UK Gives Bank of England a New Payments Innovation Objective as Digital Money Expands

LONDON — The British government plans to give the Bank of England a new secondary objective to support innovation in payment systems and emerging forms of digital money, a change designed to make regulation more responsive without weakening the central bank’s primary duty to protect financial stability. HM Treasury announced the proposal on August 27 as part of a wider effort to modernize the United Kingdom’s payments framework.

The objective would apply to the Bank’s supervision of systemic payment systems, including arrangements that use digital settlement assets such as stablecoins. It will remain explicitly subordinate to financial stability, meaning the Bank would not be required to encourage an innovation that created unacceptable systemic risk. That hierarchy is important because the proposal is intended to change regulatory emphasis, not the central bank’s core mandate.

The government expects to implement the change through amendments to the Financial Services and Markets Bill. According to the Treasury, the bill is next due for debate in the House of Lords on September 7 and 9. The Bank would also report annually to Parliament on how it has advanced the innovation objective, adding a public accountability mechanism to what can otherwise be a highly technical area of supervision.

The proposal extends an approach already used elsewhere in Britain’s market infrastructure. The Bank has a secondary innovation objective when regulating central counterparties and central securities depositories, introduced under the Financial Services and Markets Act 2023. The new measure would apply a similar principle to systemic payments, where rapid changes in technology are creating new products and new points of operational dependence.

Reuters independently confirmed the plan and its focus on payment systems and digital money, including stablecoins. Those tokens are designed to maintain a stable value and have become more prominent in trading and payment experiments. Their growth has forced central banks to confront a difficult policy balance: supporting useful competition and faster settlement while preserving confidence that money can be exchanged at face value across different forms.

The Bank has already been developing the infrastructure around that debate. Its Retail Payments Infrastructure Board launched a consultation in June on the design of the next generation of UK retail payment infrastructure. The consultation includes account-to-account payments at the point of sale, improved cross-border payments and support for both existing and emerging forms of digital money. Responses are due by September 11.

For London’s financial sector, the secondary objective could influence how supervisors evaluate new payment models. A mandate that explicitly recognizes innovation may give regulated firms a clearer basis for discussing technical trials, tokenized deposits and new settlement arrangements. It does not amount to approval for any particular product, but it signals that competitiveness and technological development are legitimate considerations within a stability-first framework.

The practical impact will depend on implementation. Statutory objectives guide regulatory choices, but firms will still need rules on capital, reserves, redemption, governance, operational resilience and consumer protection. Stablecoins and tokenized assets also cross institutional boundaries, involving the Treasury, the Bank, the Financial Conduct Authority and payment-system bodies. Coordination will matter as much as the wording of the objective itself.

Governor Andrew Bailey said in July that innovation could reduce fraud, payment delays and contracting costs, while improving cross-border transactions. He also described work on tokenized commercial bank deposits and the Bank’s Digital Securities Sandbox. Those projects show that the institution is already testing how new rails might operate; the proposed objective would place that activity within a clearer parliamentary mandate.

Britain is competing with New York, Hong Kong, Singapore and European centers to shape the rules for digital finance. The strongest advantage will not come from permissiveness alone. It will come from creating a system in which firms can test credible products, investors understand the protections and regulators can intervene before weaknesses become systemic. The new objective is a policy signal in that direction, with Parliament now responsible for deciding its final form.