Key Takeaways
- Bank of England softens stance on stablecoins.
- Industry says original proposals threatened viability.
- The UK regulatory framework remains uncertain.
Britain’s central bank is reconsidering key parts of its proposed stablecoin framework after sustained criticism from the crypto sector, signaling a softer regulatory approach as policymakers seek to avoid pushing digital asset firms overseas.
The Bank of England originally proposed some of the strictest reserve requirements among major financial centers.
Industry participants previously warned the framework would make sterling-backed stablecoins commercially unviable and leave the UK trailing the US and European Union.
Now, the industry has reacted to the news, with some warning that more may be needed.
BoE Signals Greater Flexibility on UK Stablecoins
The Bank of England’s original proposals minimized the risk of destabilizing runs on stablecoins and protected the broader banking system from sudden deposit outflows.
Initial plans published in 2023 would have required issuers to keep 100% of reserves in non-interest-bearing central bank deposits.
The central bank also proposed temporary holding limits of £20,000 for retail users and £10 million for businesses to slow rapid migration from traditional bank deposits during periods of financial stress.
But the proposals drew widespread criticism from crypto firms, payments companies, and legal experts, who argued the framework would leave UK-issued stablecoins at a competitive disadvantage.
Stablecoin issuers typically generate revenue from yield earned on reserve assets such as government debt.
Industry groups argued the requirement to hold a significant share of reserves in non-interest-bearing BoE deposits would sharply reduce profitability.
The proposal also faced criticism from fintech companies, which said the limits would undermine practical use cases, including payroll and cross-border transfers.
Industry and Legal Experts Welcome Rethink
Industry participants said the BoE’s apparent shift reflects growing recognition that overly restrictive rules could damage the UK’s ambitions to become a competitive digital asset hub.
Carl Grimstad, co-founder of digital payments platform Lydian, said previously defensive regulators were now acknowledging stablecoin’s growing role in global finance.
“The Bank of England’s move to rethink those holding limits is a true reality check,” Grimstad said.
“It’s the first real admission we’ve seen that the old closed-loop financial model is effectively dead.”
He said stablecoins such as USDT had become critical infrastructure for global liquidity and argued that the debate was no longer about competition between banks and crypto firms.
“The issue, therefore, isn’t a clash of ideologies,” Grimstad said. “We have a translation problem.”
George Morris, digital assets partner at law firm Simmons & Simmons, said proposed changes to the BoE framework were “hugely welcome” given the need for the UK to compete with international stablecoin markets.
However, he warned that broader UK regulation remained inconsistent.
“Treasury and the FCA are also currently developing a controversial regulatory regime for service providers using stablecoins, which will harm innovation in this sector in the UK, regardless of how favorable the Bank’s issuance rules are,” Morris said.
He added that current proposals could require merchants integrating stablecoin payment systems for non-UK-issued tokens to obtain full FCA authorization, describing the approach as “entirely unworkable”.
Matt Osborne, UK and Europe policy director at Ripple, agreed the central bank’s comments showed regulators were beginning to recognize the commercial realities of the sector.
“These comments from the Bank of England are a welcome step forward and show that the Bank is listening to the market and prioritizing its mandate to support the UK’s competitiveness as a global financial center,” Osborne said.
“The infrastructure is real, the demand is real, and the regulatory framework needs to keep pace,” Osborne said.
Guy Stevenson, partner and head of financial regulatory practice at Gowling WLG, echoed that the BoE’s evolving position reflected increasing awareness that excessively restrictive rules risked undermining the UK’s digital asset ambitions.
“By signaling greater flexibility on stablecoin limits and reserve requirements, regulators are creating space for innovation while still prioritizing financial stability,” Stevenson said.
“If this balance is struck correctly, it could help position the UK as a more competitive market for sterling-backed stablecoins, which remain a small part of the global market today.”
UK Stablecoin Policy Yet To Catch Up
An implementation gap currently defines the UK’s digital asset landscape.
While the Bank of England’s rethink on reserves has grabbed headlines, the underlying legal framework is racing to catch up with market reality.
In February 2026, the government formally introduced the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026.
While this was undoubtedly a big moment for the sector, a significant implementation gap remains.
Although the law is now on the books, it does not fully come into force until Oct. 25, 2027.
This has created a period of regulatory limbo in which the rules are known but not yet active, leaving firms to operate under a patchwork of anti-money laundering rules and financial promotion laws in the interim.
To prevent this “limbo” from stifling growth, HM Treasury executed a tactical pivot in April 2026.
Officials announced a plan to carve out stablecoin payments from the stricter “crypto-investment” regime, moving them instead under Payment Services Regulations.
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Kurt Robson is a London-based reporter at CCN, specialising in the fast-moving worlds of crypto and emerging technology. He began his career covering local news in Cornwall after graduating from Falmouth University with First Class Honours in Journalism. There, he cut his teeth on everything from council meetings to missing swans.
He quickly rose through the ranks to become a frontline journalist at several of the UK’s leading national newspapers. Over the years, he has interviewed musicians and celebrities, reported from courtrooms and crime scenes, and secured multiple front-page exclusives.
Following the upheaval of the COVID-19 pandemic, Kurt shifted his focus to technology journalism—just ahead of the AI boom. With a natural curiosity and a trained eye for emerging trends, he has found a new rhythm in reporting on innovation.
At CCN, Kurt's work focuses on the cutting edge of crypto, blockchain, AI, and the evolving digital world. Drawing on his background in people-first reporting and his deep interest in disruptive tech, Kurt delivers stories that are insightful, entertaining, and human-centric.
