Bank of England to gain new payments innovation objective

The Bank of England is set to receive a new responsibility to support innovation in payment systems and emerging forms of digital money under government plans to modernise the UK’s payments regulatory framework.

The new secondary objective will require the Bank to facilitate innovation while regulating systemic payment systems, including those using digital settlement assets such as stablecoins.

Financial stability will remain the Bank’s primary objective, meaning the new responsibility will not require it to support innovation where this could undermine the stability of the UK financial system.

The government said the change is intended to ensure payments regulation keeps pace with developments in areas including tokenisation and distributed ledger technology (DLT), while creating conditions for new payment technologies and business models to develop.

Under the proposals, the Bank will report annually to Parliament on how it is advancing the innovation objective.

The Bank already has a secondary innovation objective covering its regulation of central counterparties (CCPs) and central securities depositories (CSDs), introduced through the Financial Services and Markets Act 2023. The latest reform will extend this approach to systemic payment systems.

City Minister Lucy Rigby said: “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.”

Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, said the new objective would complement existing work between the Bank, government and other authorities to develop the UK payments system.

She said: “We welcome today’s announcement, which will further boost our work to support innovation in financial services without compromising on financial stability.

“The Bank is doing a huge amount, together with government and other authorities, to maintain trust and drive innovation in UK payments. This new secondary objective will further support that.”

The government intends to implement the change through amendments to the Financial Services and Markets Bill as part of its wider programme to modernise the UK payments landscape and support the development of digital finance.