Global Competition Drives BOE's Stablecoin Regulation Overhaul

The Bank of England (BOE) is signaling a shift in its approach to stablecoin regulation, with plans to grant exemptions to proposed ownership limits for certain firms, including cryptocurrency exchanges. This move, reported by Bloomberg and PYMNTS, reflects growing industry pressure and the UK's desire to remain competitive in the global stablecoin landscape amid the U.S. Genius Act's advancement. The BOE's Digital Securities Sandbox will also allow stablecoins to be used as settlement assets, offering a testing ground for their integration into financial systems while the central bank evaluates broader adoption Bank of England to Exempt Some Firms From Stablecoin Limits^[1].

The proposed stablecoin caps, initially set at £10,000–£20,000 for individuals and £10 million for businesses, have faced criticism from industry stakeholders. Critics argue that such restrictions could stifle innovation and position the UK at a disadvantage compared to jurisdictions like the U.S. and the EU. Coinbase's Tom Duff Gordon highlighted that no other major market has imposed similar caps, warning that the UK's approach risks driving firms to New York or other hubs with clearer regulatory frameworks BOE Plans Carveouts on Stablecoin Cap After Industry Backlash^[2]. The BOE's governor, Andrew Bailey, has softened his stance, acknowledging stablecoins' potential to "drive innovation in payments systems" and coexist with traditional banking. However, he emphasized the need for thorough analysis of systemic risks Bank of England to Exempt Some Firms From Stablecoin Limits^[1].

Industry concerns about enforceability and competitiveness are central to the BOE's recalibration. Tony McLaughlin of Ubyx Inc. noted that the UK's strategy is "driven by health and safety considerations," while the U.S. prioritizes national interest. The Genius Act, passed in June 2025, establishes a federal framework for dollar-backed stablecoins, creating a regulatory edge for U.S. issuers. UK-based firms like Greengage's CEO Sean Kiernan warned that delayed action could lead to a "liquidity, talent, and investment exodus" to New York Bank of England to Exempt Some Firms From Stablecoin Limits^[1].

The BOE's revised approach includes allowing systemic stablecoins-those used for large-scale retail payments-to hold backing assets in high-quality instruments like short-term government bonds. This contrasts with earlier proposals that restricted reserves to cash equivalents. The Digital Securities Sandbox's expansion to include regulated non-sterling stablecoins for settlement purposes further signals the BOE's willingness to experiment. Officials aim to observe real-world use cases while balancing innovation with systemic risk mitigation BOE Plans Carveouts on Stablecoin Cap After Industry Backlash^[2].

Global stablecoin adoption is surging, with the market surpassing $300 billion in Q3 2025, driven by Tether (USDT) and USD Coin (USDC). The U.S. Genius Act and EU's Markets in Crypto-Assets (MiCA) regulation are shaping cross-border dynamics, with the BOE's adjustments reflecting the need to harmonize with international standards. Jannah Patchay of Markets Evolution noted that well-regulated pound-backed stablecoins could boost demand for UK government debt, particularly amid high gilt yields Bank of England to Exempt Some Firms From Stablecoin Limits^[1].

The BOE's consultation on stablecoin regulations is expected to be published by year-end, with exemptions and revised reserve requirements likely to be key components. While the central bank remains cautious about systemic risks, its pivot toward flexibility underscores the tension between regulatory prudence and fostering innovation. As the U.S. and EU solidify their frameworks, the UK's ability to attract stablecoin activity will depend on its capacity to balance oversight with a competitive, adaptive approach Bank of England to Exempt Some Firms From Stablecoin Limits^[1].