Important updates to the DSS
30 June 2026DSS firms can now apply to use specific stablecoins as a settlement asset
The Bank has broadened the scope of acceptable settlement assets that can be used in the DSS to include stablecoins that meet our minimum requirements. Details of what this will mean in practice, and how firms can apply to use them, can be found in the updated DSS Guidance under Section 4: Settlement assets for payments in the DSS. Please find a summary below.
Which stablecoins will be permitted as a settlement asset in the DSS?
The suitability of a stablecoin for use in the DSS will be determined by the Bank on a case-by-case basis and underpinned by a set of minimum requirements which are closely aligned to those of the FCA’s regime for UK issued qualifying stablecoins. These include: the universal right of redemption for all stablecoin holders, backing assets comprised of those required for UK issuers by the FCA’s final rules including an independent attestation of the 1:1 ratio of backing assets by a qualified professional, and subject to appropriate risk management in relation to backing assets composition and redemption, the management of conflicts of interest including a separate legal entity for issuer and custodian of backing assets, adequate oversight of contractual third parties, adequate safeguarding arrangements for the backing assets, financial crime controls compliant with international standards, strong operational resilience, and the right for stablecoin holders to be able to claim against the backing assets in an insolvency.
What should a sandbox entrant do if it wants to use a stablecoin as a settlement asset?
DSS firms that have passed Gate 1 and intend to use a stablecoin as a settlement asset should inform the Bank at the earliest opportunity through their supervisor. The firm should seek a “modification” to the Gate 2 rules set out in Article 40 covering settlement assets using the DSS Waiver Application Form see also Guidance on requesting waivers and modifications. The firm should clearly state which stablecoins it intends to use for settlement purposes. The Bank will then assess the specific stablecoins against the criteria above and communicate to the firm whether the request is approved.
How might this change impact the use of stablecoins as a wholesale settlement asset in the longer term?
Permitting and observing the use of stablecoins as the payment asset in the settlement of securities via the DSS will help to inform how to facilitate the use of stablecoins in wholesale settlement in the longer-term once the DSS closes, including any necessary amendments to regulation.
DSS firms that wish to provide services directly to retail customers should approach the regulators to seek any additional permissions that they may need
Firms that want to perform any regulated activities under The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO), to facilitate retail facing financial services in the DSS, should contact the Regulators. Regulated activities designated under the RAO, when used to provide financial services aimed at non-professional (retail) clients, would likely constitute Category 2 ancillary activities. This means a DSD looking to provide ‘direct’ access to any non-professional (retail) clients would need to have all relevant RAO permissions and follow all applicable requirements. The regulators ask firms with plans to directly serve retail clients to engage with regulators, and apply for the relevant permissions, at the earliest opportunity.
Additionally, a DSD that wishes to facilitate non-professional (retail) clients holding direct legal title to securities (with neither themselves nor a third party acting as the regulated custodian) must have passed Gate 3 and may be subject to additional requirements, for example to disclose additional risks to those clients. Further information is available in the DSS Guidance.