Tokenised deposits are fast becoming the UK’s preferred route for digital money. Regulators here are much more leery of stablecoins than their peers across the Pond, which has informed the cautious approach they have adopted to bringing them into mainstream finance.
The Financial Conduct Authority (FCA) is currently road-testing its Regulatory Sandbox, where firms are carrying out supervised tests of stablecoin issuance and payment use cases.
The pilot comes after the Bank’s governor, Andrew Bailey, was quoted in The Times as saying that although he was ‘not against stablecoins’, he did not see them having a future at the heart of British banking.
Instead, he reckons tokenised deposits offer a more fruitful avenue for digitised money.
And more recently, the Bank’s Megan Greene reiterated her boss’s position, suggesting that UK financial institutions will ultimately see the merits of tokenised deposits over stablecoins, as they have come to recognise that they are otherwise going to lose traditional bank deposits.
To tip the scales toward tokenised deposits, the first raft of stablecoin regulations proposed by the BoE was onerous, especially the rule that would have obliged issuers to hold all of their assets in non-interest-bearing accounts at Threadneedle Street.
Back Down
The House of Lords rejected the proposals, calling the BoE ‘overly conservative’ and warning that treating stablecoins more strictly than traditional forms of payment would put GBP-backed tokens at a competitive disadvantage, especially against US-Dollar-pegged coins.
Deputy Governor Sarah Breeden admitted the Bank’s initial stance had been too restrictive, and subsequently looked to mollify the Lords and upstart tech bosses by revising the proposals.
The revised proposals include:
- At least 40% of backing assets must be held as unremunerated deposits at the Bank of England.
- Up to 60% can be held in short-term UK gilts.
- Temporary deviations from the 40:60 split may be permitted during significant redemption events.
The Threat
It’s not difficult to see why central bankers see stablecoins as a threat.
They reduce bank liquidity, can be used to swerve sanctions, and, most importantly, as far as the BoE is concerned, promote bank disintermediation, which dilutes the effect of monetary policy.
Furthermore, UK central bankers know that, unlike in the US, which has adopted a much more laissez-faire attitude to stablecoin issuance, deposits, not the capital markets, are the lifeblood of mortgage lending.
Conversely, tokenised deposits are simply digital facsimiles of those already on the bank’s balance sheet. They sit squarely within the existing banking system and can be introduced fairly seamlessly with the safeguards that apply to legacy deposits.
All that changes is that the deposit becomes a commercial-bank liability wrapped in a cryptographic shell, with the token inheriting deposit insurance, Basel capital and lender-of-last-resort support. Tokenised deposits therefore raise none of the alarms that stablecoins do.
A Revolut-ion
But stablecoins won’t be wished or regulated away, especially among London’s burgeoning neo-bank sector, which is starting to hear the siren song of stablecoins increasingly loudly.
The FCA’s sandbox featured a cohort of four of them, notably Revolut, which already handles substantial non-proprietary on-chain volume. By early 2026, they had cleared over $1.2 billion in USD-stablecoin on the Polygon blockchain.
Furthermore, given the bank’s booming crypto business, Revolut X, a proprietary stablecoin, would allow the fintech company to simplify its on/off ramps for crypto traders, thereby reducing its reliance on non-GBP-denominated stablecoins and unifying trading, spending, and saving on its popular platform.
The FCA’s sandbox gives them a chance to work out how to replicate the scale of their USD stablecoin trade with its own sterling-denominated coin.
However, the Bank of England’s scepticism is strongest when it comes to stablecoin retail money, as it’s here that they most directly compete with bank deposits.
Hence, the Revolut test case is an interesting one.
The FCA is scheduled to publish its official Policy Statements in mid-2026, which will be the first time we get a look at the regulatory insights that result from Revolut’s stablecoin sandbox tests.
Future Direction for Tokenised Deposits
The UK’s path forward with stablecoins won’t be about definitely opting for one or the other.
Rather, the crossroads will likely be negotiated by arriving at a ‘multi-money’ ecosystem.
Stablecoins will handle niche web3 and global retail payments, while tokenised deposits and a future CBDC are used for the heavy-duty infrastructure of wholesale UK finance.
