Scottish and Northern Ireland Banknote Issuance Annual Report 2026

Introduction

1. The Bank assumed responsibility for the regulation of note issue by the six authorised banks on 23 November 2009.

2. Regulation 18 of the Scottish and Northern Ireland Banknote Regulations 2009 (the Regulations) requires the Bank to publish an annual report on the discharge of its functions under the Regulations. This is the seventeenth such report and covers the Bank’s activities from 1 March 2025 to 28 February 2026 (the Bank’s 2025/26 financial year).

Historical background

3. The six authorised banks (or their predecessors) have been regulated with regard to the backing of their banknotes since 1845. Part 6 of the Banking Act 2009 (the Act), which came into effect on 23 November 2009, repealed the legislation under which banknote issuance in Scotland and Northern Ireland was previously regulated and passed regulatory responsibility to the Bank. Part 6 of the Act updated and modernised the framework for commercial note issuance to provide enhanced noteholder protection.

4. The authorised banks are:

• Bank of Ireland (UK) plc;
• Bank of Scotland plc;
• Clydesdale Bank Limited;
• Northern Bank Limited (trades as Danske Bank in Northern Ireland);
• The Royal Bank of Scotland plc; and
• National Westminster Bank plc (trades as Ulster Bank in Northern Ireland).

Legislative framework

5. The Act and the Regulations set out the framework for the Bank’s responsibilities for regulating the authorised banks’ note issuance. The primary objective of the legislation is noteholder protection. The provisions in the legislation are designed to ensure that holders of genuine banknotes issued by the authorised banks receive a level of protection similar to that provided to holders of Bank of England notes, through the full backing of notes at all times (see Noteholder Protection section below for more detail). The Bank is not responsible for the design of the authorised banks’ banknotes or their robustness against counterfeiting.

6. The authorised banks’ note issuance is governed by the Act, the Regulations and the related Scottish and Northern Ireland Banknotes Rules (the Rules). These came into force in November 2009 together with a Statement of Penalty Policy (SPP). Both the Rules and SPP are revised periodically; the current Rules have been in effect since April 2017 and the current SPP has been in effect since August 2018.

7. In addition, the authorised banks must comply with conditions, known as General Conditions and Specific Conditions that set out the requirements for the holding of backing assets and Excluded Notes (refer to the Noteholder Protection section below for more detail). As the General Conditions and Specific Conditions include sensitive material, such as the security standards that sites holding backing assets must meet, they are not published.

8. The Bank has the authority to impose financial penalties on the authorised banks for non-compliance with the Regulations and the Rules.

Noteholder protection

9. Under the Regulations, the authorised banks are required to hold backing assets for their notes at all times. In the event of an authorised bank entering an insolvency process as defined in the Regulations, those assets will be ring-fenced for one year or any longer period that HM Treasury may determine after consulting the Bank, for the sole purpose of reimbursing noteholders through a note exchange programme.

10. To back their note issue, authorised banks may use a combination of Bank of England notes, UK coin and funds placed on deposit in sterling in an interest-bearing bank account at the Bank. Bank of England notes held as backing assets may be held at locations approved by the Bank or at the Bank. Notes held as backing assets at the Bank may include £1 million notes (Giants) and £100 million notes (Titans), which in physical terms are permanently held at the Bank.

11. For backing requirements, notes issued by an authorised bank are always considered to be one of three mutually exclusive classes, as set out below.

• Notes In Circulation (NIC): notes that have been issued by the authorised bank and are now in general circulation, eg notes in wallets and purses.
• Notes With the Potential to Enter Circulation (NWPEC): notes that are held by or on behalf of the authorised banks but which are available to be issued, eg notes held in ATMs or in bank branches.
• Excluded Notes: notes which do not need to be backed. These notes are held by or on behalf of the authorised banks, which fulfil specific requirements and conditions (the General Conditions and Specific Conditions) imposed by the Bank, eg are stored in a banknote cage in a secure vault. This includes notes which have been printed but which have not yet been collected from the printer.

12. NIC and NWPEC must be fully backed with backing assets. At least 60% of NIC must be backed by backing assets in the form of Bank of England notes or UK coin. The remaining 40% of NIC and 100% of NWPEC must be backed by backing assets in the form of Bank of England notes, UK coin, or funds placed on deposit in sterling in an interest-bearing account at the Bank. Excluded Notes are not required to be backed.

13. At end-February 2026, the aggregate NIC and NWPEC of all six banks was £7.56 billion and £0.33 billion respectively. Consequently, the total backing requirement of all six banks was £7.89 billion, the breakdown of which is shown in Table A, a decrease of 0.97% from £7.97 billion in 2025. In comparison, Bank of England NIC increased by 6.56% from £85.87 billion to £91.51 billion in the same period.^{footnote [2]}

14. Over the 12-month reporting period the average NIC of the authorised banks decreased from £7.67 billion in 2025 to £7.61 billion.

Compliance framework

15. The Bank has a team of staff to monitor compliance with the regime. The team analyses the daily and weekly data reported by the authorised banks to ensure that both the total value and the composition of backing assets held are always in accordance with the legislation. The Bank undertakes a range of other supervisory and compliance activity throughout the year, including checks to verify the value of backing assets and Excluded Notes held, and to confirm that the necessary conditions (eg, security standards of sites storing backing assets and/or Excluded Notes) are met. The Bank regularly re-evaluates its supervisory activity to ensure that risks to noteholders are adequately mitigated.

Compliance failures and penalties

16. Compliance breaches under the regime are classified into four categories. ‘Underbacking’ is the most severe, occurring when a bank’s backing assets fall below the value of notes required to be backed. ‘Serious’ breaches involve a significant risk to noteholder protection or a shortfall in high-quality backing assets. Notable’ breaches present a risk or potential risk that is not considered serious. ‘Minor’ breaches pose negligible or no risk to noteholder protection.

17. During the year to end-February 2026, the Bank did not impose any financial penalties. Six Notable compliance failures were assessed during the reporting period. None of these failures was considered serious enough to justify referral to the Bank’s internal decision-making committees. They were laid on file for future reference. The Bank can also issue a Private Warning for a Minor or, in exceptional circumstances, a Notable compliance failure; however, these are not included in the Annual Report.

18. As shown in Table B and Chart 1, the number of assessed compliance failures has varied but overall averaged two failures over the past 10 years.

19. Between the commencement of the regime and end-February 2026, 34 compliance failures have been penalised, and penalties amounting to £119,700 have been issued and paid.^{footnote [3]} No penalties were issued in the year to end-February 2026. Once received, penalty fees are passed to HM Treasury.

Other developments

20. As part of wider routine contingency preparations in 2025/26, the authorised banks participated in a business continuity exercise, which focused on a fictional scenario where a fleet of cash-in-transit vehicles encountered a technical issue.

Appendix 1: Legislative documents

• The Banking Act 2009, Part 6 (the Act), which received Royal Assent in February 2009 and came into force on 23 November 2009: The Banking Act 2009, Part 6
• The Scottish and Northern Ireland Banknote Regulations 2009 (the Regulations), which were made by Parliament on 18 November 2009 and came into force on 23 November 2009:

The Scottish and Northern Ireland Banknote Regulations 2009

• The Scottish and Northern Ireland Banknote Rules (the Rules) (3 April 2017):

Scottish and Northern Ireland Banknote Rules 2017

• The Scottish and Northern Ireland Banknote SPP (28 August 2018):

Scottish and Northern Ireland Banknote Statement of Penalty Policy

• The Scottish and Northern Ireland Banknote Approach Document (March 2017):

Scottish and Northern Ireland Regime Approach