The new UK stablecoin framework: What payments leaders need to know

20 May 2025
by Payments Intelligence

What is this article about?

The UK’s new regulatory framework for stablecoins and its implications for payment firms.

Why is it important?

It sets the legal foundation for stablecoins in financial services, shaping how firms can operate and innovate.

What’s next?

Firms should prepare for compliance, monitor regulatory developments, and explore stablecoin use cases in payments.

The UK government has taken a significant step towards regulating stablecoins, laying the groundwork for their gradual integration into the financial system. Under the draft Financial Services and Markets Act 2000 (Cryptoassets) Order 2025, stablecoins will fall within the scope of the Financial Services and Markets Act (FSMA) as regulated financial instruments—though notably not yet as recognised payment methods under current payments legislation.

While stablecoins hold promise for both retail and wholesale payments, the current framework concentrates on issuance, custody, and trading, rather than payment functionality. This suggests a cautious but flexible approach, signalling that the government may adjust its stance as adoption and use cases evolve.

For payments leaders, this is a strategic moment to assess positioning in a market where regulated digital assets are increasingly part of the mainstream conversation.

Industry Voices

"The recent UK legislation is welcome, but further clarity regarding how the regime applies to non-UK entities is required. UK firms looking to operate across Europe already need to have both UK and EU entities in place, so it makes sense to align with MiCA where possible to avoid further complicating the process. The main use case for stablecoins is cross-border payments, and it is critical that the UK remains competitive to enhance stablecoin adoption, especially for non-USD issuers."

"This legislation is a clear signal that traditional finance and policymakers are not just engaging with blockchain technologies, but recognising its strategic importance. It reflects a growing institutional understanding that stablecoins will play a central role in the future of financial infrastructure."

"While the UK payments ecosystem is agile, stablecoin adoption is still nascent and largely fragmented. The proposed framework gives much-needed regulatory clarity, which will accelerate innovation. However, practical integration will require collaboration between issuers, merchants, and acquirers to upgrade infrastructure and risk frameworks. Early use cases will likely emerge in high-volume, cross-border ecommerce and digital marketplaces, where stablecoins can reduce friction and settlement time, particularly for underbanked customers or in volatile currency environments."

"The stablecoin regime is a major step toward institutional-grade crypto adoption. Treating fiat-referenced tokens as regulated instruments aligns market innovation with consumer protection. Firms positioned to offer stablecoin-based services under FCA oversight will be well-placed to lead in cross-border payments, tokenised finance, and next-generation infrastructure. Compliance is now a growth lever—not just a cost of doing business."

Policy context: What’s changed?

The draft Statutory Instrument (SI) introduces new regulated activities under FSMA for cryptoassets and stablecoins. Specifically, it:

Defines “qualifying stablecoins” as fiat-referenced assets backed by fiat or a combination of assets.
Requires issuers of qualifying stablecoins to be authorised by the Financial Conduct Authority (FCA).
Establishes new regulated activities, including issuance, safeguarding, trading platform operation, and staking.

Crucially, the government has decided not to proceed (yet) with amending the Payment Services Regulations 2017 (PSRs 2017) to bring stablecoin-based payments into the regulated perimeter. This means that while stablecoins can be used for payments, they are not currently regulated as payment instruments, and users will not benefit from protections similar to Payments Services Directive 2 (PSD2) frameworks.

Instead, stablecoin issuance and related activities will now be governed by a bespoke FSMA regime, aligning them with other regulated financial services. It will allow the government to monitor adoption and risks before further integration.

Key takeaways for payments leaders

New stablecoin regulation

Key takeaways for payments leaders

Regulated issuance

Stablecoin issuers are now required to obtain authorisation from the Financial Conduct Authority (FCA) in order to engage in certain activities. These include offering stablecoins to the public, redeeming them, and maintaining their value through appropriate backing mechanisms. This regulatory requirement is intended to ensure oversight of the stability of stablecoins and to enhance consumer protection at the point of issuance.

Jurisdictional scope

The regime applies primarily to issuance from UK-based establishments. Non-UK stablecoin issuers are generally outside the perimeter unless they maintain an operational presence in the UK. That said, other cryptoasset services—such as custody or trading—may still require UK authorisation if offered to UK retail customers.

No payment-specific regulation (yet)

The government has opted not to amend the Payment Services Regulations (PSRs) for now. This means that while stablecoins can be used for payments, they are not regulated as payment instruments. As a result, users do not benefit from the consumer protections and safeguards found under frameworks like PSD2.

Defined regulatory boundaries

The legislation offers much-needed clarity by drawing distinct lines between stablecoins, e-money, and tokenised deposits. This helps firms understand their obligations and avoid overlapping or conflicting compliance requirements.

Strategic considerations for payment companies

The introduction of a regulated stablecoin framework raises several strategic considerations for payments and compliance leaders.

First, firms should assess whether stablecoins could enhance treasury or settlement operations—particularly in cross-border flows. Regulated stablecoins may offer faster settlement times, improved liquidity management, and operational efficiency, especially in B2B contexts or international transfers.
There is also scope for strategic partnerships. Rather than pursuing direct issuance, payments businesses could collaborate with authorised stablecoin issuers or custodians to access infrastructure and regulatory cover. This can provide a compliant pathway into stablecoin-related services with lower operational and compliance overhead.
Importantly, even though stablecoins are not yet regulated as payment instruments, companies offering them as part of payments infrastructure must consider user protection. Reputational risk, market expectations, and operational resilience will demand thoughtful consumer safeguards—regardless of current legal obligations.

Ultimately, positioning effectively now will allow firms to participate in the market shift towards digital assets, while staying aligned with regulatory developments as they unfold.

Regulatory outlook

While the current framework focuses on issuance and related activities, the government has left the door open for future regulatory expansion into payments. Its stated position is to “stand ready to respond” as use cases evolve and adoption increases.

In practical terms, this means that stablecoins could be brought under the Payment Services Regulations (PSRs) more quickly if certain triggers are met—such as rising retail adoption, systemic use in wholesale settlement, or emerging risks around market stability and consumer protection.

For payments leaders, this points to a fluid regulatory environment. Firms will need to remain agile, monitoring developments closely and preparing for the possibility of sudden policy shifts that could reshape the compliance landscape.

Preparing for what comes next

As the regulatory picture takes shape, payments and compliance teams should begin preparing for the operational and strategic implications—even before stablecoins are formally integrated into payments law.

Compliance functions should review existing or planned activities involving fiat-backed stablecoins, ensuring they align with new FCA authorisation requirements covering issuance, custody, and trading. Business units across treasury, legal, and operations should be briefed accordingly.

Firms should also stay close to regulatory developments. The FCA is expected to issue further guidance on custody, staking, and platform operations. Meanwhile, future updates to the Payment Services Regulations could extend the perimeter to cover stablecoin-based payments more directly.

Beyond compliance, it’s worth assessing where stablecoins might deliver real-world value. B2B payment flows, international supplier settlements, and on-chain treasury operations could benefit from faster, lower-cost alternatives to legacy systems. Stablecoins may also complement existing rails like Faster Payments, SEPA, or card networks—provided the integration and risk management frameworks are in place.

By investing in readiness now, firms will be better positioned to act quickly once the regulatory path becomes clearer.

Positioning for a hybrid future

The UK’s stablecoin regime signals a move away from speculative cryptoassets and towards integration with the regulated financial system. For payments firms, the implications are not disruptive in the short term, but they are strategically important.

While stablecoins are not yet recognised as payment instruments, the regulatory foundation for their issuance and custody is now in place. This points towards a hybrid future—where stablecoins could sit alongside conventional payment methods, particularly in cross-border and high-volume use cases.

Firms that engage early—by aligning with compliance requirements, forming partnerships, and modernising infrastructure—will be well positioned to respond quickly as regulation evolves and adoption gathers pace.