Category: Blockchain insurance · Reviewed by Simon Temme, Account Executive · Last reviewed 2026-06-10
Stablecoin custody insurance is an emerging class of cover protecting against the loss, theft or operational compromise of the fiat reserves backing a stablecoin issuance, and in some forms against the on-chain depegging of the token.
The Bank of England and FCA’s November 2023 joint discussion paper on the regulatory regime for systemic payment systems using stablecoins set the framework for UK stablecoin regulation. Insurance markets have begun developing reserve-custody products in anticipation of the new regime.
Definition
Stablecoin custody insurance is a hybrid product combining:
Specie / bailee custody cover for the fiat reserves held by the stablecoin issuer or its custodian bank;
Crime and cyber cover for theft, fraud and computer crime affecting the reserves;
Errors and omissions / professional liability for the issuer;
In some structures, on-chain depeg cover providing for indemnification or rebalancing if the token trades materially below par for a sustained period; and
Cyber-physical / OT/IT convergence cover where reserve infrastructure includes industrial control elements.
The product overlaps with crypto asset insurance but is differentiated by the specific structural concern of maintaining the peg.
Legal / Regulatory basis
The principal UK materials are:
Financial Services and Markets Act 2023, sections 21–23 and Schedules 6–8, which extend the FCA perimeter to “digital settlement assets” (stablecoins) and provide for HM Treasury regulation.
HM Treasury, Regulatory approach to cryptoasset financial promotions (January 2022; June 2022 response) — bringing qualifying cryptoassets within the financial promotions regime.
Bank of England, PRA and FCA, Discussion Paper on the regulatory regime for systemic payment systems using stablecoins and related service providers (November 2023). The paper sets out a coordinated framework: the Bank of England as systemic regulator (under Part 5 of the Banking Act 2009 and Part 18 of FSMA 2000), the PRA for stablecoin issuance by banks, and the FCA for non-systemic stablecoin issuance and custody.
Bank of England, Discussion Paper: The Bank’s regulatory regime for systemic stablecoin issuers (November 2023).
FCA, Stablecoins discussion paper DP23/4 (November 2023).
Payment Services Regulations 2017 and Electronic Money Regulations 2011 — for stablecoin issuers operating as e-money issuers in the interim period.
HM Treasury, Digital Securities Sandbox: Final Policy Statement (2023) and the Digital Securities Sandbox (Sandbox Arrangements) Regulations 2024.
Financial Services and Markets Act 2000 and SI 2001/544.
The Bank of England’s November 2023 paper proposed that systemic stablecoins’ reserves be held in non-interest-bearing accounts at the Bank of England, with separate operational, capital and consumer protection requirements depending on the systemic classification.
How it works in practice
A typical stablecoin custody insurance programme covers:
Reserve specie cover — physical and constructive custody of fiat reserves at a custodian bank, with sub-limits per location.
Crime and cyber wrap — theft, fraud and unauthorised transfer from the reserve accounts.
Custodian E&O — professional indemnity of the custodian bank in respect of the reserves.
Bridge and operational cover — operational risks of the smart contract infrastructure used to mint and redeem the stablecoin.
Optional on-chain depeg cover — providing for indemnification if the stablecoin trades below US$0.98 (or other defined threshold) for a sustained period, subject to careful definition of triggers, oracles and exclusions.
Programmes are typically structured with high retentions, a Lloyd’s-led primary and excess layers placed with London-market and Bermuda reinsurers.
Common variations / Subsequent developments
Reserve-only cover — for stablecoins whose reserves are held in cash and US Treasury bills (Circle USDC; PayPal USD).
Algorithmic depeg cover — limited capacity; historically priced very high or excluded following Terra UST’s collapse in May 2022.
Issuer D&O — distinct cover for directors and officers of stablecoin issuers.
Lloyd’s-led product wrappers — being developed in 2024–2026 by syndicates targeting the institutional stablecoin market.
The maturation of the UK stablecoin regulatory regime is expected to drive product standardisation. The PSTI Act 2022 (although focused on consumer connectable products) and the proposed Cyber Security and Resilience Bill 2024–25 are not directly applicable but illustrate the broader UK direction on infrastructure resilience.
Example
A UK-incorporated stablecoin issuer (regulated as an e-money institution under the EMRs 2011 and, on commencement of the Phase 1 stablecoin regime, under the FSMA framework) issues a GBP-denominated stablecoin backed by £400 million of cash and short-dated UK gilts held at a tier-one custodian bank. It places a £100 million specie programme through a Lloyd’s broker, with a £5 million retention, additional crime cover, and a £20 million sub-limit for cyber-related loss of access to reserve infrastructure. The issuer separately purchases issuer D&O. On-chain depeg cover is not purchased because the Bank of England regime would, in due course, require reserves to be held at the Bank, materially reducing the depeg risk.
Bank of England, PRA and FCA, Discussion Paper: Regulatory regime for systemic payment systems using stablecoins and related service providers (November 2023), bankofengland.co.uk.
FCA, Stablecoins — Discussion Paper DP23/4 (November 2023), fca.org.uk.
HM Treasury, Digital Securities Sandbox: Final Policy Statement (2023) and Digital Securities Sandbox (Sandbox Arrangements) Regulations 2024.
Banking Act 2009, Part 5; Financial Services and Markets Act 2000, Part 18.
Payment Services Regulations 2017 and Electronic Money Regulations 2011.
FCA, Guidance on Cryptoassets — PS19/22 (July 2019).
IAIS, Application Paper on Cyber Risk Underwriting (2020).
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
Our service promise. We acknowledge every quote request the same working day. For straightforward risks, indicative terms typically follow within five working days. Complex risks — higher-risk buildings, cladding, mid-term proposals requiring fresh underwriting — may take longer; we’ll send you a progress note by the end of the fifth working day in those cases.