The Bank of England Gets a Second Job: Making Stablecoins Work

HM Treasury announced Wednesday that the Bank of England will receive a new secondary statutory objective: supporting innovation in payment systems and digital money, explicitly including stablecoins. The change arrives as amendments to the Financial Services and Markets Bill, which the House of Lords takes up on September 7 and 9.

Read that carefully, because it's a genuinely unusual sentence. Central banks accumulate duties like sediment — stability, inflation, supervision — and nearly all of them point the same direction: slow things down until they're safe. The UK just added one that points the other way, and attached an accountability mechanism: the Bank must report to Parliament annually on how it advanced the payments-innovation agenda.

Secondary, but not decorative

The new objective sits below financial stability in the hierarchy — the Bank is not being asked to trade safety for speed. But secondary objectives change institutional behavior in quieter ways. When a regulator must publicly account for what it did to help an industry function, "no" stops being free. Every restrictive rule now needs to survive the question a parliamentary committee will eventually ask: what did you do for innovation this year? The UK ran this play once before, giving its financial regulators a secondary competitiveness objective in 2023. This is that template, aimed at digital money.

The machinery underneath

The mandate rides on top of a regime that has been assembling all year. The Bank is consulting on its draft Code of Practice for systemic stablecoins until September 22 and intends to finalize it by the end of 2026. The division of labor: stablecoins big enough to matter to the financial system fall under the Bank's systemic regime — which is expected to let regulated systemic stablecoins operate from 2027 — while smaller, non-systemic issuers stay under Financial Conduct Authority rules.

Why it matters beyond the UK

Jurisdictions are openly competing for where regulated digital money gets built — the US wrote its stablecoin law last year, the EU has MiCA, and the UK has been conspicuously behind its own timetable. A statutory innovation duty is London's answer: not a subsidy, not a sandbox, but a permanent thumb on the institutional scale. For issuers deciding where to domicile the next generation of payment stablecoins, "the central bank is legally required to care whether you can operate" is a real line in the pitch deck.

The Bank has already blinked once

The argument that a statutory innovation duty would change behaviour has a useful piece of evidence behind it, and it predates the duty. The Bank has already reversed itself on the single most contested feature of its stablecoin regime.

Its November 2025 consultation proposed temporary holding limits of £20,000 per individual and £10 million per business for any systemic sterling stablecoin — a cap not on the issuer but on how much any one person could hold. Issuers argued it was close to unimplementable: a stablecoin that has to know and police each holder's total balance across every wallet is not really a bearer instrument any more.

In the June 22, 2026 policy statement, the Bank dropped it. Per Freshfields' reading of the statement, a majority of respondents raised significant operational concerns and the Financial Stability Regulation Committee recommended reconsidering the approach. In place of per-holder caps there is now a temporary maximum issuance guardrail of £40 billion per systemic stablecoin, with issuers required to notify the Bank if they breach or expect to breach it. The guardrail is to be reviewed regularly and removed once the credit risks it addresses are mitigated.

The backing rules moved the same direction. The Bank's 2023 position was that backing assets could consist only of unremunerated deposits at the Bank — an arrangement issuers said left no viable business model, since the float earns nothing. The share permitted in interest-bearing short-term UK government debt has since risen to 70%, with the remaining 30% held as central bank deposits. Those deposits stay unremunerated, and the industry is still asking for that to change.

Two regulators, one issuer

The other thing settled in June is who is actually in charge, which for an issuer is not an academic question. The Bank and the FCA have proposed a joint approach in which a single systemically important issuer answers to both: the Bank leading on financial stability, the FCA retaining conduct supervision. That joint document is out for consultation until September 30, a week after the Code of Practice consultation closes on September 22.

So an issuer contemplating the UK is currently reading three open documents with three different deadlines, describing a regime that will not be live until 2027. Dual regulation is workable — plenty of UK firms live under it — but it is a cost, and it is the sort of cost a secondary innovation objective is supposed to force the Bank to notice.

The skeptic's read is still worth having: an objective is not a license, 2027 is not tomorrow, and the Bank's concessions to date were made under a consultation process, not under the new duty. Nothing about a statutory objective guarantees the next contested rule goes the same way. A duty to support innovation and a rulebook the industry finds restrictive can coexist for years. The annual report to Parliament is where that tension will surface, in public, on a schedule.