The Bank of England (BoE) has softened its proposed stablecoin framework, scrapping controversial holding limits and introducing a temporary £40 billion issuance cap per systemic stablecoin in a move designed to support innovation while safeguarding financial stability.
The updated policy marks a significant shift from earlier proposals that would have limited individual holdings of stablecoins to £20,000 and capped business holdings at £10 million.
Following extensive industry feedback, the central bank has opted for a broader issuance-based approach instead, a decision welcomed by many participants in the UK’s growing digital asset sector.
The revised framework also gives issuers greater flexibility in managing reserves, allowing up to 70% of backing assets to be held in short-term UK government debt, up from the previously proposed 60%.
The remaining 30% must be maintained in non-interest-bearing deposits at the Bank of England.
BoE Drops Individual Holding Limits in Major Policy Shift
The Bank of England’s original proposals faced criticism from fintech companies, crypto firms, and industry groups, which argued that strict limits on stablecoin holdings would make sterling-backed digital currencies difficult to scale and less attractive than their dollar- and euro-backed counterparts.
Under the revised approach, users will no longer face restrictions on the amount of stablecoin they can hold. Instead, each systemic sterling stablecoin will be subject to a temporary issuance cap of £40 billion.
The central bank said the change would better protect the banking sector from sudden deposit outflows while still allowing stablecoin businesses to grow.
The BoE also maintained requirements that issuers redeem stablecoins at par within 24 hours, reinforcing consumer protection measures and ensuring confidence in digital payment systems.
Deputy Governor for Financial Stability Sarah Breeden described the framework as an important step forward for the sector.
“This is a major milestone in delivering greater choice and innovation in UK payments,” Breeden said.
The Bank noted that while the policy position is considered final, it will continue accepting industry feedback until September 22 before implementing the rules, with stablecoin launches potentially beginning as early as 2027.
Reserve Rule Changes Aim to Improve Commercial Viability
One of the most significant revisions involves how users can invest stablecoin reserves.
Under the new framework, issuers can allocate up to 70% of their reserves to short-term UK government bonds, up from the previous 60% threshold. The change will improve yields and make sterling stablecoins more economically sustainable.
Coinbase’s Head of Policy for Europe, Katie Harries, welcomed the final framework and described it as one of the strongest stablecoin regimes globally.
“The Bank of England’s final rules deliver among the strongest stablecoin regimes in the world,” Harries said.
She pointed to the combination of workable reserve requirements, access to central bank deposits, liquidity support mechanisms, and the ability for issuers and exchanges to offer rewards as evidence that the framework balances commercial viability with financial stability.
However, Harries noted that key questions remain.
“Two questions remain if the UK is to fully capitalise on the benefits stablecoins can bring: what ‘temporary’ means for the per-coin issuance cap, and whether stablecoins can be used for settlement in core wholesale markets,” she said.
According to Harries, broader use of stablecoins in wholesale financial markets will be essential if the UK hopes to advance its tokenization ambitions.
Industry Welcomes Progress but Warns UK Still Lags Rivals
Despite the revisions, some industry participants argue the Bank of England remains more conservative than regulators in competing jurisdictions.
The UK’s framework contrasts with the European Union’s MiCA regime and recent crypto-friendly developments in the United States, where policymakers have increasingly embraced stablecoin innovation.
Critics point to the requirement that 30% of reserves remain in non-interest-bearing central bank deposits, arguing it limits profitability compared with stablecoin models operating elsewhere.
Adam Jackson of fintech trade group Innovate Finance described the revised rules as an improvement but argued that the UK still maintains one of the most cautious stablecoin frameworks globally.
Others, including ClearBank CEO Mark Fairless, warned that sterling stablecoins risk becoming less commercially attractive than dollar and euro alternatives without further changes.
Top Trending Crypto Articles
