The Bank of England has significantly relaxed its proposed stablecoin regulations, replacing per-user holding limits with an overall issuance cap. Previously, individual users were restricted to holding no more than £20,000 of a single UK stablecoin, and businesses to £10 million. This was seen as a major impediment to commercial-scale stablecoin operations, particularly for decentralized networks and across various financial intermediaries.
The revised framework, outlined by Deputy Governor Sarah Breeden, introduces a cap of £10-20 billion for individual stablecoin issuers and a market-wide ceiling of £40 billion for all sterling-backed stablecoins. This shift is intended to attract stablecoin businesses to the UK by offering a more pragmatic regulatory environment, aligning the UK's approach more closely with the EU's MiCA regulation and US frameworks. This move came after substantial industry pressure, warning that the initial, more stringent proposals could drive stablecoin innovation and issuance to other jurisdictions, such as Ireland.
In addition to the revised caps, the Bank of England is also reconsidering its reserve requirements. Earlier proposals mandated that 40% of stablecoin reserves be held in non-interest-bearing deposits at the Bank, with the remainder in short-term UK government debt. This was criticized by the industry for significantly reducing the profitability of UK-issued stablecoins compared to those in other jurisdictions, where a larger portion of reserves can be held in interest-earning assets. For instance, an issuer with £1 billion in circulation could face annual costs of approximately £11.2 million under the initial 40% non-interest-bearing requirement. The potential reduction of this non-interest-bearing floor to 20% would roughly halve these costs, making UK stablecoin economics more competitive.
The Bank of England's updated stance demonstrates a commitment to facilitating a "multi-money system" that includes tokenized bank deposits, regulated stablecoins, and potentially a retail central bank digital currency. This framework aims to strengthen monetary and financial stability while supporting competition and innovation, ensuring that all forms of money are equally robust and readily exchangeable. The draft rules are expected to be published next month and finalized by year-end, mirroring the US timeline.
