Why the UK is easing its strict stablecoin rules

• Key insights: The Bank of England eased stablecoin ownership rules. 
• What's at stake: The BoE's original guidance potentially hurt the country's fintech position against the EU and U.S. 
• Forward look: The guidance is scheduled to go live before the end of the year, and the limits are designed to be temporary. 

The Bank of England is removing individual and corporate holding limits for pound-backed stablecoins amid claims they would threaten the country's status as a fintech hub.
The country's central bank on Monday issued new guidance that transfers the cap to individual stablecoins. The BoE is bowing to public pressure that followed the original guidance and comes as banks and payment companies are preparing for broader use of stablecoins to support cross-border transactions and other use cases. 

"As stablecoins scale, we expect them to be able to deliver significant benefits," the BoE said in a statement. "This includes enhancing choice and flexibility for consumers and businesses. At the same time, our approach will ensure that risks are effectively identified and managed as stablecoins scale, to safeguard monetary and financial stability and preserve trust in money as new forms emerge."

What the BofE is changing

Under the new guidance, the BoE is planning to temporarily limit each U.K. stablecoin to 40 billion pounds, or about $53 billion USD. The central bank also increased the permissible share of backing assets that can be held in short-term government debt to 70% from 60%, with the rest required to be held in non-interest-bearing central bank deposits.

The original guidance imposed caps of 10,000 British pounds to 20,000 British pounds (or about $13,600–$27,200) for individuals and 10 million British pounds (about $13.6 million) for businesses. There are no individual limits in the new guidance. The BoE, which did not return a request for comment, is positioning the new guidance as a way to manage stablecoin risk by diversifying stablecoin issuance, rather than restricting use.

"This delivers the same policy outcome, while being cheaper and easier to implement, and allowing unrestricted use by households and businesses," the BoE said in a statement. "This guardrail will be reviewed regularly and removed once risks to credit provision have been addressed."

The BoE guidance comes as U.S. dollar-backed stablecoins dominate the market — about 99% of the world's stablecoins are U.S. dollar stablecoins. This has given rise to concerns about payment sovereignty, an issue that has risen in recent years for both digital assets and traditional payment systems such as the U.S.-based card networks. In Canada, for example, a consortium of banks and fintechs is developing a Canadian stablecoin. A group of European banks is working on a similar project to issue a Euro-backed stablecoin. The Traders Union characterizes the U.K. stablecoin market as "small and fragmented" given the alternative of U.S.-based stablecoins. 

"This is a major milestone in delivering greater choice and innovation in U.K. 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," Sarah Breeden, deputy governor for financial stability for the BoE, said in a release. 

Pushed to act

The BoE's guidance will be open for public comment until Sept. 22, with finalization expected by the end of 2026. Even meeting that deadline would put the U.K. well behind the U.S. and EU, where the GENIUS Act in the U.S. and the Markets in Crypto Assets regulation in the EU have been live for more than a year. 

But "falling behind" is in the eye of the beholder, according to Gareth Lodge, principal analyst at Celent.  

"The U.K. legislation is based on principles, rather than U.S. and EU based on being very prescriptive," Lodge told American Banker. "So, rather than being specific about what you can and can't do, it tends to set guardrails. It's why most fintechs have traditionally been based in the U.K. rather than Europe. It's an easier jurisdiction to innovate in. As a result, it tends to be slower to get to market, but then subject to fewer changes after."

The speed is then very much dependent on how you view the outcomes, and for whom, Lodge said. For example, the Bank of England is trying to balance innovation and safety of the financial system, and how it fits into the bigger plan for payments. "Some fintechs and banks will see the progress as slow, while others will be reassured by the robust process being undertaken that will protect them and their clients from missteps," Lodge said.

Similar to the U.S. and EU, the BofE's guidance includes consumer protections and transparency requirements for issuers regarding the reserve assets that back the stablecoins, though the U.K. is projecting a heavier hand than the U.S. and EU, saying stablecoins pose credit risk for consumers and a "run" risk for banks. 

"Most developed countries are in a position where they will need to establish a stablecoin infrastructure framework," Tony DeSanctis, a senior director at Cornerstone, told American Banker. "Creating a legal and regulated stablecoin framework will provide a country's currency with a valid path to transacting on the blockchain. The risk of not providing this framework is that as the stablecoin transaction market grows, it all happens in other currencies and your position in the global economy is diminished as a result."

The Bank of England's willingness to take industry feedback into account with respect to holding limits, backing assets and redemption time frames represents significant progress for the UK's fintech sector and a vital course correction, according to Joey Garcia, chief policy and regulatory affairs officer at Xapo Bank. 

"By shifting away from an overly severe risk lens, British regulators are setting the country on a course to maintain pace with the progress already seen in the U.S., EU and other major jurisdictions," Garcia told American Banker. "Critically, a more flexible regime paves the way for a robust sterling stablecoin ecosystem, mitigating the very real risk of the market being completely dominated by U.S. dollar-denominated digital assets. This pragmatic approach will help safeguard the U.K.'s ambition to remain a leading global hub for financial innovation."