Bank of England softens stablecoin rules for growth

The Bank of England has significantly revised its proposed framework for sterling-backed stablecoins, abandoning controversial holding limits in favour of a broader issuance cap as it seeks to balance financial stability with innovation in digital payments.

Bank of England softens stablecoin rules for growth

The move represents an important shift in the UK’s approach to stablecoin regulation and reflects growing recognition among policymakers that overly restrictive rules could hinder the development of a competitive domestic digital asset ecosystem.

Following extensive consultation with industry participants, the central bank has replaced its original proposal to cap individual stablecoin holdings at between £10,000 and £20,000 with a temporary issuance limit of £40 billion per systemic sterling stablecoin.

Industry Pushback Forces Policy Rethink

The Bank’s earlier proposals attracted significant criticism from banks, fintech firms and digital asset providers, many of whom argued that individual holding limits would create substantial operational complexity while undermining the attractiveness of sterling-backed stablecoins.

Critics warned that enforcing personal limits could require continuous monitoring across multiple wallets and platforms, potentially necessitating digital identity solutions and extensive data-sharing arrangements that would be costly to implement and difficult to scale.

By shifting to an issuance-based cap, the Bank believes it can achieve similar financial stability objectives without restricting how consumers and businesses use stablecoins in practice.

The revised approach means households and companies will be able to hold unlimited amounts of a regulated sterling stablecoin, while the overall supply remains subject to a temporary safeguard designed to mitigate risks to the traditional banking system.

Improved Economics for Stablecoin Issuers

The Bank has also relaxed its rules governing reserve management, another area that drew considerable attention during the consultation process.

Under the revised framework, issuers will be permitted to hold up to 70 per cent of reserve assets in short-term UK government debt, an increase from the previously proposed 60 per cent limit. The remaining 30 per cent must continue to be held in non-interest-bearing deposits at the Bank of England.

The adjustment improves the commercial viability of sterling stablecoins by allowing issuers to generate greater returns from reserve assets while maintaining high levels of liquidity and security.

However, some industry participants argue that the requirement to hold a substantial proportion of reserves in non-interest-bearing central bank deposits remains more restrictive than frameworks emerging in other jurisdictions.

A Milestone for UK Digital Payments

The revised framework has been broadly welcomed as a pragmatic compromise between innovation and financial stability.

The Bank of England continues to require stablecoins to be redeemable at par value within 24 hours, reinforcing consumer confidence and ensuring that digital money remains closely aligned with traditional bank deposits.

Nevertheless, questions remain over how long the £40 billion issuance cap will remain in place and whether stablecoins will eventually be permitted to play a larger role in wholesale financial market settlement.

As global competition intensifies between the UK, the European Union and the United States to attract digital asset innovation, the Bank’s latest revisions signal a willingness to adapt its approach. Whether the framework proves sufficiently flexible to support a thriving sterling stablecoin market will become clearer as the final rules are implemented and the first regulated issuers prepare to enter the market.