Bank of England sounds alarm on stablecoin oversight issues

The Bank of England’s Financial Policy Committee (FPC) has raised urgent concerns over the regulatory gaps surrounding stablecoins in its April 2025 report. While the sector continues to expand, the committee warned that without proper supervision and robust asset backing, stablecoins could undermine UK financial stability, especially during periods of market stress.

The FPC emphasized that both the Bank of England and the Financial Conduct Authority (FCA) are working to design regulatory regimes for systemic and non-systemic stablecoins. These frameworks are intended to ensure that stablecoins can consistently meet redemption requests and maintain value stability under volatile conditions.

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One of the committee’s primary concerns centers on the asset quality behind stablecoins, particularly those denominated in sterling but issued offshore. The FPC warned that if these assets are illiquid or carry elevated risk, redemption pressures during crises could force fire sales, triggering knock-on effects across the broader financial system. Another concern is the rising prevalence of stablecoins pegged to foreign currencies, such as USD-backed tokens, which could lead to currency substitution within the UK’s domestic economy.

The committee also highlighted risks in wholesale markets, noting that stablecoin-based settlement outside of central bank money may heighten counterparty credit risk, impair central banks’ liquidity tools, and exacerbate volatility during financial shocks.

While the FPC noted that current stablecoin adoption remains modest, it anticipates growth and is aligning UK regulatory approaches with global standards, including the Financial Stability Board’s guidance. The Bank of England will continue to monitor the evolving stablecoin landscape, tracking usage, systemic connections, and emerging risks.

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Looking ahead, the FPC stressed the need for proactive measures to safeguard the financial system as stablecoins gain broader utility in payment systems. The goal is to ensure these digital instruments do not compromise monetary sovereignty or financial resilience as adoption increases.