The UK’s stablecoin regime: a two-tier framework for non-systemic and systemic issuers - dentons.com

The UK has opted for a deliberately split approach to stablecoin regulation. Non-systemic UK-issued qualifying stablecoins (UKQS) sit within the Financial Conduct Authority (FCA) regime, while systemic stablecoins move into joint regulation by the FCA and the Bank of England (the Bank) once HM Treasury recognises them as systemically important. That distinction drives the legal treatment of reserves, redemption, safeguarding, disclosures, capital, liquidity and payment-system access. In practice, the UK is building one regime for stablecoins that are used as a regulated means of payment and a second, more intensive regime for stablecoins that are large or interconnected enough to create financial stability risk.

Non-systemic stablecoins: the FCA regime

The FCA’s final rules published under PS26/10: Stablecoin Issuance establish the rules for UK stablecoin issuance (FCA regime), but they sit within a broader legislative framework that has developed in two stages. Firstly, the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (Cryptoasset Regulations) created the new regulated activity 9M under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) of issuing a qualifying stablecoin and conferred rule-making powers on the FCA to develop the detailed regulatory framework for UKQS. The FCA regime therefore represents the operational implementation of the Treasury’s legislative regime, establishing the standards that firms must meet in order to issue UKQS.

The second stage of the legislative framework is the Financial Services and Markets Act 2000 (Cryptoassets) (Amendment) Regulations 2026 (Amendment Regulations). The Amendment Regulations build upon the regime established by the Cryptoasset Regulations by recognising that stablecoins issued under the FCA authorisation regime are intended to serve a wider function than simply being regulated cryptoassets. Rather than creating a separate authorisation regime, the Amendment Regulations use the FCA regime as the regulatory benchmark for identifying those UKQS that are capable of supporting future payment services regulation.

The Cryptoasset Regulations make clear that the FCA authorisation regime is intended to create a class of UKQS that can be regarded as sufficiently robust to support future payment services regulation. The government explains that firms authorised to issue UKQS under the FCA regime will have demonstrated that they satisfy the standards necessary for those stablecoins to be considered genuinely stable and therefore suitable for use in payments. Reflecting that policy objective, the Amendment Regulations propose to remove UKQS from certain cryptoasset dealing and arranging activities ahead of broader payments reform. This recognises that, once issued under the FCA regime, these stablecoins should increasingly be treated as payment instruments rather than simply cryptoassets. By carving these activities out of the Cryptoasset Regulations, the government avoids undue barriers to firms seeking to provide payment services with UKQS ahead of the payments services reforms. In this way, the FCA regime performs a broader policy function than simply regulating issuance – it provides the regulatory foundation upon which the government intends to build its future framework for stablecoin payments.

The backbone of the FCA regime is the backing asset pool, which is the pool of money and assets that supports the value of each UKQS and the issuer’s ability to redeem the stablecoin at par. The FCA warns that a mismatch between the backing assets and the minted UKQS could lead to a “run” on the stablecoin (e.g. holders selling/redeeming stablecoins simultaneously due to loss of confidence), causing the secondary market to decrease, resulting in losses to the holder and disruption in the market. Accordingly, issuers must keep the pool segregated from their own assets and from other stablecoin pools, and the pool is held on statutory trust for token-holders. The issuer may use third-party custodians, including intragroup custodians. However, to reduce concentration risk, no more than 20% of the backing asset pool may be held with an intragroup custodian, and additional due diligence and safeguarding requirements apply. While the backing asset pool must always contain sufficient assets to back all stablecoins in issue, the FCA permits issuers to retain a limited surplus of up to 5% above the required amount (as determined by internal reconciliation). This provides operational flexibility by allowing firms to accommodate temporary fluctuations in the value of backing assets without needing to make continual adjustments to the pool. The regime is therefore strict on segregation and reconciliation, but still recognises that small operational buffers can be appropriate. The FCA recognises this diverges from CASS principles around exactness that apply to other business models but considers it is necessary to allow issuers to retain small excesses to make sure there are backing assets needed to meet redemption requests.

The FCA has also retained a tightly controlled set of eligible backing assets. Core backing assets are on-demand deposits and short-term government debt instruments, while expanded backing assets are limited and subject to notification, risk management and custody requirements. All UK stablecoin issuers must comply with the On-Demand Deposit Requirement (ODDR), requiring at least 5% of the backing asset pool to be held in on-demand deposits to support immediate liquidity for redemptions. Firms that elect to hold expanded backing assets are subject to an additional Backing Asset Composition Requirement (BACR), which combines the ODDR with a Core Backing Asset Requirement (CBAR). The CBAR requires firms to hold additional core backing assets equal to the higher of 5% of the backing asset pool or the highest daily redemption percentage over the previous 180 redemption days (or, where there are fewer than 180 redemption days, since CASS 16 first applied to the stablecoin product). The FCA declined to broaden the asset set to lower-volatility money market funds (MMFs) or broader instruments, concluding that the more limited list better balances commercial viability with consumer protection.

Redemption is a central feature of the FCA regime because it is what allows a UKQS to function as a trusted means of payment rather than simply another cryptoasset. A holder of a UKQS must be able to return it to the issuer and receive its face value in fiat currency, such as £1 for a stablecoin pegged to sterling. To support this, the FCA requires issuers to complete redemption by the end of the next business day after receipt of the stablecoin being redeemed (T+1). Importantly, the FCA has clarified that the T+1 timeframe does not begin until the issuer has completed any required financial crime checks and has received the stablecoin into its wallet. The timeline will also not apply if doing so would lead to a breach of a legal requirement or court order (including under the Terrorism Act 2000, the Proceeds of Crime Act 2002 or the Money Laundering Regulations), where redemption is requested in a currency other than the reference currency and the necessary foreign exchange transaction requires additional time (provided the holder has been informed of the likely redemption timeframe), or where redemption has been validly suspended, suggesting there are circumstances in which suspending redemption would be permitted. This ensures firms are not forced to compromise their financial crime controls in order to meet the redemption deadline. Further, the FCA also requires the right to redeem a stablecoin to transfer automatically with the stablecoin itself in respect of holders in the secondary market. The issuer does not need to enter into a new contract with each new holder of the stablecoin, ensuring that the stablecoins remain freely transferrable while preserving the holder’s redemption rights.

Disclosure is another important part of the FCA’s framework because it is intended to ensure that prospective holders of UKQS have sufficient information to understand the stablecoin before acquiring it. Issuers must publish a stablecoin Qualifying Cryptoasset Disclosure Document (QCDD) on their website and upload the QCDD to the FCA-owned centralised repository, before offering the UKQS for sale or subscription, or admitting the UKQS to trading. The disclosures must be updated at least every three months for fast-moving information and updated whenever other information becomes inaccurate. Historical versions must be retained for five years after they are removed from the issuer’s website and made available, upon request and without undue delay, to current and former holders (in respect of the period during which they held the qualifying stablecoin). Issuers must also ensure the information is clear, fair and not misleading. The FCA has taken a proportionate approach on format, but not on substance – the rules are designed to make sure holders can understand the product, the backing assets, the redemption process and the risks before they commit.

Systemic stablecoins: the Bank regime

The Bank’s Policy Statement and Consultation on the Draft Code of Practice for Sterling-Denominated Systemic Stablecoins establishes the prudential framework for sterling-denominated systemic stablecoin issuers (Bank regime). The Bank regime applies only once a stablecoin has been recognised as systemic by HM Treasury under the Banking Act 2009. The statutory test is whether deficiencies in the design or disruption to the system or service would be likely to threaten UK financial stability or have serious consequences for business or other interests throughout the UK. HM Treasury determines whether an issuer should be recognised as systemic in consultation with the Bank, the FCA, the Payment Systems Regulator and, where relevant, the Prudential Regulation Authority. Recognition can happen at launch or later and, once it does, the issuer moves into joint regulation by the FCA and the Bank.

HM Treasury may bring an issuer within the Bank’s remit where, for example, it is an operator of a systemic payment system using digital settlement assets (DSAs), a systemic DSA service provider, or a provider of essential services to a systemic payment system or systemic DSA service provider.

The Bank expects the systemic regime to support retail and wholesale use cases, but it is especially focused on sterling-denominated stablecoins and on preserving trust in money as adoption scales. That is why its approach goes beyond the FCA’s baseline rules and adds requirements on backing assets, capital, reserves, direct payment-system access, temporary issuance guardrails and failure arrangements.

The most visible difference lies in the backing asset requirements. The Bank requires backing assets to comprise 70% short-term UK government debt securities and 30% unremunerated central bank deposits in steady state. It permits overnight repo (overnight repurchase) and reverse repo (reverse repurchase) transactions, but only within tight parameters and with safeguards designed to preserve 1:1 backing. Under a repo, an issuer can temporarily transfer eligible government securities in exchange for cash, agreeing to repurchase those securities the following day, thereby allowing it to raise liquidity quickly to meet redemption requests without permanently selling its backing assets.

The Bank also introduces a temporary issuance guardrail to manage risks that could arise if a systemic stablecoin grows rapidly. Rather than limiting how much stablecoin a holder can have, the Bank will initially limit the total amount of each systemic stablecoin that can be issued to £40 billion, with the guardrail to be loosened and ultimately removed once the risks to credit provision are judged to have been managed.

Capital and reserve requirements are significantly more extensive under the Bank’s systemic regime because a failure of a systemic stablecoin issuer could have wider consequences for the UK financial system. The Bank requires systemic issuers to maintain sufficient financial resources not only to continue operating during periods of stress, but also to recover from serious disruption or, if necessary, to wind down their business in an orderly manner without causing unnecessary losses to token-holders or disruption to the wider payments system. To achieve this, the Bank continues to use the internationally recognised CPMI-IOSCO Principles for Financial Market Infrastructures (PFMIs), the standards used for systemically important payment systems and other financial market infrastructures, as the starting point for its capital framework. However, the Bank has updated that framework to adapt it to the particular risks posed by systemic stablecoin issuers. The Bank considers that systemic stablecoin issuers face two broad categories of risk: general business risk (e.g. operational risk) and risks to token-holders (e.g. issuer insolvency). To mitigate these distinct risks, the Bank requires systemic issuers to hold capital to absorb losses arising from their general business activities and maintain separate reserves of liquid assets held on statutory trust to cover financial risks to the backing assets and the costs of wind-down or insolvency.

Redemption is also stricter in the systemic regime. The Bank requires redemption at face value, without undue constraint or cost, and expects completion as soon as practicable and within 24 hours of receipt of a full redemption request. A request becomes “full” only after financial crime checks are complete and the stablecoins have been received in the issuer’s wallet. The Bank also expects firms to maintain sufficient liquidity and operational resilience to support continuous redeemability as it will not permit issuers to suspend redemptions.

Another distinction between the two regimes concerns access to payment systems. The FCA does not prescribe how a non-systemic issuer should access payment systems. However, the Bank expects systemic issuers to obtain direct access to payment systems rather than through a sponsoring participant. The Bank considers direct access an important feature to reduce operational and counterparty risks. However, obtaining direct access will take time and the Bank does recognise this and will manage the transition on a proportionate basis.

Practical implications for firms

Although the FCA and the Bank’s regimes apply at different stages of a stablecoin’s lifecycle, firms should not view them as entirely separate frameworks since the Bank makes it clear firms may transition from FCA-only supervision to joint FCA-Bank supervision as they scale, following a case-by-case assessment of the criteria by HM Treasury, including indicators such as scale, nature of use, substitutability, interconnectedness, as well as use by the Bank in the course of its role as a monetary authority. The Bank and FCA have also published for consultation their joint approach to the regulation of systemic stablecoin issuers, providing greater clarity on how firms will transition from sole FCA supervision to joint supervision. While aspects of the joint regime remain subject to further consultation and guidance, the paper explains the proposed allocation of regulatory responsibilities, transition arrangements and supervisory approach for firms becoming systemic. Firms should expect supervisory engagement well before any recognition decision, with transition planning forming part of the regulatory lifecycle rather than beginning only once systemic status is reached. For firms, this means that business models, reserve composition, redemption processes, governance arrangements and payment-system access should all be designed with the possibility of transition in mind. The Bank expects the transition period to be determined on a case-by-case basis but anticipates that it will typically last between 12 and 36 months, during which firms may transition progressively to the Bank’s prudential requirements through the use of its power of direction where appropriate.

Governance and risk management . Both the FCA and the Bank place governance at the centre of the regulatory framework. Firms will need governance arrangements capable of supporting daily reconciliation, custody oversight and disclosure controls. Boards should ensure they receive appropriate management information on backing asset composition, redemption activity, operational resilience, financial crime controls and compliance with prudential requirements, with clear accountability for oversight of the stablecoin product throughout its lifecycle.

. Both the FCA and the Bank place governance at the centre of the regulatory framework. Firms will need governance arrangements capable of supporting daily reconciliation, custody oversight and disclosure controls. Boards should ensure they receive appropriate management information on backing asset composition, redemption activity, operational resilience, financial crime controls and compliance with prudential requirements, with clear accountability for oversight of the stablecoin product throughout its lifecycle. Treasury . Firms with ambitions to scale should consider at an early stage whether their treasury function could support a transition from the FCA’s backing asset requirement to the Bank’s more prescriptive framework. The Bank has sought to ensure that its requirements do not present an unnecessary barrier to launch, including through transitional arrangements. However, firms with ambitions to scale should begin considering how they would meet the Bank’s capital and reserve requirements well before becoming systemic. Once a stablecoin becomes systemic, the Bank requires issuers to conduct an overall assessment to identify, monitor, measure and mitigate risks to its capital and reserves.

. Firms with ambitions to scale should consider at an early stage whether their treasury function could support a transition from the FCA’s backing asset requirement to the Bank’s more prescriptive framework. The Bank has sought to ensure that its requirements do not present an unnecessary barrier to launch, including through transitional arrangements. However, firms with ambitions to scale should begin considering how they would meet the Bank’s capital and reserve requirements well before becoming systemic. Once a stablecoin becomes systemic, the Bank requires issuers to conduct an overall assessment to identify, monitor, measure and mitigate risks to its capital and reserves. Redemption . Firms should ensure that their redemption processes are designed to satisfy the FCA’s T+1 requirement from launch, with the potential to upscale to the Bank’s requirements for redemptions to be completed within 24 hours of receipt of a full redemption request.

. Firms should ensure that their redemption processes are designed to satisfy the FCA’s T+1 requirement from launch, with the potential to upscale to the Bank’s requirements for redemptions to be completed within 24 hours of receipt of a full redemption request. Disclosures and data. The FCA’s disclosure regime and the Bank’s reliance on those disclosures mean firms will need systems capable of producing accurate, timely and auditable information on backing assets, stablecoins in circulation, redemption activity and associated risks.

Although much of the legislative architecture has now been established, the UK’s stablecoin framework will continue to develop through 2027.

The FCA regime is due to come into force on 25 October 2027, providing firms with the baseline regime for non-systemic stablecoins. Alongside this, the Bank intends to finalise and implement the systemic regime in stages. Following finalisation of its Code of Practice, the Bank has indicated that it will consult during 2027 on supporting materials, including guidance on the Code, updates to the Recognised Payment Systems Code of Practice, additional requirements relating to disclosures, reporting and record-keeping, and detailed proposals governing backing asset trust arrangements and failure management. It also intends to publish further detail on its supervisory approach and the application of the Principles for Financial Market Infrastructures to systemic stablecoin issuers.

Firms should therefore view 2027 not as the conclusion of the UK’s stablecoin reform programme, but as the beginning of a phased implementation period in which operational expectations, supervisory practices and the interaction between the FCA and Bank regimes will continue to mature. For firms planning to enter the market, this means building governance, treasury, safeguarding and reporting capabilities that are sufficiently flexible to accommodate both the initial FCA framework and the further prudential and operational requirements that will accompany systemic status over time.