UK FCA: stablecoins have limited appeal for retail payments

UK Financial Conduct Authority: The prospects for cross-border payment application of stablecoins are the clearest

After collecting feedback from banks, payment companies and crypto companies, the UK Financial Conduct Authority determined that stablecoins have the most practical application value. The area is cross-border payments.

Summary

Participants in the stablecoin sprint activity pointed out that cross-border payments are currently the most powerful application scenario for stablecoin, especially in markets where access to US dollars is limited. Regulators said UK consumers had insufficient incentive to switch payment methods, but merchants could benefit from lower costs and faster settlements. The discovery of stablecoin sprint activities has provided a reference for the regulatory authority's stablecoin issuer rules and will affect the formulation of future stablecoin payment policies.

The sprint event held in March this year and the trade finance roundtable held in May brought together banks, payment companies, stablecoin issuers and financial technology companies to discuss application scenarios of payment and programmable finance.

According to the UK Financial Conduct Authority, participants in its stablecoin sprint campaign believe that stablecoins currently show the clearest value in cross-border payments, especially in markets where access to US dollars is limited; In the UK, adoption of consumer daily retail payments may be slow because existing payment systems already provide fast and low-cost transactions.

The regulatory agency released findings from its March 2026 policy sprint and shared insights from the May Trade Finance Roundtable. About 75 representatives from banks, payment service providers, merchant acquirers, fintech companies, infrastructure providers, stablecoin issuers and industry groups attended the two-day event, and another 30 participants subsequently discussed programmable payments in trade finance.

This work forms part of the Regulatory Authority's stablecoin payment supervision. Previously, the Supervisory Authority finalized the rules for issuing stablecoins in the UK on June 30. These rules require issuers to fully back stablecoins with reserve assets and redeem tokens at face value. The regulatory authority stated that the feedback collected during the sprint event will continue to affect the formulation of future stablecoin payment policies.

stablecoin payments show strongest advantage in cross-border transfers

During the discussion, participants agreed that cross-border transfers provide the strongest business opportunity for stablecoins because stablecoins can reduce settlement delays and improve accessibility to U.S. dollar payments in countries with limited banking infrastructure.

The regulatory authority stated that participants distinguished emerging markets from mature payment channels. In mature markets, international payment services have become efficient and relatively cheap, and companies believe that the advantages of stablecoins are less obvious.

Domestic retail payments have triggered different assessments. Participants told the Authority that there was little reason for UK consumers to replace existing payment methods because bank transfers and card payments were widely available, cheap and completed quickly.

However, companies can still benefit from stablecin payments. According to the regulator, merchants see lower transaction costs and faster settlements as potential advantages, especially if payment delays or intermediary fees become a problem.

A trade finance discussion held in May also explored programmable payments, with participants examining how smart contract-based settlements can support commercial transactions by automating payments.

The latest findings build on the broader crypto regulatory framework released by the Regulatory Authority on June 30, which sets the next stage of digital asset regulation in the UK. Under these rules, companies seeking to engage in regulated encryption activities can apply for authorization starting September 30, 2026, and the full regulatory regime will take effect on October 25, 2027. The framework covers trading platforms, custodians, pledge service providers and stablecoin issuers, and existing anti-money laundering registrations will not automatically transition to the new licensing system.

The regulatory authority has also adjusted parts of its stablecoin framework based on industry feedback. The final rule reduces the proposed capital requirements for stablecoin issuers to 1% of the originally proposed issue value. David Gill, executive director of payments and digital finance, previously said the regulatory authority revised the requirement after reviewing evidence submitted by industry participants.

Most stablecoins denominated in sterling will continue to be regulated by the Supervisory Authority, while tokens deemed systemically important will be regulated by the Bank of England.

Industry feedback influenced previous UK proposals

The discovery of the stablecoin sprint is the result of months of consultations between regulators and industry participants on how the UK should regulate digital assets backed by legal tender. In May, the Bank of England said it was reviewing parts of its proposed stablecoin framework because digital asset companies believed reserve requirements and temporary holding limits could reduce the commercial feasibility of sterling backing stablecoin.

The Bank of England has proposed requiring issuers to deposit at least 40% of their reserves with the Bank of England in interest-free deposits, while setting temporary caps on individual and corporate holdings during the initial roll-out phase. According to reports at the time, industry participants believed that ownership caps were difficult to enforce in wallets and trading venues, and reserve requirements that did not generate interest income could severely undermine issuers 'profitability. Bank of England Deputy Governor Sarah Breeden said the central bank was reassessing whether these temporary holding limits were still necessary and whether reserve requirements should be adjusted.

Policy debate has gone beyond domestic regulation. Bank of England Governor Andrew Bailey warned in May that the international growth of the dollar's support for stablecoins may require closer coordination among regulators, and said future discussions with the United States on global standards are likely to become the focus of negotiations.

Regulatory authorities also link stablecoins to programmable finance

In addition to payment policies, the regulatory authority has recently linked stablecoins to emerging artificial intelligence systems that are able to perform financial decisions without continued human involvement. In a future assessment of retail financial services released in July, the regulator said autonomous artificial intelligence agents managing payment, investment and savings accounts could increase the demand for programmable digital currencies because traditional banking infrastructure may have difficulty supporting machine-speed financial transactions. The report views stablecoins and tokenized bank deposits as payment infrastructure capable of supporting automatic settlement through distributed ledger technology, while emphasizing that companies cannot transfer legal responsibilities to artificial intelligence systems.