UK PRA Dear CEO letter on innovations in the use of deposits, e-money and stablecoins

The UK Prudential Regulation Authority (PRA) has issued a Dear CEO letter on innovations involving deposit-takers, e-money and regulated stablecoins. The letter supersedes the 2023 letter and provides clarification in light of recent developments including the UK cryptoassets regulatory framework. It should be read alongside the PRA's Dear CEO letter on the prudential treatment of banks' cryptoasset exposures.

The PRA's core expectations remain unchanged but the letter clarifies how firms should manage risks arising from innovation, especially as regards retail customers. In particular, the letter confirms that while deposit-takers may innovate within deposit structures (including tokenised deposits), any issuance of e-money or stablecoins within groups should take place through separate, non-deposit-taking and insolvency-remote entities, with clearly distinct branding and presentation. This should be supported by disclosures, warnings, on-boarding, and customer education, but should not be relied upon as the sole means of mitigating the risk of confusion.

The letter also highlights that wholesale-only stablecoin use cases require early engagement with regulators. Firms should be able to demonstrate how access will be restricted, risks managed, and which stablecoin regulatory regime would apply. The Bank of England is exploring the inclusion of stablecoins as settlement assets to be used within the Digital Securities Sandbox as a potential testing environment for such proposals.

Finally, the PRA reminds firms of their obligations to engage openly with regulators and to keep supervisors informed of material developments. The PRA will monitor developments and coordinate with other authorities in relation to the regulatory framework for stablecoins and digital money.

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