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Innovate Finance has sharply criticised proposed stablecoin regulations from the Bank of England, arguing that the framework risks undermining the development of a competitive sterling-based stablecoin market.
UK fintechs warns BofE Regulations hurt innovation
In a response to the central bank’s consultation on systemic stablecoins, the fintech industry body said several elements of the proposed regime could make it effectively impossible for UK firms to launch viable pound-denominated stablecoins.
According to Innovate Finance, the rules would place challenger banks, payments firms and fintech start-ups at a structural disadvantage compared with competitors in other jurisdictions.
Holding Limits and Asset Requirements Under Scrutiny
Among the most controversial proposals are limits on the amount of stablecoins that individual users could hold.
Innovate Finance argues that such restrictions would be operationally complex and costly to enforce, requiring extensive monitoring systems across the financial sector.
The group warns that these limits could erode consumer trust and discourage investment.
If stablecoin issuers risk becoming subject to strict caps as soon as they scale, investors may choose to back projects in more permissive jurisdictions.
The industry body is also critical of the Bank of England’s requirement that around 40 per cent of stablecoin reserves be held as deposits at the central bank.
Innovate Finance contends that such a structure would make commercial business models difficult to sustain, limiting issuers’ ability to invest in infrastructure, security and compliance.
Instead, the organisation suggests that issuers should be allowed to hold reserves across a broader mix of high-quality liquid assets, including short-term government debt and commercial bank deposits.
Concerns Over Redemption and Issuer Restrictions
Another contentious issue is the proposal requiring stablecoin issuers to offer same-day redemption into fiat currency.
While designed to ensure consumer protection, Innovate Finance argues that the rule could impose disproportionate operational requirements, particularly in relation to compliance checks such as anti-money laundering controls.
The group suggests that the UK should adopt a more flexible approach similar to emerging US frameworks, where issuers are required to provide “timely” redemption rather than immediate settlement.
Innovate Finance has also criticised the Bank of England’s stance on commercial banks issuing stablecoins.
Under the proposed regime, UK banks would effectively be prevented from launching their own tokens, a restriction the industry body believes would hinder innovation within regulated financial institutions.
Global Competition Intensifies
The debate comes as major economies race to establish regulatory frameworks for stablecoins.
In the European Union, the Markets in Crypto-Assets Regulation is already providing a comprehensive framework for digital asset issuers. Meanwhile, the United States is advancing legislative proposals designed to clarify the legal status of stablecoins.
Industry participants warn that overly restrictive rules could push UK fintech companies to develop products elsewhere.
Several British firms are already focusing their stablecoin strategies on EU markets or dollar-denominated tokens.
For policymakers, the challenge is balancing financial stability with innovation.
The Bank of England’s cautious stance reflects concerns about systemic risks and consumer protection.
Yet critics argue that if the regulatory framework proves too onerous, the UK could miss an opportunity to shape the global stablecoin ecosystem.
As the consultation process continues, the outcome may determine whether sterling plays a meaningful role in the next generation of digital money — or whether the stablecoin economy becomes increasingly dominated by the US dollar.
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