UK Digital Securities Sandbox: Specific stablecoins may be used as settlement assets

The Bank of England (BoE) has updated the Digital Securities Sandbox Dashboard to confirm that, going forward, certain stablecoins can be acceptable settlement assets. The change in scope will allow digital securities depositories to settle the cash leg of transactions using approved stablecoins issued in the UK or overseas.

UK-issued stablecoins pegged to any currency will be permitted, as long as: (i) before 25 October 2027, the issuer will have to have demonstrated that they will be able to comply with the incoming requirements for UK issuers of qualifying stablecoins and are registered with the UK Financial Conduct Authority (FCA) for the purposes of the money laundering regime; or (ii) after 25 October 2027, the issuer will need to be authorised to issue a qualifying stablecoin. Overseas issued stablecoins will also be permitted if they are pegged to a non-GBP currency.

To be used as settlement assets in the sandbox, the stablecoins will need to meet minimum requirements which mirror the criteria used for stablecoins in the FCA's regime for UK-issued qualifying stablecoins. The minimum requirements relate to:

• Universal rights of redemption for all holders.
• Backing assets comprised of those required for UK issuers by the FCA's final rules and subject to appropriate risk management in relation to composition and redemption.
• Conflicts of interest management (including a requirement for the issuer and backing asset custodian to be separate legal entities).
• Adequate oversight of contractual third parties.
• Adequate safeguarding arrangements for the backing assets.
• Financial crime controls compliant with international standards.
• Strong operational resilience.
• The right for stablecoin holders to be able to claim against the backing assets in an insolvency.

Firms in the sandbox wanting to take advantage of this update should contact the BoE as soon as possible. In particular, firms that have passed gate 1 will need to seek a modification to the gate 2 rules by way of a waiver. The BoE will then assess the specific stablecoins against the minimum criteria and confirm whether the firm can proceed. Suitability will be decided by the BoE on a case-by-case basis and if the request is approved, the BoE will issue a direction and the firm's sandbox approval notice (SAN) will be modified.

In parallel, the DSS guidance was updated and has been amended in line with the fact that stablecoins will be permitted in the DSS for use as a payment asset. It has also been amended to refer to tokenised deposits as an example of an acceptable payment asset.

Return to main website.