New code of practice for sterling systemic stablecoins

The Bank of England has issued a comprehensive Code of Practice for systemic stablecoin issuers, published under Section 189 of the Banking Act 2009.

This document establishes the regulatory framework for UK-incorporated entities issuing systemic stablecoins, defined as qualifying stablecoins referencing GBP and specified in a recognition order.

Non-compliance with the code constitutes a "compliance failure" under Section 196 of the Banking Act 2009, potentially leading to severe sanctions.

These include financial penalties, management disqualification, and in specific circumstances, a closure order, with details of failures and sanctions subject to public disclosure.

The code details critical areas such as backing assets, safeguarding arrangements, capital and reserves, issuance, legal claims, and redemption processes, each outlined in dedicated annexes.

It aims to ensure stability and integrity within the sterling-denominated stablecoin ecosystem.

The Code introduces a robust set of definitions crucial for its application, clarifying terms such as "systemic stablecoin" (a GBP-referenced qualifying stablecoin) and "backing asset pool" (money and assets held to maintain stability).

It specifies requirements for "eligible liquid assets" and a "financial risk reserve pool" to meet capital and reserve obligations.

Operational processes like "minting" (putting stablecoins on a DLT network) and "burning" (permanently removing them from circulation) are also defined.

These detailed definitions underscore the Bank's intent to establish clear operational and financial standards for a nascent but critical segment of the financial market, ensuring transparency and risk mitigation within the UK's digital currency landscape.