by the FCA under its own forthcoming regime for cryptoassets.
This dual-regime setup creates a “regulatory cliff edge.” A successful FinTech likely launches a stablecoin under the lighter “FCA-only” regime. If it expands into retail and corporate payments, it will face recognition by HMT and the stricter BoE prudential regime, including asset split and capital rules. This shift is a key strategic risk for stablecoin issuers. The main reason for the BoE’s ‘Step-Up Regime’ is to bridge this gap, helping firms gradually meet full prudential standards.
1.4. The Path to Implementation: 2026 Timeline
The BoE has outlined a clear timeline for implementation. The current consultation is open for feedback until 10 February 2026.
Following a review of this feedback, the BoE and the FCA will publish a joint approach document during 2026. This document will be critical, as it will clarify the practical application and day-to-day interaction of the dual-regulatory regime, supporting a “smooth transition” for firms. Finally, the BoE will consult on and then finalise its detailed “Codes of Practice” later in 2026, setting out the granular requirements for systemic stablecoins. Final rules are expected to take effect in the second half of 2026.
2. Core Prudential Mandate: The 40/60 Backing Asset Regime
The most significant policy shift in the 2025 CP concerns the composition of backing assets. This change is a direct, public response to industry feedback and is the central pillar of the new “grand bargain.”
2.1. The 2023 Proposal: The “Safety-First” 100% Deposit Model
The 2023 Discussion Paper proposed that systemic stablecoin issuers back 100% of their liabilities with unremunerated deposits held at the Bank of England. This was a “safety-first” model that eliminated all market and liquidity risk from the backing assets.
However, industry feedback, which the BoE “strongly” disagreed with this proposal, highlighted several critical flaws:
Commercial Viability: It presented “challenges for stablecoin issuers whose revenues are mainly derived from backing assets, to set up a commercially viable business model in the UK”.
Anti-Competitive: It would “predominantly benefit firms that are large from the start” and could “constrain innovation”.
Uneven Playing Field: It created an “uneven playing field” with the FCA’s non-systemic regime and other international jurisdictions, which were expected to allow yield-bearing assets.
Transition Risk: The stark difference between the FCA and BoE regimes would “pose significant transition risks” for scaling firms.
The following table summarises this critical policy evolution.
Table 2: Evolution of Backing Asset Policy: 2023 DP vs. 2025 CP
Policy Area | 2023 Discussion Paper Proposal | 2025 Consultation Paper Proposal | Stated Rationale for Change |
Backing Assets | 100% unremunerated deposits at the Bank of England. | Min 40% unremunerated BoE deposits. Up to 60% in short-term UK government debt. | “Substantial changes... in response to industry feedback.” The 2023 proposal was “commercially unviable”. |
Revenue Model | None from backing assets. | Issuers can earn yield on up to 60% of backing assets. | To “support innovation and business model viability”. |
Liquidity Risk | None. 100% liquid central bank money. | The issuer holds 40% in liquid cash and 60% in gilts, which carry market/liquidity risk. | To ensure issuers can meet “unanticipated and rapid redemption requests”. |
2.2. The 2025 Proposal: A New “Balance” of 40/60
In what the BoE itself describes as a “substantial change”, the new CP proposes a two-part backing structure:
At least 40% of backing assets must be held as unremunerated deposits at the Bank of England.
Up to 60% of backing assets can be held in short-term, sterling-denominated UK government debt.
This 40/60 split is a carefully calibrated compromise, designed to provide a “balance” between prudential safety and commercial viability.
2.3. Rationale for the 40% (Minimum) BoE Deposit
The 40% minimum deposit in an unremunerated BoE account is the BoE’s non-negotiable anchor for financial stability.
The express purpose of this high-quality liquid buffer is to ensure that issuers “have enough liquid assets to meet unanticipated and rapid redemption requests”. Central bank deposits provide “immediate access to funds”, allowing an issuer to meet redemption demands “in real time wherever possible”. The BoE states that this 40% threshold is not arbitrary; it is “aligned with the Bank’s estimates of possible short-term redemption requests” based on outflow rates observed in historical stress events in both traditional and crypto-asset markets.
The BoE is also firm that these deposits will be unremunerated. The rationale provided is that the “primary rationale for remunerating central bank reserves held by commercial banks” is their role in the transmission of monetary policy. The BoE expects stablecoin issuers to “play a minimal role” in this transmission, as they will not be engaged in lending, and thus they do not qualify for remuneration.
2.4. Rationale for the 60% (Maximum) Gilt Allowance
The allowance to hold up to 60% of backing assets in short-term UK gilts is the BoE’s direct concession to the “commercial viability” feedback. This component enables issuers to earn a yield on a substantial portion of their backing assets, thereby creating a viable business model.
The 60% level was chosen as a careful balance. The BoE concluded that a higher percentage for a systemic stablecoin “could affect trust and confidence in money” by increasing liquidity risk. Conversely, a lower rate “would not adequately support innovation and business model viability”.
The BoE also proposes to permit “temporary deviations” from this 40/60 split, specifically to allow issuers to meet “large unanticipated redemption requests”. This will enable issuers to draw on their 40% cash buffer in a stress event, although they are expected to replenish it.
This 40/60 split has significant consequences. The 2023 100% deposit model was cautious and risk-free but unviable. The new 40/60 model introduces complex risks: interest rate, market, and liquidity risks linked to the 60% gilt portfolio. This creates a systemic risk of a “fire sale," where, during mass redemptions, issuers might sell all short-term gilts to fund the 40% cash buffer, risking a market crash and insolvency. This risk from the 60% allowance is why the BoE proposes the ‘Liquidity Backstop’ (see Section 4.2). The split and backstop are interconnected; the backstop makes the 60% gilt allowance prudentially safe.
3. Managing Financial Stability: Deconstruction of the Temporary Holding Limits
The most controversial element of the 2025 CP is the proposal to impose temporary, quantitative limits on stablecoin holdings.
3.1. The Proposal: “Temporary” Caps on Holdings
The BoE is proposing “temporary holding limits” on a “per-coin” basis. The proposed limits are:
£20,000 for individuals.
£10 million for businesses.
3.2. The BoE’s Rationale: Mitigating Bank Disintermediation
The BoE is explicit that this proposal is not a consumer protection measure but a “safeguard” for financial stability. The primary risk being managed is “bank disintermediation”—the risk of “significant and rapid outflows of bank deposits” into these new forms of digital money.
This is a critical concern for the BoE because, in the UK, bank lending is “largely supported by issuance of short-term deposits”. A large-scale flight from bank deposits to stablecoins could therefore decouple payments from credit, potentially reducing the “availability of credit” to households and businesses or increasing its cost.
The Financial Stability Paper, published alongside the CP, outlines the analytical approach for these limits, modelling stress scenarios in which deposit outflows impair banks’ Liquidity Coverage Ratios (LCRs). The BoE stresses that these limits are “temporary” and would be “removed once the transition no longer poses risks to the provision of finance to the real economy”.
3.3. Industry and Market Reaction: “Stifling Growth”
This proposal has “sparked controversy” and “drawn fire” from the crypto industry. Reports from September 2025 indicated this backlash began even before the CP’s publication.
The core industry argument is that the caps will “stifle growth”, “negatively impact adoption”, and harm “the UK’s competitiveness”. This is seen as particularly damaging in a “digital economy that’s already becoming heavily dollarized”. Crypto firms have warned that these risks push businesses overseas, especially as the US moves forward with its own stablecoin legislation (e.g., the GENIUS Act).
3.4. The Built-in “Safety Valves” and Exemptions
The BoE, anticipating this backlash, has built several “safety valves” into the proposal:
Business Exemptions: The proposal includes an “exemptions regime”. This would allow “the largest businesses to hold more if required”, with examples including crypto exchanges that need large stablecoin floats or large retailers.
Wholesale Exemption: The limits would not apply to stablecoins used for wholesale financial market transactions, specifically for settlement within the BoE and FCA’s Digital Securities Sandbox (DSS).
Per-Coin Basis: The limits are “per coin”, not per person.
Table 3: Proposed Holding Limits and Exemptions
Holder Type | Proposed Limit | Stated Rationale | Exemptions / Carve-Outs |
Individuals | £20,000 per coin | To safeguard access to credit by managing bank disintermediation. | Limit is “per coin,” not per person. |
Businesses | £10 million per coin | As above. | “Exemptions regime” for the largest businesses to hold more if required. |
Wholesale | No limit | Use in wholesale financial markets (e.g., settlement) is a different risk category. | Does not apply to use in the Digital Securities Sandbox (DSS). |
The “temporary” nature of these limits remains a key point of ambiguity. The BoE’s trigger for removal—“once the transition no longer poses risks”—is subjective and not tied to any clear metric. This suggests the cap is not merely a transitional rule but a new, discretionary monetary policy lever that allows the BoE to permanently manage the scale of the stablecoin market’s competition with commercial bank money.
Furthermore, the decision to apply the limit “per coin” rather than “per person” is a deliberate structural choice. A “per-person” cap would create a first-mover-takes-all market, stifling innovation. A “per-coin” cap structurally incentivises a competitive market, allowing multiple issuers (and the digital pound) to co-exist. This directly supports the BoE’s stated goal of a “multi-money” system.
4. Enabling Innovation: The New Central Bank Support Mechanisms
To make the “grand bargain” work, the BoE has introduced two significant new support mechanisms. These are designed to address the “cliff edge” transition problem and the “fire sale” risk associated with the 40/60 split.
4.1. The ‘Step-Up Regime’: An “On-Ramp” for New Systemic Issuers
This new proposal is a direct solution to the “regulatory cliff edge” (see Section 1.3). It provides a phased “on-ramp” for firms transitioning into the systemic regime.
The Mechanism: Issuers that are “recognised by HMT as systemic at launch” or are transitioning from the FCA regime will be permitted to hold up to 95% of their backing assets in short-term UK government debt.
The Purpose: This is explicitly designed to “support a viable business model in the early stages” and “support their viability as they grow”. It allows a new systemic issuer to maximise revenue from its backing assets while its user base and payment network are still scaling.
The Scaling Path: This 95% allowance is temporary. The proportion of gilts would be “reduced to 60%” (the standard regime) once the stablecoin “reaches a scale where this is appropriate”.
Critically, the BoE states that the “when and how” of this reduction will be determined “on a case-by-case basis”. This is not just a simple “on-ramp”; it is a powerful discretionary tool. It allows the BoE to “curate” the stablecoin market, controlling the speed of an issuer’s growth by deciding when to move it to the more capital-intensive 40/60 split. This creates a form of “managed competition” and makes an issuer’s relationship with its BoE supervisor a critical factor in its growth trajectory.
4.2. The ‘Liquidity Backstop’: The “Lender of Last Resort” for Stablecoins
This is a brand-new and structurally profound proposal, introduced to address the “fire sale” risk created by the 60% gilt allowance.
The Problem: As identified in Section 2.4, in a mass redemption scenario, issuers might be “unable to monetise their backing assets in private markets” without incurring massive losses or causing a gilt market crisis.
The Solution: The BoE is “considering putting in place central bank liquidity arrangements”. This would take the form of a “backstop lending facility”.
The Mechanism: This facility would allow “eligible, solvent, and viable” systemic stablecoin issuers to borrow liquid central bank money from the BoE, pledging their short-term UK government securities as collateral.
The Purpose: This “reinforces [s] financial stability” by ensuring an issuer can meet all redemption requests at par, even in severe stress, without being forced to fire-sell its gilts.
This proposal is arguably the most significant in the entire CP. Access to a central bank’s “lender of last resort” facility is the defining privilege of a regulated bank. By extending this privilege to non-bank FinTech firms, the BoE is bringing them within the prudential perimeter. This constitutes the quid pro quo for the entire burdensome regime. The BoE is effectively stating that if an issuer submits to its control (the 40/60 split, the holding limits, the UK subsidiary), it will gain the ultimate benefit of the system: a liquidity backstop in a crisis. This reduces the risk associated with the 60% gilt holding and solidifies the issuer’s permanent, protected-but-subservient relationship with the Bank of England.
5. The Issuer Rulebook: Obligations and Coinholder Protections
The CP outlines a granular set of rules for the day-to-day operation of a systemic stablecoin, focused on ensuring the core promise of “at par” value.
5.1. Redemption at Par: The Core Promise
The regime is designed to ensure that stablecoins “deliver stability of nominal value, robust legal claim, and the ability always to redeem at par in fiat currency”.
Timing: Issuers must process redemption requests “by the end of the day on which a valid redemption request is made, and in real time wherever possible”.
Fees: The BoE proposes not to prohibit fees, acknowledging they are an “integral part of payment chains”. However, any fees charged must be “fair, transparent, and proportionate to the costs incurred”.
Prohibitions on Fees: Fees must not be used as a mechanism to “disincentivise the redemption” of the coins. Critically, issuers “must not* use fees to pass on any costs or losses arising from the sale of assets in the backing asset pool as part of meeting redemptions”.
This last prohibition is the legal mechanism that forces the issuer to internalise 100% of the market risk of its 60% gilt portfolio. If an issuer is forced to sell gilts at a loss to meet redemptions, it cannot pass that loss to the coinholder; it must give them £1 at par. The issuer’s own capital must absorb the loss. This rule is what makes the issuer’s capital reserves and the liquidity backstop structurally essential.
5.2. Prohibition on Remuneration (Interest Payments)
The BoE “propose to maintain our policy that systemic stablecoin issuers should not pay interest to coinholders”.
This is a cornerstone of the BoE’s financial stability strategy, designed to manage the risk of bank disintermediation. The rationale is twofold:
Use Case: It reinforces the principle that stablecoins should be used “primarily for payments and not as a means of investment”.
Market Distinction: It helps establish a “clear distinction between stablecoins and deposits”.
If the holding limits are the quantitative tool to prevent deposit flight, the “no-interest” rule is the economic tool. If stablecoins, which are fully backed by safe assets, could also pay interest, they would be economically superior to bank savings accounts, guaranteeing disintermediation. This rule “neutering” that competitive threat, forcing stablecoins to compete on payment utility (like a current account) rather than on yield (like a savings account).
The BoE does, however, “note that some issuers offer rewards” and “intend[s] to consider the implication of this... in the future”. This ambiguity between “rewards” (e.g., cashback, loyalty points) and “interest” is poised to become a key battleground for both competition and regulation.
5.3. Safeguarding Coinholder Funds: The Statutory Trust Model
To protect coinholders in the event of an issuer’s insolvency, the BoE proposes a safeguarding regime based on a “statutory trust”.
This model, which draws from the FCA’s CASS framework, confers on coinholders a “beneficial interest” in the safeguarded backing assets (the 40% cash and 60% gilts). This means the assets are legally segregated and “ring-fenced” from the issuer’s own corporate assets, making them unavailable to general creditors in the event of insolvency.
The statutory trust must also hold additional “reserves of liquid assets,” funded by the issuer’s own capital. These reserves are designed to mitigate any “shortfall risks to backing assets due to financial risks” (e.g., losses on gilt sales) and to cover the “costs of insolvency/wind down”. Issuers will also be required to appoint a qualified, regulated third-party custodian to safeguard the backing assets.
6. Structural and Cross-Border Regulatory Policy
The CP sets firm rules on corporate structure and technology to ensure the BoE maintains adequate jurisdiction and oversight.
6.1. Location Policy: The Requirement for a UK Subsidiary
The BoE proposes that non-UK-based issuers of sterling-denominated systemic stablecoins must establish a subsidiary in the UK.
This UK subsidiary will be required to “carry out business and issuance activities in the UK”. Most importantly, this subsidiary must hold its backing assets and assets funded by capital in the UK.
This is a non-negotiable “red line” for the Boe. The reason is to “mitigate risks to UK financial stability” by granting the BoE direct legal, supervisory, and enforcement authority over the entity and its assets. It guarantees that in a crisis, the BoE has a “throat to choke” and that the backing assets cannot be ring-fenced by a foreign administrator in another jurisdiction. The BoE notes that its main support mechanisms, such as providing an account at the Bank and offering the liquidity backstop, would be “more challenging” to implement for an entity based outside the UK. This approach is consistent with the PRA’s framework for supervising international banks.
6.2. Technology Policy: Accountability for Public Permissionless Ledgers
The BoE states that its approach is “outcomes-focused” and “technology-agnostic”. It notes the industry’s preference for using public permissionless ledgers.
However, the proposal comes with a critical catch: the BoE will hold the issuer fully “responsible for achieving the standards and policy outcomes... in a robust manner”. The issuer is explicitly made accountable for managing all risks associated with their chosen technology, including:
Settlement Finality Risk: The risk that transactions could be reversed.
Holistic Operational Resilience & Cybersecurity:.
Accountability Gaps: The issuer must provide “mitigation mechanisms... to compensate for the lack of a centralised accountability body”.
While presented as “agnostic,” this policy creates an uninsurable risk for any issuer using a public ledger. No issuer can “guarantee” the operational resilience of a public network like Ethereum, which it does not control. The only way for an issuer to “robustly” manage and prove it is managing settlement and operational risk is to use a permissioned ledger where it has control. Therefore, this policy, in practice, serves as a powerful de facto nudge away from public permissionless ledgers for systemic use cases.
7. Comparative Analysis: Holding Limits for Stablecoins vs. a Potential Digital Pound
The stablecoin CP was deliberately published at the same time as an associated Financial Stability Paper titled “The role of holding limits for sterling-denominated systemic stablecoins and a potential digital pound”. This joint publication signals a unified strategy.
7.1. A Unified Strategy for “New Forms of Digital Money”
The BoE views both privately issued systemic stablecoins (SSCs) and a publicly issued CBDC (the ‘digital pound’) as two facets of the same macro-financial challenge: the shift of money from commercial bank deposits to new digital instruments.
The rationale for imposing limits on both asset types is identical: to “mitigate risks to financial stability associated with large-scale outflows from bank deposits”. The BoE’s modelling confirms that in a stress scenario without limits, the number of banks at risk of falling below their 100% LCR is "substantially higher”.
7.2. Comparing the Proposed Limits
The alignment of the proposed limits is not a coincidence:
Systemic Stablecoins: The new CP proposes a limit of £20,000 for individuals.
Digital Pound (CBDC): The 2023 CBDC Consultation Paper proposed a limit for individuals in the range of £10,000 to £20,000.
The BoE’s response to the CBDC consultation feedback noted that while banks favoured a much lower limit (£3,000-£5,000), the authorities are “minded to proceed... with a proposed holding limit in the range of £10,000 to £20,000”.
This alignment shows the BoE is operationally and psychologically establishing a “digital money” ceiling of approximately £20,000. This cap is designed to define the use case for these new instruments: they are to be used for payments (a limit, the BoE notes, which would cover the majority of salary payments), but not for savings. This creates a “safe zone” for innovation up to £20,000, while protecting the bank-based credit creation model from disintermediation.
8. Concluding Analysis: Timeline and Strategic Implications for the UK FinTech Sector
8.1. The Path Forward: 2026 Implementation
The timeline for implementation is clear and aggressive. Stakeholders must provide formal feedback on these complex proposals by 10 February 2026. In 2026, the industry must pay close attention to the publication of the “Joint Approach Document,” which will detail the interaction between the BoE and the FCA. The final, granular “Codes of Practice” are expected to be consulted on and finalised in the second half of 2026.
8.2. Strategic Implications and Key “Battlegrounds” for Feedback
The November 2025 CP sets the “grand bargain” in stone: the BoE is offering a path to viability, but at the price of complete prudential submission. The 40/60 split, although expensive, represents a significant concession from the 2023 100% deposit model. When combined with the new liquidity backstop, it creates a workable, if highly regulated, model.
For firms intending to operate in this new regime, the strategic “battlegrounds” for the consultation feedback are clear:
The Holding Limits: This is the most contentious area. A simple “no limits” argument will fail. A sophisticated response must prompt the BoE to define objective, measurable, and transparent metrics that would demonstrate “financial stability risks have been mitigated,” thereby triggering the removal of these “temporary” limits. Furthermore, industry must lobby for an expansive and operationally simple “exemptions regime” for businesses, as this is the key to unlocking the B2B payments market.
The “Rewards” Grey Area: The prohibition on “interest” is a clear policy aimed at preventing competition with savings accounts. However, the ambiguity around “rewards” is a crucial grey area. The FinTech industry must engage now to define the perimeter of permissible rewards (e.g., cashback, loyalty points) that are not deemed “interest,” as this will be the primary mechanism for competitive product differentiation.
The ‘Step-Up’ Discretion: The “case-by-case” nature of the step-up regime creates significant uncertainty for scaling firms. Industry feedback should push for clearer “safe-harbour” rules and a more transparent, predictable, and non-discretionary path for scaling from the 95% to the 60% gilt allowance.
8.3. Final Assessment
The November 2025 Consultation Paper is a document of profound pragmatism. The Bank of England has demonstrated its willingness to listen to industry (by abandoning the unviable 100% deposit model) and innovate its own tools (by proposing a new liquidity backstop for non-banks).
The regime it proposes creates a “straitjacket” for systemic stablecoins, but it is a viable one. The model is expensive (due to the 40% unremunerated deposits), its growth is capped (by the temporary limits), but it is also safe (due to the backing) and supported (by the backstop).
With this proposal, the BoE is successfully extending its monetary and prudential perimeter to a new set of non-bank entities. It is, in effect, creating a new class of financial institution—a prudentially regulated “narrow bank” for payments—that it can support, supervise, and ultimately control. The challenge for the industry is no longer to fight the regime, but to innovate within this new, clearly defined, and permanent box.
