The Bank of England has abandoned plans to restrict how much systemic stablecoin individuals and businesses can hold, following criticism from the digital-assets industry.
Under its revised framework, households and companies will be able to use regulated systemic stablecoins without individual caps. The Bank will instead apply a temporary £40 billion limit to the total amount issued by each systemic stablecoin.
It has also increased the proportion of backing assets that issuers may place in interest-bearing short-term UK government debt from 60 per cent to 70 per cent. The remaining 30 per cent must be held as deposits at the Bank of England.
The changes represent a concession to concerns raised during consultation. However, reactions from ClearBank and industry body Innovate Finance suggest that attention has moved from holding restrictions to the cost of operating a sterling stablecoin under the wider regime.
Holding limits replaced by £40 billion cap
The Bank’s revised proposals cover stablecoins that become widely used for payments and are designated as systemic by HM Treasury. These would be regulated jointly by the Bank of England and the Financial Conduct Authority.
Stablecoins used mainly for buying and selling cryptoassets, which currently account for much of the market, would remain under the FCA rather than the Bank’s systemic regime.
The Bank had previously consulted on temporary limits governing the amount of stablecoin each person or business could hold. It has now concluded that an aggregate issuance cap would be cheaper and easier to implement while allowing unrestricted use by customers.
The initial £40 billion guardrail would apply separately to each systemic stablecoin. The Bank plans to review it regularly and remove it once concerns about stablecoins drawing money away from bank deposits and reducing the availability of credit have been addressed.
The central bank presents the revised model as a more proportionate way to manage the transition as stablecoins become more widely used. Industry groups agree that removing individual limits improves the framework, although they remain concerned about the replacement cap and the rules governing issuers’ reserves.
Reserve income remains a sticking point
Systemic stablecoin issuers will be required to maintain assets capable of supporting redemption at face value. Up to 70 per cent may be held in short-term UK government debt, allowing issuers to earn income on that portion of their reserves.
The other 30 per cent must remain on deposit at the Bank of England. These deposits will help issuers meet redemption requests promptly but will earn no return.
Mark Fairless, chief executive of banking infrastructure provider ClearBank, described the removal of the proposed holding limits as encouraging but said the backing requirements could continue to restrict viable business models.
“The Bank of England has clearly listened on holding limits, moving away from a complex and restrictive approach towards a more proportionate framework,” he said. “That is a positive step. But further progress is needed to ensure the regime does not constrain sustainable business models, particularly through the backing asset requirements.”
Fairless also raised the wider difficulty facing banks that want to issue their own stablecoins, arguing that the UK framework could leave sterling products at a disadvantage to those denominated in dollars or euros.
“The endgame should be a truly risk-based framework rather than a one-size-fits-all approach, otherwise the UK is in danger of leaving sterling stablecoins at the starting line while other markets move ahead,” he added.
Nick Jones, founder and chief executive of digital-assets infrastructure provider Zumo, took a more positive view, suggesting that the revised backing rules would improve the economics of issuing sterling stablecoins.
“Increasing the maximum share held in interest-bearing assets to 70% will help to significantly boost issuers’ profitability, enabling them to generate higher yields on their reserve funds while ensuring the remaining 30% held in central bank deposits maintains adequate liquidity for prompt redemptions,” he said.
Jones also said replacing customer holding limits with an aggregate issuance cap should make the framework easier for firms to operate and could encourage more stablecoin issuers to engage with the UK market.
Innovate Finance warns of revenue squeeze
Innovate Finance is more critical of the revised framework. Chief executive Janine Hirt said the Bank had made some positive changes but argued that its approach remained more cautious than those being developed in the US, European Union, Singapore, the UAE and Canada.
Her central concern is the non-interest-bearing portion of issuers’ backing assets. Stablecoin business models often depend partly on income earned from the assets held against coins in circulation.
“The requirement for 30% of backing assets to be held at the Bank of England with no remuneration removes a third of the potential revenue for service providers and issuers and means that firms in the UK would have to develop entirely different business models compared to the rest of the world,” Hirt commented.
She described the previous customer holding limits as unworkable but warned that the new aggregate issuance cap could create a separate constraint, particularly if stablecoins become widely used to settle transactions in tokenised capital markets.
“The new limit on supply which will be introduced instead could hold back Britain’s plans for tokenisation of wholesale capital markets, which will potentially see significant trading volumes, and could create instability in the market if demand exceeds supply,” she said.
The £40 billion limit is substantially larger than the present market for sterling stablecoins, although the disagreement concerns how the regime would operate if demand grows quickly and coins move into high-volume payment and wholesale uses.
Bank says safeguards support trust
The Bank argues that high-quality backing assets and access to central-bank deposits will help systemic stablecoins maintain their value and meet redemption requests during periods of stress.
Its policy statement and draft Code of Practice also provide for a central-bank liquidity facility, giving eligible systemic issuers access to a source of emergency liquidity.
Sarah Breeden, the Bank’s deputy governor for financial stability, described the framework as a foundation for trusted digital money offering greater choice in UK payments.
“This is a major milestone in delivering greater choice and innovation in UK payments. Innovation thrives on trust. And today we’ve set out the foundations of that trust for a new form of money – with prompt redemption, strong protections and central bank support. This is truly a world leading regime.”
The Bank expects stablecoins to support retail uses including merchant payments, online purchases, transfers between individuals and cross-border transactions. It also sees a possible role alongside commercial bank money in the settlement of tokenised wholesale assets.
The rules are designed for coins that have reached systemic scale rather than every stablecoin available to UK customers. Firms may begin under the FCA’s regime before moving into joint FCA and Bank of England supervision if their use becomes significant enough to affect financial stability.
Final rules expected by year-end
The Bank is consulting on the draft Code of Practice until 22 September 2026 and plans to publish final rules by the end of the year.
Further guidance will follow on how firms move between the FCA regime and Bank of England supervision, with regulated systemic stablecoins expected to begin operating under the completed framework from 2027.
