The UK Is Building a Selectively Open Stablecoin Payments Regime

HM Treasury's consultation on modernising payment services regulation does more than propose technical amendments to the UK payments framework. It reveals how the Government intends to convert its broader stablecoin policy into an operational domestic regime.

The consultation is the implementation bridge between the UK's cryptoasset framework and its payments framework. It establishes when a stablecoin will cease to be treated primarily as a traded cryptoasset and begin to function as regulated, “money-like” value within a payment chain.

The result is not an open stablecoin market. It is a selectively open, two-tier system built around UK authorisation and government recognition of overseas regulatory regimes.

The UK separates issuance from payment activity

The UK is deliberately treating stablecoin issuance and stablecoin payment services as distinct regulated functions.

Issuing a qualifying stablecoin in the UK will be regulated under the cryptoasset framework through the new article 9M regulated activity. The FCA will be able to impose requirements relating to reserve assets, stability, redemption and the treatment of holders if an issuer fails.

Using that stablecoin to execute payments will then be regulated under the modernised payment services framework.

This means the same stablecoin ecosystem may involve several regulatory layers:

• issuer regulation under the cryptoasset regime;
• payment-services regulation for its use in transactions;
• safeguarding requirements for intermediaries holding it;
• and Bank of England supervision if the arrangement becomes systemic.

The logic is defensible. Issuer failure and payment-chain failure involve different risks. However, the approach also creates a complex regulatory stack that could become more burdensome as a stablecoin grows in scale.

The UK creates a two-tier stablecoin market

Only two categories of stablecoin would receive “money-like” treatment for UK payment purposes.

The first consists of UK-issued qualifying stablecoins issued by firms authorised under article 9M. The second consists of overseas-issued stablecoins whose home regulatory framework has been formally recognised by HM Treasury as delivering outcomes comparable to the UK regime. UK-issued qualifying stablecoins therefore receive money-like treatment through domestic authorisation, while overseas-issued stablecoins receive it only if HM Treasury recognises their home regime as comparable.

Other overseas stablecoins would remain regulated as cryptoassets through activities such as dealing, arranging and safeguarding. They could continue to circulate within crypto markets, but they would not benefit from the same route into mainstream regulated payment services.

This creates a regulatory hierarchy:

• UK-issued stablecoins obtain payment status through domestic authorisation.
• Recognised overseas stablecoins may obtain comparable status through regulatory recognition.
• Other overseas stablecoins remain within the cryptoasset perimeter.

Recognition becomes the gateway to the UK payments market

The recognition mechanism is one of the most important features of the consultation.

The UK–US Joint Statement on Stablecoins committed both governments to exploring formal pathways through which stablecoins issued in one jurisdiction could access the other's market. The consultation now identifies the likely UK legal mechanism: HM Treasury recognition of an overseas regulatory framework.

This suggests that a future UK–US stablecoin corridor may be based on regulatory comparability rather than identical rules.

Recognition could support:

• reliance on home-state supervision;
• reduced duplication of reserve requirements;
• streamlined market entry;
• targeted UK conduct obligations;
• and more efficient cross-border operating structures.

It would not necessarily amount to a full passport. An overseas issuer could still face UK requirements concerning distribution, safeguarding, financial crime, consumer protection and systemic activity. But recognition could prevent firms from having to duplicate their entire issuance structure and reserve pool in the UK.

The crucial unanswered question is whether recognition will apply:

• across an entire jurisdiction;
• to particular regulatory regimes;
• to defined classes of issuers;
• or on an issuer-by-issuer basis.

A broad jurisdictional model could support genuinely scalable cross-border activity. A narrow or politically controlled process could become a regulatory bottleneck.

The proposal creates a regulatory cliff edge

Recognition provides an international pathway, but it also creates a sharp distinction between economically similar stablecoins.

A token issued under a recognised jurisdiction may be treated as money-like for payments. An otherwise similar token issued elsewhere may remain a cryptoasset.

That distinction could affect:

• whether a firm can execute regulated payments in the token;
• whether merchants can integrate it into payment products;
• which permissions intermediaries require;
• how the token must be safeguarded;
• the disclosures provided to users;
• and how liability is allocated within the payment chain.

Recognition will therefore be commercially decisive. It may determine which stablecoins can enter mainstream UK payments and which remain largely restricted to crypto trading and investment activity.

The UK seeks to prevent double regulation

HM Treasury explicitly recognises that the same stablecoin activity could otherwise fall simultaneously within the payments regime and the cryptoasset intermediary regime.

The Government does not want firms to obtain two licences for economically identical conduct. It therefore intends to exclude certain transactions involving UK-issued qualifying stablecoins from the cryptoasset dealing and arranging activities where those transactions are properly characterised as payments.

The same token could therefore function as regulated money in one transaction and as consideration in a regulated cryptoasset trade in another. This functional approach is more sophisticated than classifying a token once for every possible use. But it will require firms to classify activities transaction by transaction.

Avoiding formal duplication does not necessarily eliminate operational complexity.

UK issuers could receive a significant regulatory advantage

HM Treasury is considering allowing authorised UK stablecoin issuers to provide related payment services without obtaining separate payment-services permissions.

Instead, they would be permitted to provide those services under their issuer authorisation while complying with the relevant payment conduct requirements.

This would resemble the treatment of credit institutions, which do not require separate payment-services authorisation but must comply with applicable payment rules.

For UK stablecoin issuers, this could provide:

• a single principal authorisation;
• reduced duplication of applications and permissions;
• a clearer route into payments;
• and lower regulatory friction when launching integrated products.

This is more than administrative simplification. It is an industrial-policy incentive to establish stablecoin issuance within the UK.

An overseas issuer from an unrecognised jurisdiction would remain outside the money-like perimeter, while a UK-authorised issuer could potentially obtain both issuance and associated payment capabilities through a streamlined regulatory route.

The proposal could therefore materially influence where stablecoin businesses choose to establish their issuance operations.

Stablecoin safeguarding moves toward the payments regime

The Government proposes that stablecoins safeguarded in the course of regulated payment services should ultimately fall under the payments safeguarding regime rather than requiring separate cryptoasset custody authorisation.

The policy objective is again to avoid duplicate permissions.

A payment institution should not require an additional cryptoasset safeguarding licence solely because the payment asset exists on a distributed ledger.

However, stablecoin safeguarding involves risks that differ from conventional client-money safeguarding. A payments safeguarding framework designed for bank-account money cannot simply be applied unchanged.

If payment-related stablecoin custody is removed from the cryptoasset safeguarding perimeter, the FCA will need to incorporate crypto-native custody and operational-resilience standards into its payment rules. Otherwise, regulatory simplification could create a protection gap.

The transitional period may favour larger firms

The final policy direction is intended to remove overlapping safeguarding permissions. However, the Government acknowledges that firms may still need cryptoasset safeguarding authorisation before the modernised payments regime is implemented.

Industry feedback has reportedly characterised this interim requirement as a material barrier to stablecoin payment activity.

Large institutions may be able to obtain both permissions and absorb the associated costs. Smaller payment firms, infrastructure providers and fintechs may struggle to justify an authorisation that the Government already intends to make unnecessary.

Without a credible transitional or grandfathering arrangement, the interim regime could:

• delay launches;
• reduce experimentation;
• favour incumbents;
• and discourage firms from entering the UK market before the final framework is operational.

Regulatory sequencing may therefore shape the market almost as much as the final rules.

Stablecoins enter the ordinary payments taxonomy

The consultation proposes a single set of regulated payment activities that can be performed using either traditional or tokenised forms of value.

Activities such as payment execution, money remittance, acquiring and issuing payment instruments could therefore apply across:

• fiat money;
• tokenised deposits;
• and qualifying stablecoins.

This is a significant conceptual move. The UK is not proposing an isolated regulatory category for “blockchain payments.” Instead, it is treating the underlying economic function as the regulated activity, irrespective of the technology or settlement asset used.

That could support integrated business models involving:

• fiat-to-stablecoin merchant settlement;
• stablecoin remittances with fiat payout;
• programmable corporate payments;
• stablecoin-funded payment instruments;
• and transfers between tokenised deposits and stablecoins.

The table on page 19 illustrates this restructuring of regulated payment activities and the intention to apply them across tokenised and non-tokenised payments.

Technology neutrality will still involve token-specific regulation

The proposal for a common payment perimeter does not mean that fiat and stablecoin payments will face identical requirements.

Existing payment institutions would need to obtain a variation of permission before carrying out tokenised payment services. This indicates that HM Treasury views stablecoin payments as functionally equivalent to payments but operationally distinct from conventional payment methods.

The likely model is therefore a common regulated activity combined with token-specific supervisory conditions.

Stablecoins gain a role in both retail and wholesale payments

The consultation expressly recognises that stablecoins may play a significant role in retail and wholesale payments.

This aligns with the UK–US Joint Statement, which refers to stablecoin use in payments, settlement and tokenised financial markets.

The emerging model is a plural monetary and settlement ecosystem containing:

• commercial-bank deposits;
• tokenised deposits;
• regulated stablecoins;
• and central-bank money where available.

The Government is not formally selecting one private form of digital money as the winner.

However, regulatory symmetry remains incomplete. Tokenised deposits remain legally deposits and benefit from the existing bank regulatory framework. Stablecoins must pass through separate issuance, payments, safeguarding and potentially recognition and systemic regimes.

The UK is therefore giving stablecoins a genuine route into payments without placing them on precisely the same regulatory footing as bank money.

Strategic implications

For major fully backed issuers, the consultation is positive. It creates a route into regulated retail and wholesale payments, particularly for firms prepared to issue domestically or operate from a recognised jurisdiction.

For US issuers, formal recognition is the critical issue. A future recognition determination could facilitate UK market access without requiring complete duplication of issuance and reserve structures.

For exchanges and custodians, activity classification will become central. The same stablecoin may fall within different regulatory regimes depending on whether it is being used for a payment, a conversion or a cryptoasset trade.

For UK banks and payment firms, the framework creates opportunities to offer integrated fiat, tokenised-deposit and stablecoin services, although tokenised payment permissions and additional controls will still be required.

For the Bank of England, the framework creates a potential tension. The Government is prioritising commercial viability, innovation and international access, while the Bank must address financial-stability risks as stablecoin arrangements become systemic.

Conclusion

HM Treasury's consultation establishes the architecture for a regulated and selectively international stablecoin payments market.

Its most consequential features are:

• the separation of issuance from payment activity;
• money-like treatment for UK and recognised overseas stablecoins;
• formal jurisdictional recognition as the gateway to cross-border access;
• the removal of unnecessary duplication between cryptoasset and payment permissions;
• potential bundled payment rights for UK issuers;
• and the migration of payment-related stablecoin safeguarding into the payments regime.

The direction is commercially significant but not fully permissive.

The UK is opening its payment system to stablecoins that satisfy approved regulatory standards. It is not granting equal treatment to every stablecoin that can technically be transferred in the country.

The central competitive advantage will therefore belong to issuers that secure one of two forms of regulatory legitimacy: UK authorisation or recognised overseas status.

The next questions are no longer whether the UK will allow regulated stablecoins to function as payment instruments. They are which jurisdictions will be recognised, how quickly recognition will be granted, and whether the final rules can reduce duplication without leaving gaps in custody, insolvency and consumer protection.