The Bank of England (BoE) has unveiled a revised framework for stablecoins, rolling back several measures that industry participants warned could have hindered the growth of a sterling-backed digital asset market.
In its latest policy statement and draft rulebook, the central bank removed plans to cap how much stablecoin an individual could hold. Instead, regulators will impose an overall issuance limit of £40 billion ($52.8 billion) per stablecoin, a move designed to support broader adoption while maintaining financial stability safeguards.
The change marks a significant shift from earlier proposals and reflects growing pressure from industry stakeholders who argued that restrictive rules could push innovation toward competing jurisdictions such as the United States and the European Union.
Issuers Gain More Flexibility Over Stablecoin Reserves
The Bank of England also eased requirements surrounding stablecoin reserves.
Under the revised framework, issuers will now be allowed to hold up to 70% of reserves in short-term UK government debt, an increase from the previously proposed 60% threshold. The remaining portion must be held in non-interest-bearing deposits at the Bank of England.
Industry participants had criticized the original proposal because a large share of reserves would generate no yield, making sterling-backed stablecoins less attractive from a business perspective. While the updated rules provide greater flexibility, some market participants continue to advocate for an even larger allocation to yield-generating government securities.
UK Targets Innovation Without Sacrificing Stability
Bank of England Deputy Governor Sarah Breeden described the framework as a major step forward for the country's digital payments ecosystem.
Breeden emphasized that innovation must be built on trust, highlighting the framework's focus on prompt redemption rights, consumer protections, and central bank oversight.
The central bank has repeatedly stressed that stablecoins could eventually become a new form of digital money, making it essential to establish clear regulatory standards before large-scale adoption occurs.
Why the Bank Is Still Cautious
Despite the softer approach, the Bank of England remains concerned about the potential impact stablecoins could have on traditional banking.
Officials have warned that if stablecoins become widely used, consumers and businesses could shift significant amounts of money away from bank deposits, potentially reducing banks’ ability to lend and impacting broader credit markets.
The newly introduced £40 billion issuance cap is intended as a temporary safeguard rather than a permanent restriction. Regulators stated that the limit will be reviewed regularly and could eventually be removed once risks to the financial system are better understood.
Importantly, the rules apply only to systemic stablecoins-those large enough to potentially affect financial stability. Stablecoins primarily used for crypto trading activities will instead fall under the supervision of the Financial Conduct Authority (FCA).
UK Moves Closer to Regulated Stablecoins
The Bank of England and the FCA plan to begin accepting applications from prospective stablecoin issuers as the regulatory framework continues to develop.
Consultation on the proposals will remain open until September 22, with final rules expected before the end of 2026. If the timeline remains on track, regulated stablecoins could begin operating within the UK market as early as 2027.
As governments worldwide race to establish stablecoin regulations, the UK appears determined to position itself as a competitive destination for digital asset innovation while maintaining strong oversight standards.
