The Bank of England’s Financial Policy Committee (FPC) said in its April 2025 record that while stablecoins continue to grow in scale and relevance, poor oversight and inappropriate asset backing could pose new risks to UK financial stability, especially during times of stress.

The committee reaffirmed that the BoE and the Financial Conduct Authority (FCA) are actively developing regulatory regimes for systemic and non-systemic stablecoins to ensure these tokens can meet redemption requests reliably and maintain parity even in volatile market conditions.

Concerns over asset quality and foreign denomination

A central concern raised by the FPC is the quality of assets backing stablecoins, particularly sterling-denominated tokens issued offshore.

According to the committee, if these coins are backed by illiquid or risky assets, or if the risks associated with those assets are not well-managed, they may trigger fire sales during periods of market strain. Such spillovers could affect core financial markets in the UK.

The FPC also highlighted the growing use of stablecoins denominated in foreign currencies, such as US dollar-backed tokens, warning that these could lead to “currency substitution” in domestic economies.

While adoption remains limited for now, the committee noted that greater household and SME use of foreign stablecoins for cross-border retail payments may increase macro-financial vulnerabilities.

On the wholesale side, the committee warned that settlement of transactions outside of central bank money could increase counterparty credit risk, reduce central banks’ ability to manage liquidity and dampen volatility during stress events.

Regime coordination and monitoring

The UK joins a growing list of jurisdictions, including the US, developing tailored stablecoin regulations. The FPC said it supports global efforts to set standards, citing the Financial Stability Board’s (FSB) recommendations on regulating crypto markets and stablecoins.

The central bank will continue monitoring the stablecoin sector’s size, usage, and interconnectedness with the broader financial system, which has remained “relatively limited” but is expected to grow.

While the committee did not indicate an immediate threat from stablecoins, it stressed the importance of proactive regulatory action to mitigate future risks as adoption rises.

The FPC’s next steps will focus on ensuring that stablecoins, particularly those used in payments, can operate safely without undermining monetary sovereignty or financial resilience.

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