UK Mandates Bank of England to Promote Payments Innovation Alongside Financial Stability

The UK Government is formalising a new secondary objective for the Bank of England to actively support innovation in payment systems and digital money. This shift signals a regulatory pivot toward fostering emerging technologies like tokenisation and stablecoins, ensuring the UK remains competitive while maintaining the fundamental guardrails of national financial stability.

What was announced

The Government intends to mandate that the Bank of England supports innovation in payment systems and emerging forms of digital money. This new responsibility is designed to ensure the regulatory framework encourages the development of digital technologies while prioritising financial stability. Under this mandate, the Bank will be required to report to Parliament annually on its progress in advancing this innovation objective, providing a mechanism to track the pace of technological change within the sector.

This reform specifically targets systemic payment systems, including those utilizing digital settlement assets such as stablecoins. It extends an existing secondary objective that the Bank already holds regarding the regulation of central counterparties (CCPs) and central securities depositories (CSDs), which was introduced via the Financial Services and Markets Act 2023. By applying this same approach to payment systems, the government aims to modernise the UK’s payments landscape and support new business models.

Crucially, the innovation objective remains subordinate to the Bank’s primary mission of protecting and enhancing UK financial stability. The Bank will not be required to support any innovation that could potentially undermine the security of the financial system. Implementation of these changes is expected to occur through making amendments to the Financial Services and Markets Bill, with debates scheduled in the House of Lords for 7 and 9 September.

"Developments in digital payments technology, including tokenisation and DLT, have the potential to transform financial markets across the globe. Whilst financial stability will always remain the Bank’s primary objective, this secondary objective will support the Bank to continue to drive innovation in payments and digital finance, ensuring that the UK remains a global leader in financial services."

City Minister Lucy Rigby.

The companies involved

The Bank of England serves as the United Kingdom's central bank, responsible for maintaining monetary and financial stability. Beyond its role in setting interest rates, the Bank supervises critical financial market infrastructure, including systemic payment systems, central counterparties, and central securities depositories. It operates under a mandate to ensure the safety and soundness of the UK's financial architecture, a role that has increasingly expanded to cover the rise of digital assets and decentralised technologies.

The UK Government, through the Treasury and the City Minister, sets the legislative framework within which the Bank operates. This latest move aligns with broader government efforts to modernise the domestic payments landscape and ensure the UK remains a global hub for financial services. The legislative process involves the House of Lords, the upper chamber of the UK Parliament, which scrutinises and amends bills such as the Financial Services and Markets Bill. These institutions collectively manage the balance between the UK's historical reputation for financial security and the need to accommodate rapid shifts in how businesses and consumers move value in a digital-first economy.

What FF News has reported before

FF News has closely monitored the evolving regulatory and technological landscape in the UK. We recently reported on how the Bank of England Appoints Nicholas Segal and Peter King to Lead Enforcement Decision Making Committee, highlighting the central bank's ongoing efforts to strengthen its internal governance. In the private sector, the drive for payment modernisation is evident in news that Mastercard and PEXA to Revolutionize UK Homebuying with Synchronised A2A Settlement. Furthermore, the broader context of digital transformation was explored as Financial Services Leaders to Examine Scalable AI and Digital Transformation in London. We also covered regulatory efficiency in the wider market, such as when the FCA Slashes Transaction Reporting Costs by £100m with New Streamlined Regulatory Rules.

What this means

This announcement represents a significant shift in the regulatory climate, moving the Bank of England away from a purely defensive posture regarding new technology. By codifying innovation as a secondary objective, the government is putting pressure on the regulator to be an enabler rather than just a gatekeeper. This moves the needle for fintech firms and stablecoin issuers who have often faced "regulation by delay" in the past. However, the subordination of this objective to financial stability remains a high hurdle. The industry must now watch whether the Bank’s annual reporting leads to tangible policy changes or merely serves as a formal justification for existing caution.