ABSTRACT
In June 2026 the Bank of England published a draft Code of Practice for sterling-denominated systemic stablecoin issuers. The Code protects coinholders by imposing two statutory trusts over the backing assets and the reserves. The protection works in English law. It stops at the border, and the Code could have carried it further.
The trusts arise by operation of the Code. No settlor declares them and no instrument creates them. Article 3 of the Hague Convention of 1 July 1985 applies the Convention only to trusts created voluntarily and evidenced in writing. Section 1(2) of the Recognition of Trusts Act 1987 extends the Convention’s provisions, as a matter of United Kingdom law, to trusts arising under the law of any part of the United Kingdom, which tells courts here what to recognise and tells courts elsewhere nothing. The trusts are recognised in the legal order that made them and fall outside the Convention in every other.
Across thirty-eight pages the Code refers to applicable law once, in a template acknowledgement letter between issuer and custodian to which coinholders are not parties. The letter has the issuer declare that it holds the assets ‘as trustee under the laws applicable to us’, a formula that supplies no connecting factor. The coinholder’s own claim fares no better: the Code requires the issuer to ensure that the redemption right is ‘effectively transferred in law’ to every subsequent holder, wherever that holder sits, and never says under which law effectiveness is judged.
Two further provisions repeat the pattern. A custodian must hold assets ‘in the UK’, a location the Code leaves undefined for an intangible and says nothing about further down a custody chain. And repurchase transactions may move backing assets outright to a counterparty incorporated outside the United Kingdom, while the counterparty credit risk reserve is calculated by reference to reverse repurchase agreements alone. The reserve sits on one leg of the transaction and the cross-border exposure on the other.
The paper proposes anchoring by designation: an express provision stating the law under which each trust is constituted, and the law governing the contract that carries the redemption right. The same proposal was advanced in earlier work on tokenised fund units in the DIFC, and it generalises. Where a regulator creates a proprietary position by regulatory instrument, the instrument should say which law decides whether that position exists.
Santaolalla, Cayetana, Does a Statutory Trust Travel? Sterling Stablecoins, Safeguarding and the Conflict of Laws (September 21, 2026).
Leave a Reply