First-time Support for Stablecoins and Tokenized Deposits! Bank of England Makes Major U-Turn on Regulatory Policy

Author: Max, Crypto City UK Regulators Push Forward on Tokenized Finance The UK's Financial Conduct Authority (FCA) and the Bank of England (BoE) recently jointly published an industry consultation paper, formally seeking market views on a regulatory framework for "tokenized wholesale financial markets," signaling that the UK is accelerating efforts to formally integrate digital assets into the mainstream financial system. According to the official statement, the UK government has identified tokenization as a key direction in its digital strategy for financial markets, particularly recognizing its potential applications in post-trade settlement, collateral management, and asset circulation. The consultation targets banks, investment firms, asset management institutions, trading platforms, fintech companies, and securities infrastructure providers, with a response deadline of July 3. Regulators also previewed that a more comprehensive cross-departmental roadmap and response document will be published later this year, alongside plans for multiple industry workshops, with the aim of establishing a clearer legal and regulatory framework to help businesses invest in and expand tokenized financial infrastructure. The UK's move also reflects a shift in the global regulatory direction. In the past, regulatory focus was largely on cryptocurrency speculation and retail investor risk; now, attention is gradually turning to institutional-grade applications, including digital settlement systems, tokenized bonds, equities, and collateral management — core financial infrastructure. Bank of England Clearly Endorses Stablecoins and Tokenized Deposits Bank of England Deputy Governor Sarah Breeden, speaking at City Week 2026 in London, stated that the UK's future retail payments system should be built on a "multi-money coexistence" architecture, enabling traditional bank deposits, tokenized deposits, regulated stablecoins, and a potential digital pound (CBDC) to operate alongside one another. Breeden noted that shared ledger technology and smart contracts have the potential to make payments faster and cheaper while reducing intermediaries. She believes that programmable financial infrastructure can deliver significant efficiency gains in payments, settlement, and collateral management. She said: "In addition to traditional bank deposits, people should in the future also be able to make payments using tokenized bank deposits, regulated stablecoins, and potentially a retail central bank digital currency." The Bank of England also revealed that it will publish a draft regulatory framework for systemic stablecoins next month, with final rules expected to be completed by the end of this year. Officials are currently reassessing previously controversial restrictions. The BoE had previously proposed that individuals' holdings of any single pound-denominated stablecoin be capped at £20,000, with a corporate limit of £10 million, triggering strong industry pushback. Many in the industry argued that such restrictions could undermine the UK's appeal in the global digital finance competition. Industry Criticizes Overly Strict Regulation; UK Readjusts Policy Direction The UK crypto industry has repeatedly criticized the Bank of England's proposed stablecoin rules as one of the most conservative versions among the world's major financial markets. According to earlier drafts, stablecoin issuers would have been required to hold at least 40% of their reserves in non-interest-bearing central bank deposit accounts — a measure the market viewed as significantly compressing business models and profit margins. - Katie Harries, Head of UK Policy at Coinbase, said that compared to holding caps, an "overall issuance cap" may be a more workable approach. However, she also emphasized that no major jurisdiction globally is currently considering managing stablecoins through restrictions on innovation scale the way the UK is. - Simon Jennings, Executive Director of the UK Cryptoasset Business Council, argued that regulatory measures should be built on actual supervisory data and risk indicators, rather than imposing excessive restrictions before the market has matured. Breeden also revealed that the Bank of England is currently considering replacing individual holding caps with an "overall issuance cap," aiming to mitigate — at a lower cost — the potential impact on financial stability and lending capacity should large volumes of bank deposits flow into stablecoins. Digital Securities Sandbox to Become the UK's Core Testing Platform In addition to stablecoin policy, the UK is also accelerating the build-out of tokenized financial market infrastructure. UK regulators are currently advancing the Digital Securities Sandbox (DSS), a sandbox regime that allows companies to test the issuance, trading, and settlement of tokenized securities within a real regulatory environment. Sixteen firms have already entered the first phase, including major financial institutions such as HSBC, Euroclear, and the London Stock Exchange Group, with related services expected to roll out progressively by the end of 2026. The Bank of England stated that the regulatory principles governing tokenized assets in the future will remain consistent with those for traditional financial assets. As long as the legal rights and risk nature are the same, the prudential regulatory treatment for banks holding tokenized assets will be the same as for non-tokenized assets. In addition, the Bank of England is planning to extend the settlement hours of the RTGS and CHAPS payment systems, gradually moving toward near-24-hour operations, and does not rule out incorporating weekend settlement mechanisms in the future. Officials anticipate that direct interconnection with tokenized asset networks could be achieved as early as 2027, further strengthening the UK's position in global digital finance competition. Global Financial System Enters the Tokenization Competition Phase In recent years, the United States, Singapore, Hong Kong, Japan, and the European Union have all been accelerating the development of stablecoin and tokenized finance frameworks. In particular, after the Trump administration once again embraced the crypto industry, the US has forced the UK to reassess whether its own regulatory policies remain internationally competitive. The Bank of England's shift in stance also indicates that global central banks' views on blockchain and digital assets are changing rapidly. Regulators are now more focused on how to enable innovation to grow within a framework that maintains financial stability and market trust, while at the same time advancing the development of next-generation financial infrastructure. At the end of her speech, Breeden stated that the UK's task now is to bring government, regulators, and industry together to genuinely build a tokenized financial ecosystem with real-world applications. As stablecoins, tokenized deposits, and on-chain payment infrastructure gradually mature, the global financial market has formally entered a new phase of digital finance competition. (The above content is excerpted and reprinted with permission from our partner Crypto City; original link )