UK's BoE Adjusts Stablecoin Rules to Spur Innovation Without Compromising Financial Stability

The Bank of England (BoE) is revising its proposed stablecoin holding limits to include exemptions for crypto exchanges, fintech firms, and other key infrastructure providers, according to multiple reports. The central bank aims to balance financial stability concerns with the need to foster innovation in digital assets. The original proposal, which would have capped individual stablecoin holdings at £10,000–£20,000 and business holdings at £10 million, faced criticism from industry stakeholders who argued it could stifle growth and drive activity overseas. The revised framework will allow systemic stablecoins-those widely used for payments and settlements-to back reserves with high-quality assets such as short-term government bonds, aligning the UK's approach closer to regulatory models in the U.S. and EU.

The exemptions will primarily benefit firms operating within the BoE's Digital Securities Sandbox, a controlled environment for testing blockchain-based asset issuance and trading. This initiative, jointly overseen by the BoE and the Financial Conduct Authority (FCA), will permit the use of regulated stablecoins for settlement, enabling the central bank to evaluate their role in future wholesale payment systems. Officials emphasized that the exemptions are not intended to restrict legitimate market activity but to mitigate systemic risks as stablecoins become more integrated into mainstream financial infrastructure. For instance, crypto exchanges will be permitted to hold larger stablecoin reserves for liquidity and settlement purposes, addressing operational challenges highlighted by industry leaders.

Industry reactions have been mixed. While some executives welcomed the shift as a pragmatic response to global competition, others cautioned that the UK risks lagging behind jurisdictions with clearer frameworks, such as the U.S. and Hong Kong. The U.S. has advanced the GENIUS Act, which provides federal oversight for stablecoin issuers, while Hong Kong's regulatory regime for fiat-backed stablecoins took effect in August 2025. BoE Governor Andrew Bailey, who previously expressed skepticism about stablecoins, acknowledged their potential to coexist with traditional finance but reiterated concerns about risks to credit availability and financial stability. The central bank's consultation paper, expected by year-end, will outline the final rules, which are set to be implemented in 2026.

The BoE's decision reflects broader global trends in stablecoin regulation. As of March 2025, the stablecoin market capitalization reached $232 billion, with Tether (USDT) and USDC dominating over 80% of the market. The central bank's approach mirrors the EU's Markets in Crypto-Assets Regulation (MiCA), which mandates 1:1 reserve backing for stablecoins, but diverges in its emphasis on limiting individual and corporate holdings. Critics, including DeFi platform Aave founder Stani Kulechov, argue that the caps are impractical given the lack of real-time visibility into token holder balances. The BoE's revised stance, however, signals a recognition of stablecoins' growing role in cross-border payments and tokenized asset markets.

The regulatory adjustments aim to position the UK as a competitive hub for digital finance while addressing potential risks. By allowing systemic stablecoins to use government bonds as collateral and testing their application in the Digital Securities Sandbox, the BoE seeks to strike a balance between innovation and oversight. The outcome of these measures could influence the UK's ability to attract institutional investment and talent in the digital asset sector, particularly as global competition intensifies. With the final rules set to take effect in 2026, the BoE's approach will be closely watched by market participants and regulators worldwide.